<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
REGISTRATION NO. 333-22401
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
CHIREX INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2834 04-3296309
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
65 WILLIAM STREET
SUITE 330
WELLESLEY, MASSACHUSETTS 02181
(617) 431-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL A. GRIFFITH
CHIEF FINANCIAL OFFICER AND SECRETARY
CHIREX INC.
65 WILLIAM STREET
SUITE 330
WELLESLEY, MASSACHUSETTS 02181
(617) 431-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
KRIS F. HEINZELMAN, ESQ. FREDERICK W. KANNER, ESQ.
CRAVATH, SWAINE & MOORE DEWEY BALLANTINE
825 EIGHTH AVENUE 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019 NEW YORK, NY 10019
(212) 474-1000 (212) 259-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 19, 1997
PROSPECTUS
3,489,301 SHARES
LOGO
COMMON STOCK
------------------
All of the shares of Common Stock of ChiRex Inc. (the "Company") offered
hereby are being sold by Sepracor Inc. ("Sepracor" or the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Stockholder. The Common Stock is traded on The Nasdaq Stock Market's
National Market under the symbol "CHRX." On March 17, 1997, the last reported
sale price of the Common Stock as reported by Nasdaq was $11 1/4 per share.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
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<S> <C> <C> <C>
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDER(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Per Share $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3) $ $ $
=======================================================================================================
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Selling Stockholder estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 523,395 additional shares of Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. If the Underwriters
exercise such option in full, the total Price to Public and Underwriting
Discounts and Commissions would be $ and $ , respectively,
and proceeds to the Company would be $ .
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON
LEGG MASON WOOD WALKER
INCORPORATED
, 1997
CHIREX INC.
<PAGE> 3
This Prospectus includes certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
facts included in this Prospectus, including, without limitation, the statements
under "Prospectus Summary," "Recent Developments," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
located elsewhere herein regarding industry prospects and the Company's results
of operations or financial position are forward looking statements. Such
forward-looking statements represent management's current expectations and are
inherently uncertain. Investors are warned that actual results may differ from
management's expectations. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed in this
Prospectus, together with such forward-looking statements and under "Risk
Factors."
In this Prospectus, references to "Pounds Sterling" or "L" are to British
Pounds Sterling, and references to "Dollars" or "$" are to U.S. Dollars. Unless
otherwise indicated, all assets and liabilities of the Company's foreign
subsidiaries are translated at year-end exchange rates, and revenues and
expenses are translated at average exchange rates for the year. See Note 1 of
Notes to Consolidated Financial Statements of the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS AND OTHER SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of certain information appearing elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements contained
elsewhere in this Prospectus. Certain technical terms used in this Prospectus
are defined in the Glossary beginning on Page G-1.
THE COMPANY
ChiRex Inc. is a contract manufacturing organization ("CMO") serving the
outsourcing needs of the pharmaceutical industry through its extensive
pharmaceutical fine chemical manufacturing and process development capabilities
and proprietary technologies. The Company supports and supplements the in-house
development and manufacturing capabilities of its pharmaceutical and
biotechnology customers with a broad range of fully-integrated services,
accelerating the time from drug discovery to commercialization. The Company
currently manufactures 54 products, of which 29 are core products. The Company's
customers include Cell Therapeutics, Inc., ACS Dobfar SpA, Glaxo Wellcome PLC,
Pfizer Inc., Pharmacia & Upjohn Inc., Procter & Gamble Company, Rohm and Haas
Company, Sanofi S.A. and SmithKline Beecham PLC.
The Company was created simultaneously with its initial public offering in
March 1996 (the "IPO") through the combination of a U.S.-based chiral chemistry
business, SepraChem Inc., and a U.K.-based pharmaceutical fine chemical
manufacturing business, Sterling Organics Limited. Since the IPO, the Company
has integrated these operations and further developed its advanced manufacturing
facilities, commercial development process and technology base. During this
time, the Company has entered into an exclusive agreement for the supply of
clinical and commercial requirements for Cell Therapeutics' new cytoprotective
drug, lisofylline, established a new supply relationship with Pfizer and
scaled-up production of three pharmaceutical intermediates using the Company's
proprietary ChiRex Technologies for three customers. In addition, the Company
recently entered into an exclusive license agreement with Harvard University for
kinetic resolution technology applicable to the manufacture of single-isomer
forms of certain chiral intermediates, which the Company believes has
significant commercial potential.
Since the IPO, management has reviewed the Company's product portfolio and
identified 29 of the 54 products it manufactured in 1996 as "core products"
which the Company believes offer superior long-term growth potential, higher
margins or strategic customer relationship benefits. The Company intends to
focus on developing additional revenues from existing core products and adding
new core products to the Company's portfolio while phasing out non-core products
to release capacity and improve profitability. In particular, the Company is
actively negotiating the disposition of its acetaminophen business, pursuant to
which the Company sells commercial scale quantities of acetaminophen, an
analgesic, to two major customers. During 1996, core product revenue increased
by 35% through the addition of seven new products and increased revenue from
existing core products.
CMOs have evolved from providing limited third-party manufacturing services
to offering a full range of drug development and manufacturing capabilities.
CMOs currently offer research and development and hazard evaluation
capabilities, scale-up facilities, state-of-the-art analytical departments,
documentation expertise, large, multi-purpose, FDA-inspected cGMP facilities and
efficient waste treatment facilities. Due to the interactive nature of their
services, a CMO's success depends on the strength of its relationships with
customers. Critical success factors for CMOs in developing outsourcing
relationships with major life science companies include: (i) an established
reputation and proven track record, (ii) flexible cGMP manufacturing capacity,
(iii) technical competence and a broad technology base, (iv) financial stability
and (v) secure management of trade secrets and intellectual property rights.
According to A.D. Little, in 1996 the global market for the manufacture of
pharmaceutical fine chemical intermediates and bulk actives and custom synthesis
was approximately $12.0 billion. In recent years, outsourcing of drug
development and manufacturing activities by pharmaceutical and biotechnology
companies has increased in response to pharmaceutical cost containment
pressures, increased pressure to bring new and innovative drugs to market faster
and more complex manufacturing processes.
3
<PAGE> 5
The Company's goal is to be a preferred partner to major life sciences
companies in the development of manufacturing processes and to supply on a
commercial scale pharmaceutical intermediates and active ingredients for leading
proprietary and generic drugs. The Company's strategy for achieving this
objective is to: (i) leverage its research and development expertise, (ii)
expand its existing cGMP manufacturing capacity or acquire new capacity, (iii)
provide clinical scale manufacturing capacity to its customers, (iv) apply
proprietary technologies to the development and manufacture of a range of chiral
intermediates and (v) identify opportunities to develop and market complex,
generic drugs where its technologies provide process and cost advantages.
RECENT DEVELOPMENTS
The Company is actively negotiating the disposition of its acetaminophen
business. Although acetaminophen (paracetamol), an OTC analgesic, is the largest
volume product manufactured by the Company, representing approximately 31% of
the Company's 1996 pro forma revenues, it is not highly profitable at the gross
margin level. In connection with the disposition of the business, the Company
intends to implement measures designed to significantly offset the effect on net
income.
The Company has agreed in principle with Dabur India Ltd. to dissolve their
joint venture, InNova Pharmaceuticals SRL. The Company originally sought to
utilize InNova as a secure supply source of starting material for semi-synthetic
paclitaxel, a compound used in the treatment of breast and ovarian cancer.
Recently, however, new suppliers this raw material have emerged, mitigating
InNova's competitive advantage. Moreover, the Company is committed to focusing
on its core business of developing, manufacturing and supplying pharmaceutical
fine chemicals, whereas Dabur wanted to change the mission of InNova from one of
a single product joint venture to one of a multi-product generic oncology drug
business. The Company believes that its low cost proprietary process technology
for producing semi-synthetic paclitaxel will allow it to sell either exclusively
to a major generic drug marketing company or non-exclusively to several market
participants. The Company is currently pursuing these options with several major
companies.
THE OFFERING
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<S> <C>
Common Stock being offered................... 3,489,301 shares(1)
Common Stock outstanding after the
offering................................... 10,943,678 shares(1)(2)
Use of Proceeds.............................. All of the proceeds from the sale of the
3,489,301 shares of Common Stock offered
hereby will be received by Sepracor. If the
Underwriters' over-allotment option is
exercised, the proceeds therefrom will be used
by the Company for working capital and general
corporate purposes.
Nasdaq National Market symbol................ CHRX
</TABLE>
- ---------------
(1) Excludes up to 523,395 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of March 17,
1997. Does not include as of such date 840,798 shares of Common Stock
issuable upon exercise of options with a weighted average exercise price of
$6.95 per share. See "Management -- Executive Compensation" and Note 3 of
Notes to Consolidated Financial Statements of the Company.
4
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
---------------------------
ACTUAL PRO FORMA(1)
-------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $ 74,615 $ 89,827
Costs of goods sold.............................................. 56,508 69,184
-------- --------
Gross profit....................................................... 18,107 20,643
Research and development......................................... 3,517 4,075
Selling, general and administrative.............................. 7,952 9,252
Goodwill amortization............................................ 924 1,149
Write-off of in-process research and development related to the
Contribution(2)............................................... 5,790 5,790
Stock compensation charge related to the Merger(2)............... 5,611 5,611
-------- --------
Operating loss..................................................... (5,687) (5,234)
Interest expense................................................. 755 1,005
-------- --------
Loss before income taxes........................................... (6,442) (6,239)
Provision for income taxes....................................... 1,867 2,008
-------- --------
Net loss........................................................... $ (8,309) $ (8,247)
======== ========
Net loss per common share.......................................... $ (0.88) $ (0.76)
Weighted average number of common shares outstanding............... 9,485 10,895
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
31, 1996
--------
<S> <C> <C>
BALANCE SHEET AND OTHER DATA:
Cash............................................................. $ 291
Total assets..................................................... 130,806
Long-term debt................................................... 3,933
Stockholders' equity............................................. 90,068
EBITDA (for the period)(3)....................................... 15,457
</TABLE>
- ------------------------
(1) Gives pro forma effect to the Contribution (as defined herein) as if it had
occurred on January 1, 1996. See "The Company," "Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "The Formation Transactions."
(2) See "The Company" and "The Formation Transactions."
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, adjustment for certain non-recurring charges
related to the Contribution, the Merger (as defined herein) and the IPO
(collectively, the "Formation Transactions"). EBITDA is included herein
because management believes that certain investors find it to be a useful
tool for measuring a company's ability to service its debt. However, EBITDA
does not represent cash flow from operations, as defined by generally
accepted accounting principles, and should not be considered as a substitute
for net earnings, as an indicator of the Company's operating performance or
cash flow or as a measure of liquidity.
-----------------------------
Unless otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' option to purchase from the Company up to 523,395
shares of Common Stock to cover over-allotments, if any.
5
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors, in addition to the other information in
this Prospectus, before purchasing any shares of Common Stock. Except for
historical information contained in this Prospectus, the matters discussed
herein including industry prospects and the Company's results of operations or
financial position contain certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements represent management's current expectations and are
inherently uncertain. Investors are warned that actual results may differ from
management's expectations. Key factors affecting current and future operations
of the Company include the factors discussed below.
PRODUCT DEVELOPMENT RISKS; DEPENDENCE ON OTHERS
An element of the Company's business strategy involves collaborating with
its clients in the early stage of product development in order to establish
long-term relationships for the manufacturing of products upon their
commercialization. The Company is currently collaborating with clients on a
substantial number of development products, the majority of which are in the
Company's customers' clinical trials. The Company's success will depend in large
part on the commercial viability of new pharmaceutical products being developed
by its customers, the determination of such customers to attempt to
commercialize such products and the ability of such pharmaceutical companies to
conduct clinical trials, obtain required regulatory approvals and successfully
market such products. In particular, the marketing and sale of pharmaceutical
products in the United States will require U.S. Food and Drug Administration
("FDA") approvals and will require similar approvals in foreign countries. To
obtain such approvals, the safety and efficacy of such products must be
demonstrated through human clinical trials which, if permitted, can take several
years. There can be no assurance that, upon completion of human clinical trials,
any such product will be demonstrated to be safe or efficacious. Each stage in
the development of these products can require substantial investment and take a
substantial period of time without any assurance as to the commercial viability
of such products or the absence of competing drugs or alternative therapies.
There can be no assurance that product development efforts will be successful,
that required regulatory approvals can be obtained on a timely basis, if at all,
that products can be manufactured at an acceptable cost and with appropriate
quality, that any products, if approved, can be successfully marketed or that
the Company's customers will commercialize such products. See "Business --
Product Portfolio" and "Business -- Other Governmental Regulation."
DEPENDENCE ON KEY CUSTOMERS AND PRODUCTS; LACK OF SUPPLY AGREEMENTS
The Company's largest customers account for a significant percentage of its
revenues. In 1996, Sanofi, SmithKline Beecham, Rohm and Haas, ACS Dobfar, Glaxo
Wellcome and Deretil accounted for 37%, 19%, 13%, 7%, 6% and 4%, respectively,
of the Company's total pro forma revenues. After giving effect to the expected
disposition of the Company's acetaminophen business, Sanofi, SmithKline Beecham,
Rohm and Haas, Dobfar, Glaxo Wellcome and Deretil would have accounted for 40%,
0%, 19%, 10%, 9% and 6%, respectively, of the Company's total pro forma
revenues. In addition, the Company's top ten revenue generating products
accounted for 81% (or 74%, excluding acetaminophen) of 1996 pro forma revenues.
The Company expects to continue to rely on a limited number of customers and
products for a significant portion of its revenues. Substantially all of the
Company's revenues (other than those derived from Sanofi and SmithKline Beecham)
are derived from sales pursuant to purchase orders rather than ongoing supply
agreements. In addition, the supply agreements which the Company has entered
into are for a limited duration and will expire over the next few years. The
loss of any customer or a material amount of sales to any customer could have a
material adverse effect on the Company's business and results of operations. See
"-- Disposition of Acetaminophen Business" and "Recent Developments."
DEPENDENCE ON SINGLE MANUFACTURING FACILITY
The Company owns only one manufacturing facility, and the Company's
revenues are dependent upon the continued operation of such facility. The
operation of a manufacturing plant involves many risks, including
6
<PAGE> 8
power failures, the breakdown, failure or substandard performance of equipment,
the improper installation or operation of equipment, natural disasters and the
normal hazards associated with the use of chemicals, including hazardous
chemicals. While the Company maintains insurance covering certain of such risks,
there can be no assurance that the occurrence of these or any other operational
problems at the Company's facility would not have a material adverse effect on
the Company's business and results of operations.
DISPOSITION OF ACETAMINOPHEN BUSINESS
Following the completion of a strategic review, the Company decided to
dispose of its acetaminophen business and is actively negotiating such a
disposition. Acetaminophen (paracetamol), an OTC analgesic, is the largest
volume product manufactured by the Company, representing approximately 31% of
the Company's 1996 pro forma revenues. Substantially all of the acetaminophen
sold by the Company is supplied under contracts with SmithKline Beecham and
Sanofi. The acetaminophen business is not highly profitable for the Company at
the gross margin level, but does contribute significantly to the recovery of the
Company's fixed site overhead. There can be no assurance that the Company will
be able to offset the loss of revenue from the disposition with revenues from
new sources, that the Company will be able to reduce costs in a manner
commensurate with the reduction in revenues or that this disposition will not
otherwise have a material adverse effect on the Company's business and results
of operations. The public market may perceive the disposition of the
acetaminophen business to be adverse to the Company's business as a whole, which
may adversely affect the price of the Common Stock. No assurance can be given
that the disposition will be made on terms which are favorable to the Company,
if at all. See "-- Dependence on Key Customers; Lack of Supply Agreements,"
"Recent Developments" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
The Company encounters, and expects to continue to encounter, intense
competition in obtaining contracts with clients for its services and products.
Many of the Company's competitors are major chemical and pharmaceutical
companies (including a number of the Company's customers) that have
substantially greater financial resources, technical skills and marketing
experience than the Company. The market in which the Company competes is
characterized by extensive research efforts and rapid technological progress.
New developments are expected to continue, and there can be no assurance that
discoveries by others will not render the Company's research and development
obsolete or potential products noncompetitive. Competition may increase further
as a result of advances that may be made in the commercial applicability of the
Company's and competitors' technologies and greater availability of capital for
investment in these fields. Competition in the Company's market is based upon
reputation, service, manufacturing capability and expertise, price and
reliability of supply. There can be no assurance that the Company will be
successful in the future in obtaining customer contracts on commercially
favorable terms, if at all. In addition, the Company's success depends to a
significant extent on its ability to provide manufacturing services to potential
customers at an early stage of product development, and there can be no
assurance that the Company will be successful in such efforts. There can be no
assurance that developments by others in any market in which the Company
competes will not render the products or technologies of the Company obsolete or
noncompetitive. There is also intense competition for the acquisition of
manufacturing facilities, as well as for experienced management and technical
personnel. See "Business -- Competition."
ENVIRONMENTAL RISKS; HAZARDOUS MATERIALS
The manufacturing and research and development processes of the Company
involve the controlled use of hazardous materials. The Company is subject to
laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products in both the United States
and, at the present time, primarily the United Kingdom. The Company may be
affected in the U.K. by the implementation of the Environment Act of 1995, which
could result in strict and retroactive clean-up liability on parties responsible
for creating or contributing to contaminated sites or, in the absence of an
identified responsible party, on the landowner or occupier. In the event of
contamination or injury from hazardous
7
<PAGE> 9
materials, the Company could be held liable for any damages that result and any
such liability could exceed its resources. In addition, there can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental laws and regulations in the future. Any environmental
regulatory action taken by U.K. environmental authorities which were to cause
the temporary cessation of production operations at the Company's Dudley
facility could have a material adverse effect on the Company's results of
operations. The Company may incur significant costs in maintaining its permitted
effluent discharge limits and in implementing air emission improvement programs
acceptable to the regulatory authorities. There can be no assurance that these
programs will not require significant ongoing capital expenditures in excess of
the planned levels, which could have a material adverse effect on the Company's
results of operations. See "Business -- Environmental Regulation."
COMPREHENSIVE GOVERNMENTAL REGULATION
The Company's operations, as well as those of its customers, are subject to
extensive regulation by numerous governmental authorities in the United States,
the United Kingdom and other countries. In particular, the Company is required
to adhere to applicable FDA regulations for cGMP, including extensive record
keeping and reporting and periodic inspections of its manufacturing facilities.
Similar requirements are imposed by governmental agencies in other countries.
Failure to comply with the applicable regulatory requirements can, among other
things, result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution. The Company is also subject to
numerous environmental, health and workplace safety laws and regulations,
including those governing emissions control, laboratory procedures and the
handling of hazardous materials. Any violation of, and cost of compliance with,
these laws and regulations could adversely affect the Company's operations.
Governmental laws and regulations, including environmental laws and
regulations, require the Company to obtain permits from appropriate regulatory
agencies for the continued operation of its manufacturing facility. Such permits
generally require periodic renewal or review of their conditions, and public
comment may be solicited in the permitting process. There can be no assurance
that the Company will be able to obtain all necessary permits or renew all
existing permits, or that material changes in permit conditions will not be
imposed or that material public opposition will not surface. Failure to obtain
or renew certain permits could result in the shutdown of the Company's facility
or the imposition of significant fines, which would have a material adverse
effect on the Company's business and results of operations. See
"-- Environmental Risks; Hazardous Materials," "Business -- Environmental
Regulation" and "Business -- Other Governmental Regulation."
PATENT AND LICENSE UNCERTAINTIES
Proprietary rights relating to the Company's products and processes will
generally be protected from unauthorized use by third parties only to the extent
that they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. The Company has filed various patent applications,
has ongoing research efforts and expects to seek additional patents in the
future covering patentable results of such research. Certain of the Company's
technology is not covered by any patent or patent application. There can be no
assurance that any pending patent applications filed by the Company will result
in patents being issued or that any patents now or hereafter owned or licensed
by the Company will afford protection against competitors with similar
technology, will not be infringed upon or designed around by others or will not
be challenged by others and held to be invalid or unenforceable. In the absence
of patent protection, the business of the Company may be adversely affected by
competitors who independently develop substantially equivalent technology.
There may now or in the future be issued third-party patents relating to
technology utilized by the Company. The Company may need to acquire licenses to,
or to contest the validity of, any such patents. It is likely that significant
funds would be required to defend any claim that the Company infringes a
third-party patent, and any such claim could adversely affect the Company until
the claim is resolved. Furthermore, any such dispute could result in a rejection
of the Company's patent applications or the invalidation of its patents. There
can be no assurance that any license required under any such patent would be
made available or, if
8
<PAGE> 10
available, would be available on acceptable terms or that the Company would
prevail in any litigation involving such patent. Any of the foregoing adverse
results could have a material adverse effect on the Company and its results of
operations.
The Company has proprietary technology, including technology that may not
be patented or patentable, which it seeks to protect in part by confidentiality
agreements and, if applicable, inventors' rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach or that the Company's trade secrets will not otherwise
be disclosed to, or discovered by, competitors. In addition, there can be no
assurance that such persons or institutions will not assert rights to
intellectual property arising out of such research. See "Business -- Patents and
Proprietary Technologies."
PRODUCT LIABILITY RISKS; LACK OF INSURANCE
The Company's business exposes it to product liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceuticals. The
Company has limited product liability insurance coverage, and there can be no
assurance that the Company will be able to obtain further product liability
insurance on acceptable terms or that current insurance or insurance
subsequently obtained will provide adequate coverage against any or all
potential claims. In addition, the Company has no clinical trial liability
insurance.
CURRENCY FLUCTUATIONS; SIGNIFICANT RISKS RELATING TO INTERNATIONAL OPERATIONS
Substantially all of the Company's operations are conducted outside the
United States. The Company operates a manufacturing facility in the United
Kingdom, where substantially all of the Company's employees are located, and
sells its products and services in approximately 20 countries. For the year
ended December 31, 1996, the Company's pro forma revenues derived from the sale
of products outside the United States totaled approximately $81 million,
representing 92% of the Company's pro forma net sales for 1996. As a result of
its international operations, the Company is subject to risks associated with
operating in foreign countries, including devaluations and fluctuations in
currency exchange rates, imposition of limitations on conversion of foreign
currencies into dollars or remittance of dividends and other payments by foreign
subsidiaries, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, trade barriers,
political risks, including political instability, hyperinflation in certain
foreign countries and imposition or increase of investment and other
restrictions by foreign governments. Because a majority of the Company's current
sales and operating expenses are denominated in Pounds Sterling, the Company's
revenues, cash flows and earnings are directly and materially affected by
fluctuations in the exchange rate between the Pound Sterling and the U.S.
dollar. There can be no assurance that such risks will not have a material
adverse effect on the Company's business and operating results.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly operating results may vary significantly, depending
on factors such as the timing of substantial orders and new product
introductions by the Company or its competitors. Accordingly, results of
operations for any quarter are not necessarily indicative of the results of
operations for a full year or otherwise. There can be no assurance that the
Company will be able to achieve or maintain profitability on an annual or
quarterly basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts all of its operations
through subsidiaries. The primary source of the Company's cash flow is dividends
from ChiRex America Inc., a wholly-owned subsidiary of the Company, and ChiRex
Limited, an indirect wholly-owned subsidiary of the Company and the successor in
interest to Sterling Organics Limited. A subsidiary's ability to pay dividends
or make other distributions to its stockholders is limited by local corporate
laws, tax laws, and agreements and generally is subject to the availability of
funds that are legally available for the payment of dividends or other
distributions. In addition,
9
<PAGE> 11
as a stockholder, the Company's rights to the assets of its subsidiaries
generally will be subordinate to rights of all creditors of such subsidiaries.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) have proposed or are reportedly
considering proposing a variety of reforms to the health care systems in the
United States and abroad. The Company cannot predict what health care reform
legislation, if any, will be enacted in the United States or elsewhere.
Significant changes in the health care system in the United States or elsewhere
could have a substantial impact over time on the manner in which the Company
conducts its business and may impose additional regulations governing the
conduct of the Company's business. Such changes could have a material adverse
effect on the Company's ability to raise capital or expand its line of products.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW;
RIGHTS PLAN
Certain provisions of the Company's Certificate of Incorporation and
Amended and Restated By-Laws and the Delaware General Corporation Law may have
the effect of delaying or preventing changes in control or management of the
Company, which could adversely affect the market price of the Common Stock.
These provisions include (i) a board divided into three classes, each of which
serves for a staggered three-year term, (ii) provisions restricting the removal
of directors, the filling of board vacancies and the taking of stockholder
action, (iii) advance notice provisions with respect to shareholder proposals,
and (iv) the authority of the Company's Board of Directors to issue up to
4,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. The Company is also subject to
Section 203 of the Delaware General Corporation Law which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in a broad range of
business combinations with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder.
In addition, the Board of Directors has adopted a Rights Plan (the "Rights
Plan"), which may render an unsolicited takeover of the Company more difficult
or less likely to occur or might prevent such a takeover, even though such
takeover may offer the Company's stockholders the opportunity to sell their
stock at a price above the prevailing market rate and may be favored by a
majority of the stockholders of the Company. The Rights Plan, if adopted, could
adversely affect the market price of the Common Stock. See "Description of
Capital Stock."
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock, like that of the common
stock of many other pharmaceutical and chemical companies, may be highly
volatile. Factors such as announcements of technological innovations or new
commercial products by the Company or its competitors, disclosure of results of
clinical testing or regulatory proceedings, developments in the Company's
relationships with its customers, FDA announcements, FDA and other governmental
regulation and approvals, developments in patent or other proprietary rights,
public concern as to the safety of products developed by the Company and general
market conditions may have a significant effect on the market price of the
Common Stock. In addition, U.S. stock markets have experienced extreme price and
volume fluctuations. This volatility has significantly affected the market
prices of securities of many pharmaceutical and chemical companies for reasons
frequently unrelated or disproportionate to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
LITIGATION REGARDING USE OF NAME
In a proceeding now pending before the U.S. Patent and Trademark Office's
Trademark Trial and Appeal Board, Phenomenex Inc. of Torrance, California, has
formally opposed the Company's attempt to register the ChiRex name for "single
isomer chiral intermediate chemical compounds and active ingredients for use in
the
10
<PAGE> 12
manufacture of pharmaceuticals." As a basis for the opposition, Phenomenex
asserts, inter alia, that it was using ChiRex as a trademark for chiral chemical
compounds used in liquid chromatography columns before the Company adopted the
name and that consumers are likely to be confused as to the source of the
Company's and Phenomenex's products because of their similarities and an overlap
in the channels of trade in which they travel. The proceeding is at an early
stage, and the Company does not expect a decision as to whether it can register
its name prior to the first quarter of 1998. The Company's management strongly
disputes Phenomenex's allegations, and intends to vigorously defend the
Company's position. However, there can be no assurance that the Company will
prevail in any such proceeding or be able to settle such dispute on terms
favorable to the Company. Were Phenomenex to pursue and prevail on its claims,
the Company could be required to cease using the ChiRex name which could have a
material adverse effect on the Company's business and results of operations.
11
<PAGE> 13
THE COMPANY
The Company, incorporated in 1995, is a combination of Sterling Organics
Limited (subsequently renamed ChiRex Limited, "ChiRex Ltd."), a fine chemicals
manufacturer, and the chiral chemistry business of Sepracor Inc. ("Sepracor"),
which was conducted through its subsidiary, SepraChem Inc. (subsequently renamed
ChiRex America Inc., "ChiRex America"). The Company completed the IPO on March
11, 1996. Immediately prior to the closing of the IPO, the share capital of
Crossco (157) Limited (subsequently renamed ChiRex (Holdings) Limited, "ChiRex
Holdings Ltd."), a private company incorporated in England and Wales that is the
sole shareholder of ChiRex Ltd., was contributed to the Company (the
"Contribution") in exchange for shares of Common Stock and promissory notes of
the Company. In addition to the Contribution, concurrently with the IPO,
Sepracor contributed ChiRex America to the Company through a merger of a newly
formed wholly-owned subsidiary of the Company with and into ChiRex America (the
"Merger") and, in connection with the Merger, Sepracor received 3,489,301 shares
of Common Stock which represents approximately 32% of the Common Stock
outstanding. Certain of the shares of Common Stock issued in connection with the
Contribution were redeemed, and all of the promissory notes were repaid, with
proceeds of the IPO. The Contribution, Merger and IPO are collectively referred
to as the "Formation Transactions." See "Pro Forma Financial Data" and "The
Formation Transactions."
The Company's principal office is located at 65 William Street, Suite 330,
Wellesley, Massachusetts 02181, and its telephone number is (617) 431-2200. The
Company has a trademark application pending with respect to the use of the
"ChiRex" name. See "Risk Factors -- Litigation Regarding Use of Name." All other
trademarks and tradenames used herein are the property of their respective
owners. Unless the context otherwise requires all references herein to the
"Company" include ChiRex Inc., its subsidiaries and their respective
predecessors.
RECENT DEVELOPMENTS
The Company is actively negotiating the disposition of its acetaminophen
business. Although acetaminophen (paracetamol), an OTC analgesic, is the largest
volume product manufactured by the Company, representing approximately 31% of
the Company's 1996 pro forma revenues, it is not highly profitable at the gross
margin level. In connection with the disposition of the business, the Company
intends to implement measures designed to significantly offset the effect on net
income. The Company's decision to dispose of its acetaminophen business followed
a strategic review of several alternatives and was based on a number of factors,
including the continued domination of the acetaminophen business by high volume,
low cost manufacturers and the Company's expectation that the market price of
acetaminophen will continue to erode. See "Risk Factors -- Disposition of
Acetaminophen Business."
The Company has agreed in principle with Dabur India Ltd. ("Dabur") to
dissolve their joint venture, InNova Pharmaceuticals SRL. ("InNova"). The
Company originally sought to utilize InNova as a secure supply source of
starting material for semi-synthetic paclitaxel, a compound used in the
treatment of breast and ovarian cancer. Recently, however, new suppliers of
these raw material have emerged, mitigating InNova's competitive advantage.
Moreover, the Company is committed to focusing on its core business of
developing, manufacturing and supplying pharmaceutical fine chemicals, whereas
Dabur wanted to change the mission of InNova from one of a single product joint
venture to one of a multi-product generic oncology drug business. The Company
believes that its low cost proprietary process technology for producing
semi-synthetic paclitaxel will allow it to sell either exclusively to a major
generic drug marketing company or non-exclusively to several market
participants. The Company is currently pursuing these options with several major
companies.
12
<PAGE> 14
USE OF PROCEEDS
All of the 3,489,301 shares of Common Stock being offered hereby are being
offered by the Selling Stockholder. The Company will not receive any of the
proceeds from the sale of such shares.
If the Underwriters' over-allotment option is exercised in full, the
Company will receive approximately $5.5 million (assuming a public offering
price of $11.25 and after deducting underwriting discounts and commissions). Any
proceeds received by the Company as a result of the exercise of the
over-allotment option will be used for working capital and general corporate
purposes.
PRICE RANGE OF COMMON STOCK
The Common Stock was initially offered to the public on March 5, 1996 at a
price of $13.00 per share. The Common Stock is listed and traded on The Nasdaq
Stock Market's National Market ("Nasdaq") under the symbol "CHRX." The following
table sets forth for the periods indicated the high and low sales prices of the
Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1996:
First Quarter (from March 5)..................................... $13.25 $ 9.50
Second Quarter................................................... 13.25 10.00
Third Quarter.................................................... 13.38 7.88
Fourth Quarter................................................... 13.50 9.50
1997:
First Quarter (through March 17)................................. 13.50 10.50
</TABLE>
On March 17, 1997, the last reported sale price of the Common Stock as
reported by Nasdaq was $11.25. As of March 17, 1997, there were approximately
2,800 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain any future earnings for use in the
Company's business and, therefore, does not anticipate paying any cash dividends
in the foreseeable future.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1996. The information in the table below is qualified
in its entirety by, and should be read in conjunction with, the consolidated
financial statements and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Long-term debt............................................................... $ 3,933
--------
Stockholders' equity:
Preferred Stock, $.01 par value, 4,000,000 shares authorized,
no shares issued or outstanding......................................... 0
Common Stock, $.01 par value, 30,000,000 shares authorized,
10,933,735 shares issued and outstanding(1)............................. 109
Additional paid-in capital................................................. 95,479
Accumulated deficit........................................................ (10,761)
Cumulative translation adjustment.......................................... 5,241
--------
Total stockholders' equity.............................................. 90,068
--------
Total capitalization............................................... $ 94,001
========
</TABLE>
- ---------------
(1) Excludes 850,741 shares issuable on the exercise of options outstanding as
of December 31, 1996, at a weighted average exercise price per share of
$6.89. See Note 3 of Notes to Consolidated Financial Statements of the
Company.
DILUTION
Dilution is the amount by which the public offering price paid by the
purchasers of the shares of Common Stock will exceed the net tangible book value
per share of Common Stock. The net tangible book value per share of Common Stock
is determined by subtracting the total liabilities of the Company from the total
book value of the tangible assets of the Company and dividing the difference by
the number of shares of Common Stock outstanding on the date as of which such
book value is determined. At December 31, 1996, the Company had a net tangible
book value of approximately $61,464,000, or $5.62 per share. An assumed public
offering price of $11.25 represents an immediate dilution to new investors of
$5.63 per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed public offering price per share..................................... $ 11.25
Net tangible book value per share at December 31, 1996...................... 5.62
-------
Dilution per share to new investors......................................... $ 5.63
======
</TABLE>
The above information excludes, as of December 31, 1996, an aggregate of
850,741 shares of Common Stock issuable upon the exercise of outstanding options
at a weighted average exercise price per share of $6.89. To the extent that
these or other options are exercised, there will be further dilution to new
investors. See Note 3 of Notes to Consolidated Financial Statements of the
Company.
14
<PAGE> 16
PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statement of operations is based
on the historical statements of operations of the Company included elsewhere in
this Prospectus and of ChiRex Holdings Ltd., adjusted to give effect to the
Contribution as if it had occurred as of January 1, 1996. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The pro forma combined statement of
operations is not necessarily indicative of future operations or what the
Company's results of operations would actually have been had the Contribution
occurred on January 1, 1996 and, therefore, should not be construed as being
representative of future operating results. The pro forma combined statement of
operations should be read in conjunction with the historical financial
statements of the Company and of ChiRex Holdings Ltd. and its wholly-owned
subsidiary ChiRex Ltd., included elsewhere in this Prospectus.
CHIREX INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CHIREX
(HOLDINGS)
LIMITED
CHIREX INC. JANUARY 1, 1996
YEAR ENDED THRU MARCH 11, 1996 PRO FORMA
DECEMBER 31, 1996 ------------------- ADJUSTMENTS PRO FORMA
----------------- (UNAUDITED) ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales......................... $73,440 $15,212 $88,652
License fee and royalty income........ 1,175 0 1,175
------- ------- ----- -------
Total revenues..................... 74,615 15,212 89,827
------- ------- ----- -------
Costs and expenses:
Cost of goods sold.................... 56,508 12,564 $ 112(1) 69,184
Research and development.............. 3,517 558 4,075
Selling, general and administrative... 8,876 1,300 225(2) 10,401
Write-off of in-process research and
development........................ 5,790 0 5,790
Compensation related to stock plans... 5,611 0 5,611
------- ------- ----- -------
Total operating expenses........... 80,302 14,422 337 95,061
------- ------- ----- -------
Operating income (loss)................. (5,687) 790 (337) (5,234)
Interest expense........................ 755 690 (440)(3) 1,005
------- ------- ----- -------
Income (loss) before income taxes....... (6,442) 100 103 (6,239)
Provision for income taxes.............. 1,867 33 108(4) 2,008
------- ------- ----- -------
Net income (loss)....................... (8,309) 67 (5) (8,247)
------- ------- ----- -------
Preferred dividend...................... 0 (217) (217)(5) 0
------- ------- ----- -------
Net income (loss) to common
stockholders.......................... $(8,309) $ (150) $ 212 $(8,247)
======= ======= ===== =======
Net loss per common share............... $ (0.76)
Weighted average number of common shares
outstanding(6)........................ 10,895
</TABLE>
- ---------------
Pro Forma Adjustments to Pro Forma Combined Statements of Operations for
the year ended December 31, 1996 consist of:
(1) Increase in depreciation reflecting the increased valuation of ChiRex
Holdings Ltd.'s fixed assets for the period prior to the Contribution.
(2) Increase in amortization of goodwill related to the period prior to the
Contribution.
(3) Reduction in interest expense related to debt retired in connection
with the Contribution.
(4) Income tax effect of pro forma adjustments, excluding amortization of
goodwill and preferred dividend, which are not deductible for tax purposes.
(5) Reduction of the preferred dividend related to the redemption of the
outstanding preferred stock of ChiRex Holdings Ltd. in connection with the
Contribution.
(6) Reflects the weighted average shares outstanding as if the Contribution
had occurred as of January 1, 1996.
15
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of ChiRex Inc. as of
December 31, 1995 and for the years ended December 31, 1994 and 1995, has been
derived from the financial statements of ChiRex Inc. which appear elsewhere in
this Prospectus and which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The selected historical financial data for ChiRex Inc.
as of December 31, 1996 and for the year then ended, has been derived from the
financial statements of ChiRex Inc. which appear elsewhere in this Prospectus
and which have been audited by Arthur Andersen LLP, independent accountants.
This information should be read in conjunction with the financial statements,
the pro forma financial statement and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
CHIREX INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 4,633 $ 1,810 $ 2,754 $ 74,615
Cost and expenses:
Cost of goods sold........................................ 1,565 814 1,715 56,508
Research and development.................................. 3,458 2,343 595 3,517
Selling, general and administrative....................... 1,999 1,964 2,099 8,876
Write-off of in-process research and development.......... 0 0 0 5,790
Stock compensation charge................................. 0 0 0 5,611
------- ------- ------- --------
Total costs and expenses................................ 7,022 5,121 4,409 80,302
------- ------- ------- --------
Operating loss.............................................. (2,389) (3,311) (1,655) (5,687)
Interest expense............................................ 0 0 0 (755)
Other expense............................................... 0 0 (797) 0
------- ------- ------- --------
Loss before income taxes.................................... (2,389) (3,311) (2,452) (6,442)
Provision for income taxes.................................. 0 0 0 1,867
------- ------- ------- --------
Net loss.................................................... $(2,389) $(3,311) $(2,452) $ (8,309)
======== ======== ======== =========
BALANCE SHEET DATA (end of period):
Cash........................................................ $ 0 $ 0 $ 1 $ 291
Total assets................................................ 2,531 1,873 2,693 130,806
Long-term debt.............................................. 0 0 0 3,933
Stockholders' equity........................................ 2,351 1,873 2,693 90,068
</TABLE>
16
<PAGE> 18
The following selected historical financial data of ChiRex Ltd. (formerly
Sterling Organics Limited) as of December 31, 1994 and for the years ended
December 31, 1993, 1994 and the period from January 1, 1995 to August 10, 1995,
has been derived from the combined financial statements of Sterling Organics
which appear elsewhere in this Prospectus and which have been audited by Coopers
& Lybrand, independent accountants. The following selected historical financial
data of ChiRex Holdings Ltd. (formerly named Crossco (157) Limited) as of
December 31, 1995 and for the period from August 10, 1995 to December 31, 1995,
has been derived from the consolidated financial statements of Crossco (157)
Limited which appear elsewhere in this Prospectus and which have been audited by
Coopers & Lybrand, independent accountants. This information should be read in
conjunction with the financial statements, the pro forma financial data and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
CHIREX (HOLDINGS) LIMITED AND CHIREX LIMITED
<TABLE>
<CAPTION>
CHIREX (HOLDINGS) LIMITED(1)
CHIREX LIMITED --------------------------------
---------------------------------------------------- PERIOD FROM
INCEPTION PERIOD ENDED
YEAR ENDED DECEMBER 31, PERIOD ENDED (AUGUST 10, 1995) MARCH 11,
------------------------------------- AUGUST 10, TO DECEMBER 31, 1996
1991 1992 1993 1994 1995(1) 1995 (UNAUDITED)
------- ------- ------- ------- ------------ ----------------- ------------
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $76,422 $85,609 $74,497 $78,859 $ 51,375 $34,828 $ 15,212
Costs and expenses:
Cost of goods sold............ 70,365 74,245 66,529 68,572 44,220 30,836 12,564
Research and development
expenses.................... 410 1,741 1,564 1,816 1,115 651 558
Selling, general and
administrative.............. 4,167 6,202 4,908 5,598 2,156 2,728 1,300
------- ------- ------- ------- ------------ -------- ------------
Total costs and expenses........ 74,942 82,188 73,001 75,986 47,491 34,215 14,422
------- ------- ------- ------- ------------ -------- ------------
Operating income................ 1,480 3,421 1,496 2,873 3,884 613 790
Interest income (expense)..... (181) 264 237 16 (1,927) (690)
Other income.................. 100 484 379 481 402 5 0
------- ------- ------- ------- ------------ -------- ------------
Income before income tax
expense....................... 1,580 3,724 2,139 3,591 4,302 (1,309) 100
Income tax expense............ 653 1,353 935 1,061 1,327 (351) 33
------- ------- ------- ------- ------------ -------- ------------
Net income (loss)............... $ 927 $ 2,371 $ 1,204 $ 2,530 $ 2,975 (958) 67
======== ======== ======== ======== ==========
Dividends on preference
shares........................ (243) (217)
-------- ------------
Net loss for ordinary shares.... $(1,201) $ (150)
============== ==========
BALANCE SHEET DATA (end of
period):
Cash............................ $ 49 $ 0 $ 3,329 $ 0 $ 396 $ 7,845 $ 7,517
Total assets.................... 77,450 75,552 73,362 77,016 82,727 79,961 78,793
Long-term debt.................. 0 0 0 0 0 40,304 40,376
Total shareholders' equity...... 58,408 49,824 50,502 54,849 59,821 365 322
</TABLE>
- ---------------
(1) On August 10, 1995, ChiRex Ltd. was acquired by ChiRex Holdings Ltd.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the historical consolidated financial statements and the notes thereto included
elsewhere herein.
INTRODUCTION
The Company, incorporated in December 1995, is a combination of Sterling
Organics, a pharmaceutical fine chemicals manufacturer, and the chiral chemistry
business of Sepracor, which was conducted through its subsidiary SepraChem. On
March 11, 1996, the Company consummated (i) the IPO, (ii) the merger of a
subsidiary of the Company with and into ChiRex America in the Merger and (iii)
the acquisition of ChiRex Holdings Ltd., the corporate parent of ChiRex Ltd., in
the Contribution. See "The Company" and "The Formation Transactions."
ChiRex Inc. is a CMO serving the outsourcing needs of the pharmaceutical
industry through its extensive pharmaceutical fine chemical manufacturing and
process development capabilities and proprietary technologies. The Company
supports and supplements the in-house development and manufacturing capabilities
of its pharmaceutical and biotechnology customers with a broad range of
fully-integrated services, accelerating the time from drug discovery to
commercialization. In 1996, the Company manufactured 54 products at its cGMP
manufacturing facility in Dudley, England. Capacity utilization at the Dudley
facility varies in accordance with the number and nature of products under
manufacture. Management currently estimates that the Dudley facility (excluding
acetaminophen) is operating in a range of 65% to 75% capacity utilization.
Management has reviewed the Company's product portfolio and identified 29 of the
54 products it manufactured in 1996 as "core products" which the Company
believes offer superior long-term growth potential, higher margins or strategic
customer relationship benefits.
The Company is actively negotiating the disposition of its acetaminophen
business. Although acetaminophen (paracetamol), an OTC analgesic, is the largest
volume product manufactured by the Company, representing approximately 31% of
the Company's 1996 pro forma revenues, it is not highly profitable at the gross
margin level. In connection with the disposition of the business, the Company
intends to implement measures designed to substantially offset the effect on net
income. The Company's decision to dispose of its acetaminophen business followed
a strategic review of several alternatives and was based on a number of factors,
including the continued domination of the acetaminophen business by high volume,
low cost manufacturers and the Company's expectation that the market price of
acetaminophen will continue to erode. The Company expects that the immediate
impact of the disposition of this business would be a decrease in revenue and an
increase in gross margin percentage. The impact on net income will depend on the
effectiveness of the Company's cost reduction efforts. In addition, any such
disposition would result in a one-time charge related to plant closure,
severance and other costs related to the disposition of this business. The
magnitude and timing of this charge cannot currently be estimated with
certainty.
Substantially all of the Company's revenues and expenses are denominated in
Pounds Sterling, and to prepare the Company's financial statements such amounts
are translated into U.S. Dollars in accordance with generally accepted
accounting principles. Period-to-period changes in exchange rates can affect the
comparability of the Company's financial statements.
RESULTS OF OPERATIONS
In order to make the comparison of financial information for 1996 with that
of 1995 and 1994 more meaningful, the following tables sets forth (i) the
historical results of the Company for 1996 and the pro forma 1996 results of the
Company, adjusted to exclude various non-recurring charges resulting from the
Contribution and the Merger (consisting of an adjustment to restate inventory at
fair value, the write-off of acquired in-process research and development and a
non-recurring expense relating to certain executive stock compensation), (ii)
the combined audited operating results of ChiRex Inc., ChiRex Holdings Ltd. and
ChiRex Ltd. for 1995 and (iii) the combined audited operating results of ChiRex
Inc. and ChiRex Ltd. for 1994. There were no intercompany transactions requiring
elimination in any of the periods presented. The pro forma, pro forma as
adjusted and combined financial data set forth in the following tables are not
necessarily
18
<PAGE> 20
indicative of future operations or what the Company's results of operations
would actually have been had the various transactions set forth below occurred
as described. The period-to-period comparisons that follow the tables compare
the pro forma as adjusted and combined results of operations set forth in the
following tables for the periods indicated and not the actual results of
operations of any of the constituent entities.
In 1996, the management of ChiRex Inc. adopted a new cost accounting policy
for the manufactured inventory of ChiRex Ltd. effective as of March 11, 1996,
the date of the Contribution. Under this policy, various indirect and
contractual research expenses (which were previously allocated to inventory)
were reclassified as selling, general and administrative and research and
development expenses, respectively, to more closely conform to industry
standards. This new accounting policy accounted for $5.1 million of the $9.0
million decrease in cost of goods sold from 1995 to 1996. Accordingly, a
comparison of gross margin for such periods is not meaningful.
COMPARATIVE OPERATING RESULTS
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHIREX PRO PRO FORMA
1996 INC. FORMA(1) ADJUSTMENTS AS ADJUSTED
- -------------------------------------------------------------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 74,615 $ 89,827 $ 0 $89,827
Cost of goods sold............................................ 56,508 69,184 (1,372)(2) 67,812
------- ------- -------- -------
Gross profit.................................................. 18,107 20,643 1,372 22,015
Research and development...................................... 9,307 9,865 (5,790)(3) 4,075
Selling, general and administrative........................... 13,563 14,863 (5,611)(4) 9,252
Goodwill...................................................... 924 1,149 0 1,149
Interest expense.............................................. 755 1,005 0 1,005
------- ------- -------- -------
Income (loss) before income taxes............................. (6,442) (6,239) 12,773 6,534
Provision for income taxes.................................... 1,867 2,008 453(5) 2,461
------- ------- -------- -------
Net income (loss)............................................. $ (8,309) $ (8,247) $ 12,320 $ 4,073
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
CHIREX
CHIREX CHIREX (HOLDINGS)
1995 INC. LIMITED LIMITED COMBINED(6)
- -------------------------------------------------------------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 2,754 $ 51,375 $ 34,828 $88,957
Cost of goods sold............................................ 1,715 44,220 30,836 76,771
------- ------- -------- -------
Gross profit.................................................. 1,039 7,155 3,992 12,186
Research and development...................................... 595 1,115 651 2,361
Selling, general and administrative........................... 2,099 2,156 2,728 6,983
Interest and other (income) expense........................... 797 (418) 1,922 2,301
------- ------- -------- -------
Income (loss) before income taxes............................. (2,452) 4,302 (1,309) 541
Provision (benefit) for income taxes.......................... 0 1,327 (351) 976
------- ------- -------- -------
Net income (loss) before preferred dividend................... $ (2,452) $ 2,975 $ (958) $ (435)
======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
CHIREX CHIREX
1994 INC. LIMITED COMBINED(7)
- -------------------------------------------------------------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Revenues...................................................... $ 1,810 $ 78,859 $80,669
Cost of goods sold............................................ 814 68,572 69,386
------- -------- --------
Gross profit.................................................. 996 10,287 11,283
Research and development...................................... 2,343 1,816 4,159
Selling, general and administrative........................... 1,964 5,598 7,562
Other......................................................... 0 (718) (718)
------- -------- --------
Income loss before income taxes............................... (3,311) 3,591 280
Provision for income taxes.................................... 0 1,061 1,061
------- -------- --------
Net income (loss)............................................. $ (3,311) $ 2,530 $ (781)
======= ======== ========
</TABLE>
- ---------------
(1) Gives pro forma effect to the Contribution as if it had occurred on
January 1, 1996. See "The Company," "Pro Forma Financial Data" and "The
Formation Transactions."
(2) To reverse the effect of the purchase method of accounting step-up of
inventory to fair value at the time of the Contribution.
(3) To reverse the effect of the write-off of research and development
expenses that were in-process at the time of the Contribution.
(4) To reverse the effect of stock compensation charge associated with
granting of stock and options to purchase stock in connection with the Merger.
(5) Tax effect of the adjustment described in note (1) above.
(6) Reflects the combination of the audited historical operating results of
ChiRex for the year ended December 31, 1995 and the aggregate audited historical
operating results of ChiRex Holdings Ltd. and ChiRex Ltd. for the periods from
August 10, 1995 to December 31, 1995 and January 1, 1995 to August 10, 1995,
respectively. See "Selected Historical Financial Data."
(7) Reflects the combination of the audited historical operating results of
ChiRex Inc. for the year ended December 31, 1994 and the audited historical
operating results of ChiRex Ltd. for the year ended December 31, 1994. See
"Selected Historical Financial Data."
19
<PAGE> 21
Years ended December 31, 1995 and 1996
Revenues increased $0.8 million, or 1.0%, from $89.0 million in 1995 to
$89.8 million in 1996. Revenues from core products, which accounted for 55.7% of
revenues in 1996, increased by $13.1 million or 35.3%, while revenues from
non-core products (excluding acetaminophen), which accounted for 13.2% of
revenues in 1996, decreased by $11.1 million or 48.4%. Existing core products
revenues increased by $9.2 million, and seven new products contributed $3.9
million of revenues. Revenues attributable to acetaminophen, which accounted for
31.1% of revenues in 1996, declined by $1.2 million compared to 1995 due to
lower demand for product from Sanofi. Product price changes did not contribute
significantly to changes in revenue between the two periods.
Cost of goods sold decreased $9.0 million, or 11.7%, to $67.8 million in
1996 (excluding the fair value of inventory adjustments in 1996) from $76.8
million in 1995. Of the reduction, $5.1 million was due to the reclassification
of inventory charges as selling, general and administrative expenses and
research and development expenses. The remainder of the reduction was due to the
selective replacement of high-cost non-core products, as well as improved
efficiencies due to continual process improvement and the reduction in fixed
costs following organizational changes in the Company's structure.
Research and development expenses (excluding the write-off of in-process
research and development expenses in 1996) increased $1.7 million, or 70.8%, to
$4.1 million in 1996 from $2.4 million in 1995. Of the increase, $0.9 million
was due to the reclassification of contract research expenses previously
classified as cost of goods sold. The remaining increase was due to higher
expenses of $0.6 million related to increased activity in the pilot plant to
support the new product pipeline and an increase of $0.2 million related to the
cost of additional research chemists.
Selling, general and administrative expenses (excluding stock compensation
charged in 1996) increased $2.3 million, or 32.5%, to $9.3 million in 1996 from
$7.0 million in 1995. The reclassification of inventory charges from cost of
goods sold resulted in an increase of $4.2 million, and non-recurring legal and
consulting fees resulted in an increase of $0.4 million. These increases were
offset by a reduction in fixed costs following organizational changes to the
Company's structure.
Interest expense and other income in 1995 of $2.3 million includes interest
expense (net) of $1.9 million and $0.8 million incurred in connection with the
unconsummated initial public offering of ChiRex America in 1995, offset by other
income of $0.4 million. Interest expense (net, on a pro forma basis) in 1996
decreased $0.9 million, or 47.7%, from $1.9 million in 1995 to $1.0 million in
1996 as a result of lower borrowing requirements in 1996 due to increased cash
flow from operations and the actual and pro forma effect of the repayment of
debt with proceeds from the IPO.
Income tax expense was $2.5 million in 1996 (an effective tax rate of
37.6%) compared to $1.0 million in 1995. The effective tax rate in 1996 (on a
pro forma basis) exceeds statutory rates primarily due to non-deductible
goodwill associated with the Contribution.
As a result of the factors described above, the pro forma as adjusted net
income was $4.1 million in 1996 compared to a $0.4 million combined loss before
preferred dividend in 1995.
Years ended December 31, 1994 and 1995
Total revenues increased $8.3 million, or 10.3%, to $89.0 million in 1995
compared to $80.7 million in 1994, due principally to the introduction of new
products and increased volume of existing products. Sales of new products
accounted for $2.6 million of the increase.
Cost of goods sold increased $7.4 million, or 10.6%, to $76.8 million in
1995 compared to $69.4 million in 1994 as a result of new products and higher
production levels. Gross margin declined slightly to 13.7% in 1995 from 14.0% in
1994.
Research and development expenses decreased $1.8 million to $2.4 million in
1995 from $4.2 million in 1994 due to reduced research and development
expenditures by SepraChem Inc. during 1995, as it increased its emphasis on
production scale-up activities.
20
<PAGE> 22
Selling, general and administrative expenses decreased $0.6 million, or
7.7%, to $7.0 million in 1995 from $7.6 million in 1994 due primarily to the
lower share of Sepracor's overhead cost allocation in 1994.
Interest expense and other income in 1995 of $2.3 million includes interest
expense (net) of $1.9 million and $0.8 million incurred in connection with the
unconsummated initial public offering of ChiRex America in 1995, offset by other
income of $0.4 million. Interest and other income in 1994 includes net interest
income of $0.2 million and other income of $0.5 million. Interest expense (net)
was $1.9 million in 1995 compared to interest income (net) of $0.2 million in
1994. The increase primarily related to an arrangement fee and interest paid to
Midland Bank, as well as interest on the loan stock in connection with the
purchase of ChiRex Ltd. by ChiRex Holdings Ltd. on August 10, 1995.
As a result of the factors described above, net loss before preferred
dividend decreased $0.4 million, or 44.3%, to $0.4 million from a net loss of
$0.8 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations of $12.0 million in 1996 reflects the overall
profitability (prior to non-cash charges) in the period since the consummation
of the Formation Transactions on March 11, 1996. The Company has generated $11.1
million in cash from operating activities since that time which was supplemented
by a modest reduction in working capital of $0.9 million from December 31, 1995.
The net cash generated from operations in 1996 of $11.1 million was used for
both capital expenditures and the repayment of long-term debt.
Net cash used in investing activities was $4.3 million in 1996, consisting
of maintenance capital expenditures. The Company anticipates investing $30
million to $40 million over approximately the next two years on capital
improvements to increase capacity.
Net cash used in financing activities in 1996 was $7.1 million, consisting
of $94.0 million used for the redemption of stock and the repayment of debt
existing at the time of the Merger and Contribution, $3.6 million of net
borrowings (after exchange rate effect) and $83.3 million provided by the IPO.
On August 1, 1996, the Company converted its existing long-term debt to a new
revolving facility with Midland Bank plc. The new credit facility allows a
maximum borrowing limit of L10.5 million ($18.0 million as of December 31,
1996), renewable every two years, at an interest rate of LIBOR plus 1.25% and a
commitment fee of 0.375%. Repayment of amounts borrowed pursuant to the facility
are secured by certain assets of the Company, including real estate assets. See
Note 7 of Notes to Consolidated Financial Statements of the Company.
The Company expects to satisfy its cash requirements, including the
requirements of its subsidiaries, through internally generated cash and
borrowings. As of December 31, 1996, the Company had borrowing capacity under
the facility of approximately $14.0 million available for immediate use, if
required.
FOREIGN CURRENCY
For 1994, 1995 and 1996, net sales of the Company's products outside the
United States totaled approximately $78 million, $82 million and $81 million,
representing 97%, 93% and 92% of the Company's net sales for those years. The
Company currently expects that sales of its products outside the United States
will continue to be a substantial percentage of its net sales. The Company
currently intends to hedge its foreign exchange exposure to a certain extent by
entering into forward contracts with banks to the extent that the timing of the
currency flows can reasonably be anticipated and by offsetting matching foreign
currency-denominated assets with foreign currency-denominated liabilities.
Financial results of the Company could be adversely or beneficially
affected by fluctuations in foreign exchange rates. Fluctuations in the value of
foreign currencies will affect the U.S. dollar value of the Company's net
investment in its foreign subsidiaries, with related effects included in a
separate component of stockholders' equity. Operating results of foreign
subsidiaries will be translated into U.S. dollars at average monthly exchange
rates. In addition, the U.S. dollar value of transactions based in foreign
currency also fluctuates with exchange rates. The Company expects that the
largest foreign currency exposure will result from activity in Pounds Sterling,
German marks and Dutch guilders.
21
<PAGE> 23
BUSINESS
GENERAL
ChiRex Inc. is a contract manufacturing organization ("CMO") serving the
outsourcing needs of the pharmaceutical industry through its extensive
pharmaceutical fine chemical manufacturing and process development capabilities
and proprietary technologies. The Company supports and supplements the in-house
development and manufacturing capabilities of its pharmaceutical and
biotechnology customers with a broad range of fully-integrated services,
accelerating the time from drug discovery to commercialization. The Company
currently manufactures 54 products, of which 29 are core products. The Company's
customers include Cell Therapeutics, ACS Dobfar, Glaxo Wellcome, Pfizer,
Pharmacia and Upjohn, Procter & Gamble, Rohm and Haas, Sanofi and SmithKline
Beecham.
The Company was created simultaneously with its initial public offering in
March 1996 through the combination of a U.S.-based chiral chemistry business,
SepraChem, and a U.K-based pharmaceutical fine chemical manufacturing business,
Sterling Organics. Since the IPO, the Company has integrated these operations
and further developed its advanced manufacturing facilities, commercial
development process and technology base. During this time, the Company has
entered into an exclusive agreement for the supply of clinical and commercial
requirements for Cell Therapeutics' new cytoprotective drug, lisofylline,
established a new supply relationship with Pfizer and scaled-up production of
three pharmaceutical intermediates using the Company's proprietary ChiRex
Technologies for three customers. In addition, the Company recently entered into
an exclusive license agreement with Harvard University for kinetic resolution
technology applicable to the manufacture of single-isomer forms of certain
chiral intermediates, which the Company believes has significant commercial
potential.
Since the IPO, management has reviewed the Company's product portfolio and
identified 29 of the 54 products it manufactured in 1996 as "core products"
which the Company believes offer superior long-term growth potential, higher
margins or strategic customer relationship benefits. The Company intends to
focus on developing additional revenues from existing core products and through
adding new core products to the Company's portfolio while phasing out non-core
products to release capacity and improve profitability. In particular, the
Company is actively negotiating the disposition of its acetaminophen business.
The Company believes that its efforts to integrate its proprietary
technologies with its manufacturing capabilities, along with its ongoing efforts
to strengthen its core competencies, will secure and enhance its position as a
leading CMO to the pharmaceutical industry.
INDUSTRY
CMOs have evolved from providing limited third-party manufacturing services
to offering a full range of drug development and manufacturing capabilities.
CMOs currently offer research and development and hazard evaluation
capabilities, scale-up facilities, state-of-the-art analytical departments,
documentation expertise, large, multi-purpose, FDA-inspected cGMP facilities and
efficient waste treatment facilities. The development and scale-up of customers'
products requires CMOs to interact with their customers on many levels. In many
cases, the customers' technical personnel work closely with the CMOs staff to
scale-up new products, monitor manufacturing and assist with regulatory
compliance. This process necessitates a high degree of confidence in the CMO's
technical expertise as well as its ability to safeguard confidential
information.
Due to the interactive nature of their services, a CMO's success depends on
the strength of its relationships with customers. Critical success factors for
CMOs in developing outsourcing relationships with major life science companies
include:
- An established reputation and proven track record
- Flexible cGMP manufacturing capacity
- Technical competence and a broad technology base
- Financial stability
- Secure management of trade secrets and intellectual property rights
22
<PAGE> 24
According to A.D. Little, in 1996 the global market for the manufacture of
pharmaceutical fine chemical intermediates and bulk actives and custom synthesis
was approximately $12.0 billion. In recent years, outsourcing of drug
development and manufacturing activities by pharmaceutical and biotechnology
companies has increased for the following reasons:
Cost Containment Pressures. Recently, drug companies have been focusing on
more efficient ways of conducting business because of margin pressures stemming
from patent expirations, market acceptance of generic drugs and pressure from
regulators and payors to reduce drug prices. In addition, managed care
organizations are beginning to limit the selection of drugs that affiliated
physicians may prescribe, thereby further increasing competition among
pharmaceutical and biotechnology companies. The Company believes that the
pharmaceutical industry is responding by focusing its resources on new drug
discovery, regulatory compliance and sales and marketing while outsourcing
process development and supply of pharmaceutical intermediates and active
ingredients.
Reducing Drug Development Time. Pharmaceutical and biotechnology companies
face increased pressure to deliver new drugs to market in the shortest possible
time in order to capture market share, accelerate realization of revenue and
make full use of patent protection. By working in collaboration with CMOs like
the Company, pharmaceutical and biotechnology companies can focus on their core
competencies of drug discovery and marketing activities. The Company believes
that CMOs are often able to perform essential services with a higher level of
expertise and specialization, and in less time than its customers could perform
such services in-house, resulting in reduced new drug development times.
Increasingly Complex Drug Manufacturing Processes. The Company believes an
increasing proportion of drugs under development are single-isomer
pharmaceuticals, which for certain drugs may have advantages over racemic
mixtures, including reduced side effects, increased safety and higher potency.
The ability to determine the biological activity of each isomer has led to
increasing regulatory pressure to develop drugs in single-isomer form. Current
FDA guidelines require a demonstration of biological activity for each isomer,
including therapeutic benefits and side effects. As a result, the cost and time
of development are significantly greater for compounds developed as racemic
mixtures as compared to single-isomers, creating a demand for new processes and
process technologies that can produce single-isomer drugs and intermediates cost
effectively. Rather than develop complex manufacturing processes in-house,
pharmaceutical companies are moving towards outsourcing these functions to CMOs
with demonstrated process technology expertise.
Growth of Biotechnology Industry. The biotechnology industry and the
number of drugs produced by it have grown substantially over the past decade.
Many biotechnology companies have chosen not to expend the substantial capital
resources necessary to invest in a cGMP manufacturing facility, but utilize CMOs
to perform these functions both during product development and
commercialization.
Although these trends will result in increased competition, the Company
believes there are significant entry barriers to the high value-added CMO
industry, including the need for cGMP commercial scale manufacturing capacity
and world-class pilot plant facilities, access to and expertise in leading
manufacturing and process technologies and the ability to manage the complex
regulatory regime governing new product development.
23
<PAGE> 25
BUSINESS STRATEGY
The Company's goal is to be a preferred partner to major pharmaceutical and
life sciences companies in the development of manufacturing processes and to
supply on a commercial scale pharmaceutical intermediates and active ingredients
for leading proprietary and generic drugs. The Company's strategy for achieving
this objective is to:
- leverage its research and development expertise to develop and maintain
its process technologies for the manufacture of a broad spectrum of
complex chemicals and extend its relationship with leading academic
institutions to capture next generation process technologies;
- expand cGMP manufacturing capacity at its Dudley facility and explore
opportunities to acquire additional facilities or complementary
businesses;
- provide clinical scale manufacturing capacity with safe, efficient scale
up for its customers' products in its state-of-the art pilot plant
facility;
- apply its proprietary technologies to the development and manufacture of
a range of chiral intermediates which the Company intends to market at
higher margins than those achievable using non-proprietary technologies;
and
- identify opportunities to develop and market complex, generic drugs where
its technologies provide process and cost advantages.
CORE COMPETENCIES
The Company offers a full range of manufacturing and process development
services to its clients. These services include process research and
development, clinical quantity production capability and commercial-scale
manufacturing, as well as hazard evaluation capabilities, sophisticated chemical
analysis services and regulatory and documentation expertise. The Company
provides all or any portion of its service capabilities to its customers and
works with its customers to tailor the range of services provided based on the
customer's needs. The Company has developed the following core competencies.
ADVANCED MANUFACTURING
Over the last 30 years, the Company has developed expertise in the
synthesis, scale-up and manufacture of complex pharmaceutical intermediates and
active ingredients at its Dudley site. This 42-acre site was originally
constructed by Sterling Winthrop Inc. in the late 1960's and became its primary
pharmaceutical chemical manufacturing facility. With a production capacity of
770 cubic meters (over 200,000 gallons), the Dudley facility is one of the
largest independent pharmaceutical chemical manufacturing facilities in the
world. Since 1992, the Company has invested over $50 million at the site,
including major expenditures on waste water treatment facilities and a new cGMP
pilot plant and development center.
There are three main production buildings at the Dudley site which have a
variety of advanced equipment to provide a flexible FDA-inspected, cGMP and ISO
9002 certified manufacturing base. Two of the buildings provide multi-process
facilities (including a segregated bulk pharmaceutical purification suite fitted
with reactors, isolation and finishing equipment) capable of performing an
extensive range of chemical transformations. The third building is a plant
dedicated for the manufacture of acetaminophen. The combination of the three
main production buildings and the state-of-the-art pilot plant and development
center enable the Company to manufacture efficiently products in quantities from
laboratory samples to commercial scale.
The Company's quality assurance department consists of approximately 40
personnel with experience in the analysis, quality assurance, validation and
registration of bulk pharmaceutical and fine chemicals. The Company's analytical
laboratories contain fully-automated equipment with extensive data handling
capabilities, spectroscopic systems and variable wavelength and diode-array UV
capabilities designed to ensure that the Company's products comply with all
pharmacopeia and regulatory requirements.
24
<PAGE> 26
PROCESS DEVELOPMENT
The Company possesses significant expertise in manufacturing process
research and development. These skills are critical to advancing a product from
the laboratory to pilot plant and finally commercial scale manufacturing in a
timely and cost effective manner. Following an initial inquiry, the Company
provides feasibility studies and cost estimates to the customer. The Company
engages in initial process research and development and produces laboratory
samples. In connection with process development, the Company utilizes computer
controlled reaction calorimeters and analytical equipment, and is assisted by
its Scientific Advisory Board, which includes leading academics in various
fields of chemistry. During 1996, the Company increased its professional process
development staff by 25% to 28. Ultimately, a pilot plant product which receives
regulatory approval and is deemed commercially viable is scaled-up to commercial
manufacture. Historically, approximately 80% of products that reach the pilot
plant result in full commercial manufacturing arrangements.
Process development serves an important marketing function. As a result of
the regulatory requirements associated with certifying a new manufacturing
source, it is often advantageous for a pharmaceutical company to maintain its
relationship with a CMO once the CMO is certified for the product by regulatory
authorities. Consequently, the Company promotes its process research and
development capabilities aggressively in an effort to establish relationships
with a customer early in the product development timeline and consequently
secures long-term commercial-scale supply arrangements.
TECHNOLOGY
The Company's expertise in applying a wide range of sophisticated process
technologies to large scale classical chemical transformations enables it to
provide its customers with safe and cost efficient commercial scale
manufacturing capacity. In addition, the Company has a wide spectrum of
proprietary synthesis and separation technologies for application in the
manufacture of single-isomer products (the "ChiRex Technologies"). The Company
is manufacturing products in the pilot plant using four of its ChiRex
Technologies. Additionally, in January 1997, the Company added to this
technology platform by licensing from Harvard University kinetic resolution
technology applicable to the manufacture of single-isomer forms of certain
chiral intermediates, which the Company believes has significant commercial
potential, including the production of drugs for the treatment of asthma,
arthritis, obesity, cardiovascular disease, AIDS, cancer and hepatitis.
PRODUCT PORTFOLIO
The Company sold 54 products in 1996, 29 of which management has identified
as core products and 25 of which are non-core products. The 54 products include
48 pharmaceutical products and six fragrance and flavor, agrichemical and
polymer products. Nearly all of the products produced or under development by
the Company are governed by secrecy agreements which contain, among other
things, restrictions on the disclosure of the customer, the product and the
therapeutic indication.
CORE PRODUCTS
Management has identified 29 core products (including seven new products
for 1996) which it believes offer superior long-term growth potential, higher
margins or strategic customer relationship benefits. Twelve of the Company's
core products are produced in its development center. In 1996, core products
accounted for 56% of the Company's total pro forma revenues. Twenty-three of the
Company's core products are manufactured for use in pharmaceuticals, with the
remaining six products manufactured for the fragrance and flavor, agrichemical
and polymer markets. The Company's customers' pharmaceutical products are used
in the treatment of, among others, cancer, cardiovascular disease, AIDS, urinary
tract infections and high cholesterol. Major pharmaceutical customers include
ACS Dobfar, Glaxo Wellcome, Pfizer, Pharmacia & Upjohn and Sanofi. The Company
manufactures eight products for Sanofi under a renewable long-term contract
which (excluding acetaminophen) accounted for 40% of the Company's 1996 pro
forma revenues. In addition, the Company currently manufactures two commercial
agrichemical core products for Rohm and
25
<PAGE> 27
Haas, which (excluding acetaminophen) accounted for approximately 19% of the
Company's 1996 pro forma revenues.
NON-CORE PRODUCTS
The Company intends to phase out the manufacture of products which do not
meet management's criteria regarding profitability, growth profile or customer
development potential. There are currently 25 non-core products, including
acetaminophen, which the Company plans to eliminate from its product portfolio.
In 1996, non-core products (including acetaminophen) accounted for 44% of the
Company's total revenues.
The Company is engaged in active negotiations for the disposition of its
acetaminophen business. Although acetaminophen (paracetamol), an OTC analgesic,
is the largest volume product manufactured by the Company, representing
approximately 31% of the Company's 1996 pro forma revenues, it is not highly
profitable at the gross margin level. The Company's decision to dispose of its
acetaminophen business followed a strategic review of several alternatives and
was based on a number of factors, including the continued domination of the
acetaminophen business by high volume, low-cost manufacturers and the Company's
expectation that the market price of acetaminophen will continue to erode. See
"Recent Developments."
DEVELOPMENT PRODUCTS
The Company has over 30 years of experience collaborating with
pharmaceutical companies on the process development of new pharmaceutical
products. The Company's work in the development stage of its customers' products
provides a strong foundation for securing supply arrangements for full-scale
manufacturing upon commercialization. Products are no longer considered
development products when they are produced by the Company on a commercial
scale.
The Company provides development and pilot-scale manufacturing services for
its pharmaceutical customers, including Cell Therapeutics, Glaxo Wellcome,
Pharmacia & Upjohn, Pfizer and SmithKline Beecham. The following table sets
forth 40 products in the Company's development pipeline which the Company
believes have significant revenue potential. Twelve of these products have been
identified as core products, are produced at pilot-scale and had revenues
associated with them in 1996. The remaining products are at an earlier stage in
the development cycle and have not been identified as core products.
<TABLE>
<CAPTION>
NUMBER OF
DEVELOPMENT PHASE OF DRUG(1) COMPANY PRODUCTS REPRESENTATIVE INDICATIONS
--------------------------------------- ---------------- -----------------------------
<S> <C> <C>
Approved............................... 7 Cancer, AIDS, Hypertension,
Diabetes
Phase III.............................. 11 Cancer, Pancreatitis, Central
Nervous System Disorder
Phase II............................... 3 Migraine, AIDS,
Cardiovascular Disease
Preclinical/Phase I/Unknown............ 19 Various
</TABLE>
- ---------------
(1) Based on customer provided or publicly available information.
The seven approved products have been produced on a commercial scale by
manufacturers other than the Company. However, the Company is working with
its customers to gain the necessary regulatory approval to participate in
the manufacture of these products.
TECHNOLOGY
The Company has developed expertise in the large-scale operation of many
classical chemical transformation technologies and has the exclusive rights to
use the ChiRex Technologies in a defined field on a perpetual basis under 45
U.S. patents and several patent applications. In addition, it has accumulated
experience in the effective management of the risks inherent in handling toxic
or hazardous raw materials and products and in carrying out hazardous chemical
reactions. The Company's expertise allows pharmaceutical
26
<PAGE> 28
companies to have complex multi-step procedures carried out at a single site,
which increases the ability of such companies to maintain confidentiality,
product supervision and management.
The Company's ChiRex Technologies consist of a broad platform of
proprietary asymmetric synthesis and resolution technologies, which it believes
provide multiple manufacturing routes to produce single-isomer chiral
pharmaceutical intermediates and active ingredients. The Company selects the
most appropriate ChiRex Technology for a particular application based on several
factors, including the cost of any required catalyst, the availability and cost
of the starting materials and the cost of recovering and recycling by-products.
The following table summarizes certain aspects of the ChiRex Technologies:
<TABLE>
<CAPTION>
DEVELOPMENT
TECHNOLOGY USE PHASE METHOD OF MANUFACTURE
- ------------------------------- ------------------------ ------------ ----------------------
<S> <C> <C> <C>
Kinetic Resolution Catalytic ring opening Pilot Plant Asymmetric Synthesis
of epoxides to make
chiral epoxides and
diols
Asymmetric dihydroxylation Catalytic asymmetric Commercial Asymmetric Synthesis
reaction to make
chiral diols using
Sharpless catalyst
Asymmetric epoxidation Catalytic oxidation to Commercial Asymmetric Synthesis
make chiral epoxides
using Jacobsen
catalyst
Enzymatic resolution Enzymatic Commercial Resolution
biotransformation
Diastereomeric crystallization Resolution by Commercial Resolution
crystallization
Asymmetric reduction Catalytic reduction to Laboratory Asymmetric Synthesis
make chiral alcohols
</TABLE>
Single-isomer chiral chemicals are generally manufactured by asymmetric
synthesis or resolution. In asymmetric synthesis, the single-isomer form of the
drug or intermediate is synthesized directly from a precursor compound that is
achiral. With resolution, the single-isomer is separated from a racemic mixture.
Asymmetric synthesis is often the preferred method of producing single-isomer
drugs or intermediates due to the potential higher attainable yields. Due to the
technical challenges of developing a cost-effective process, however, there are
few asymmetric synthesis processes demonstrated at commercial scale.
The Company continues to improve its leading technology position through
significant research and development expenditures and by maintaining close
relationships with its Scientific Advisory Board and institutional research
partners. On January 28, 1997, the Company entered into an exclusive license
agreement with Harvard University for the application of kinetic resolution
technology ("KR Technology") to a wide range of pharmaceutical products. KR
Technology is a new technology developed by Professor Eric N. Jacobsen, a member
of the Company's Scientific Advisory Board, which the Company believes will
enable it to produce single-isomer pharmaceutical intermediates in a more
cost-effective process than others currently available. The Company intends to
utilize KR Technology to develop and market new pharmaceutical intermediates to
many customers for multiple applications.
In support of these technologies, the Company maintains a state-of-the-art
hazards evaluation laboratory where operating hazards are identified and safe
operating parameters established for all processes before they are carried out
in the pilot plant. The pilot plant is then used to confirm the safe operation
of the process and evaluate scale-up parameters before moving to full-scale
operation. In addition, the Company has accumulated extensive in-house
experience in the development and application of microprocessor control systems
to control process hazards and improve the reproducibility of process
performance and product quality.
27
<PAGE> 29
SALES AND MARKETING
The Company markets the majority of its products directly to pharmaceutical
and other life science companies. An important component of the Company's
strategy is to pursue long-term supply relationships with selected major
customers. The Company employs sales and marketing personnel who possess the
requisite technical backgrounds to communicate effectively with both prospective
customers and the Company's research and development personnel.
The Company, as part of its ongoing commercial development efforts,
maintains a presence at important international trade shows and hosts a
bi-annual international technical symposium to which selected senior
representatives and executives of the research and development organizations of
major pharmaceutical companies are invited. In addition, the Company's technical
and marketing personnel present papers at symposia on a regular basis.
PATENTS AND PROPRIETARY TECHNOLOGY
Proprietary rights relating to the Company's products and processes will
generally be protected from unauthorized use by third parties only to the extent
that they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. The Company currently has the exclusive,
royalty-free perpetual right and license to use and practice the ChiRex
Technologies on a worldwide basis in a defined field under 45 U.S. patents and
several patent applications. The material patents licensed to the Company expire
at various times beginning in 2005. The Company has ongoing research efforts and
expects to seek additional patents in the future covering patentable results of
such research. Certain of the Company's technology is not covered by any patent
or patent application. There can be no assurance that any pending patent
applications filed by the Company will result in patents being issued or that
any patents now or hereafter owned or licensed by the Company will afford
protection against competitors with similar technology, will not be infringed
upon or designed around by others or will not be challenged by others and held
to be invalid or unenforceable. In the absence of patent protection, the
business of the Company may be adversely affected by competitors who
independently develop substantially equivalent technology.
There may now or in the future be issued third-party patents relating to
technology utilized by the Company. The Company may need to acquire licenses to,
or to contest the validity of, any such patents. It is likely that significant
funds would be required to defend any claim that the Company infringes a
third-party patent, and any such claim could adversely affect sales of the
challenged product until the claim is resolved. Furthermore, any such dispute
could result in a rejection of the Company's patent applications or the
invalidation of its patents. There can be no assurance that any license required
under any such patent would be made available or, if available, would be
available on acceptable terms or that the Company would prevail in any
litigation involving such patent. Any of the foregoing adverse results could
have a material adverse effect on the Company and its results of operations.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented nor patentable, in part by confidentiality
agreements and, if applicable, inventors' rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will be enforceable and will not be breached, that the
Company will have adequate remedies for any breach or that the Company's trade
secrets will not otherwise be disclosed to, or discovered by, competitors. See
"Risk Factors -- Patent and License Uncertainties."
COMPETITION
Competition in the Company's market is based upon reputation, service,
manufacturing capability and expertise, reliability of supply and price. In
addition, the Company's success depends to a significant extent on its ability
to sell products to potential customers at an early stage of product
development. The Company's current competitors include Alusuisse-Lonza Holdings
AG, DSM Andeno B.V. and Laporte PLC. In the acetominophen business, the
Company's competitors include Rhone-Poulene S.A. and Mallinckrodt Group Inc. In
addition, the Company competes with major pharmaceutical manufacturers
(including a number of
28
<PAGE> 30
the Company's customers) who develop their own process technologies and
manufacture fine chemicals and pharmaceutical intermediates in-house.
The Company encounters, and expects to continue to encounter, intense
competition in obtaining contracts for the sale of its products. The market in
which the Company competes is characterized by extensive research efforts and
rapid technological progress. Competition may increase further as a result of
advances that may be made in the commercial applicability of the Company's and
competitors' technologies and greater availability of capital for investment in
these fields. In addition, the Company faces intense competition for scientific,
managerial and marketing personnel from other companies, research and academic
institutions and governmental entities.
The Company also has encountered, and expects to continue to encounter,
intense competition for the acquisition of additional manufacturing capacity.
The Company's competitors for manufacturing capacity include CMOs and certain
pharmaceutical and chemical companies, some of which have substantially greater
financial resources than the Company.
ENVIRONMENTAL REGULATION
The manufacturing and research and development processes of the Company
involve the controlled use of hazardous materials. The Company is subject to
laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and waste products in the United Kingdom. In the
event of contamination or injury from hazardous materials, the Company could be
held liable for any resulting damages and any such liability could exceed its
resources.
The Company's manufacturing plant in Dudley, United Kingdom, is subject to
the U.K. Environmental Protection Act 1990 ("EPA 1990"), which requires
authorizations for any industrial air and water discharges and solid waste
disposal. The individual authorizations are contained within several Integrated
Pollution Control ("IPC") authorizations under the 1991 Environmental Protection
Regulations adopted pursuant to the EPA 1990. The Company's IPC authorizations
are administered by the U.K.'s Environment Agency ("EA").
The Company believes it is in compliance in all material respects with its
IPC authorization conditions, limitations and compliance schedules. The Company
possesses "envelope" authorizations for its air pollutant emissions, which
enable the Company to alter its production lines and processes to a degree
without seeking additional authorizations. The Company has committed itself in a
plan submitted to the EA to implement certain air pollution emission reduction
programs.
The Company has a consent to discharge its process waste water, following
treatment in the Company's biological waste water pretreatment plant, into local
sewers for further treatment by the company that owns and operates the local
area wastewater treatment facility, which discharges its effluent to the River
Tyne. Northumbrian Water Limited ("NWL") is the local sewer operator and the EA
is the governmental regulatory body responsible for the regulation of NWL and
the country's rivers. In the past, the Company has had periodic difficulty in
meeting its consent limits for suspended solids in waste water. During 1996, the
Company reached agreement with NWL which resulted in a relaxation of the consent
limit for suspended solids. The Company also made certain capital improvements
to its biological waste water treatment plant, and it is now generally in
compliance with the consent limit. If the consent limit is exceeded, the plant
must adhere to certain notice and corrective action procedures. This compliance
program was developed in consultation with and has received the approval of the
EA.
Since the IPO, the Company reached agreement with NWL and the EA on a set
of contingency measures that would be taken in the event the Company's
biological pretreatment plant experienced a treatment upset or, due to
malfunction or other failure had to be bypassed for a period of time. The
procedures are designed to minimize the impact of such occurrences while
allowing the Company to continue its production operations, which in the absence
of such agreed procedures, would have been subject to potential shutdown.
29
<PAGE> 31
The Environment Act of 1995 ("1995 Act") imposes strict, retroactive
clean-up liability on persons responsible for creating or contributing to
contaminated sites. Landowners are presumptively liable under this statute for
conditions existing on their property where a different responsible party can
not be found. The Company believes that the limited areas of subsurface
contamination presently known to exist at the site are confined and will not
give rise to liability under the 1995 Act. However, there can be no assurance
that the Company will not be required in the future to incur remedial costs
pursuant to the 1995 Act. Such costs, and other unanticipated costs of
compliance with environmental laws and regulations in the future, could have a
material adverse effect on the Company's results of operations. See "Risk
Factors -- Environmental Risks; Hazardous Materials."
There can be no assurance that future expenditures for environmental
compliance and control, including reductions of air emissions, waste water
treatment improvements and remediation matters, will not have a material adverse
effect on the Company's results of operations.
OTHER GOVERNMENTAL REGULATION
The Company's operations, as well as those of its customers, are subject to
extensive regulation by numerous governmental authorities in the United States,
the United Kingdom and other countries. In particular, the Company is required
to adhere to applicable FDA regulations with respect to cGMP, including
extensive record keeping and reporting and periodic inspections of manufacturing
facilities. Similar requirements are imposed by regulatory authorities in other
countries. Failure to comply with the applicable regulatory requirements can
among other things result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution. The Company is also
subject to numerous environmental, health and workplace safety laws and
regulations, including those governing emissions control, laboratory procedures
and the handling of hazardous materials. Any violation of, and cost of
compliance with, these laws and regulations could adversely affect the Company's
operations.
In addition, compliance with governmental laws and regulations, including
environmental laws and regulations, requires the Company to obtain permits
issued by appropriate regulatory agencies. Permits generally require periodic
renewal or review of their conditions, and public comment may be solicited in
the permitting process. There can be no assurance that the Company will be able
to obtain all necessary permits or renew all existing permits, or that material
changes in permit conditions will not be imposed or that material public
opposition will not surface. Failure to obtain or renew certain permits could
result in the shutdown of the Company's facility, the imposition of significant
fines or require the Company to incur significant expenditures to comply with
the law.
The Company is subject to environmental, labor, health and workplace safety
regulation pursuant to a variety of national and local legislation in the United
Kingdom. The Company is also subject to FDA regulation under the Federal Food,
Drug, and Cosmetic Act, the Public Health Service Act and the Toxic Substances
Control Act. In addition, numerous other domestic and foreign government
regulations govern the Company. See "Risk Factors -- Comprehensive Governmental
Regulation" and "Risk Factors -- Dependence on Single Manufacturing Facility."
EMPLOYEES
As of December 31, 1996, the Company had 490 full-time employees, of which
485 employees were based at the Company's site in Dudley. Three hundred and
thirty-two of the full-time employees at such site are unionized. The Company
believes its labor relations are satisfactory.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of these proceedings, the Company believes that the outcome of such
proceedings will not have a material adverse effect on the financial position or
results of operations of the Company.
30
<PAGE> 32
In a proceeding now pending before the U.S. Patent and Trademark Office's
Trademark Trial and Appeal Board, Phenomenex, Inc. of Torrance, California, has
formally opposed the Company's attempt to register the ChiRex name for "single
isomer chiral intermediate chemical compounds and active ingredients for use in
the manufacture of pharmaceuticals." As a basis for the opposition, Phenomenex
asserts, inter alia, that it was using ChiRex as a trademark for chiral chemical
compounds used in liquid chromatography columns before the Company adopted the
name and that consumers are likely to be confused as to the source of the
Company's and Phenomenex's products because of their similarities and an overlap
in the channels of trade in which they travel. The proceeding is at an early
stage, and the Company does not expect a decision as to whether it can register
its name prior to the first quarter of 1998. The Company's management strongly
disputes Phenomenex's allegations, and intends to vigorously defend the
Company's position. However, there can be no assurance that the Company will
prevail in any such proceeding or be able to settle any such dispute on terms
favorable to the Company. Were Phenomenex to pursue and prevail on its claims,
the Company could be required to cease using the ChiRex name which could have a
material adverse affect on the Company's business and results of operations.
31
<PAGE> 33
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers, key management employees and Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Alan R. Clark............................. 50 Chairman of the Board of Directors and
Chief Executive Officer
Michael A. Griffith....................... 38 Chief Financial Officer, Secretary and
Director
Roger B. Pettman, Ph.D.................... 41 Vice President, Sales and Marketing
David F. Raynor........................... 52 Vice President, Operations
J. Graham Thorpe, Ph.D.................... 52 Vice President, Commercial Development
John E. Weir.............................. 48 Vice President, Finance and Treasurer
Robert L. Bratzler, Ph.D.................. 50 Director
Dirk Detert, Ph.D......................... 55 Director
Elizabeth M. Greetham(1)(2)............... 47 Director
W. Dieter Zander(1)(2).................... 81 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Alan R. Clark has served as Chairman of the Board and Chief Executive
Officer of the Company since October 17, 1996. From December 1995 until October
1996, Mr. Clark served as President and Chief Operating officer of the Company.
From 1991 until the IPO, Mr. Clark was Managing Director of Sterling Organics
Limited and was successful in leading the management team (the "MBO Team") that,
together with certain other investors, purchased Sterling Organics Limited from
Sanofi in August 1995. From 1975 to 1991, he worked for Sterling Winthrop
Limited in a variety of senior roles. Mr. Clark holds a First Class Honors
Degree in chemical engineering from the University of Manchester, Institute of
Science & Technology.
Michael A. Griffith has served as Chief Financial Officer since April 10,
1996, as Secretary since September 5, 1996 and a member of the Board of
Directors since October 17, 1996. From June 1994 until April 1996, Mr. Griffith
was a Director of Equity Capital Markets at Credit Suisse First Boston, and from
August 1988 until June 1994, he was a Vice President of Leveraged Finance and
High Yield Capital markets at BT Securities Corporation, a subsidiary of Bankers
Trust Company. Mr. Griffith holds a Master of Management in finance, marketing
and international economics from the J.L. Kellogg Graduate School of Management
at Northwestern University and a Bachelor of Science in Business Administration
from the University of Kansas.
Roger B. Pettman, Ph.D. has served as Vice President, Sales and Marketing
of the Company since the IPO. From 1992 until the IPO, Dr. Pettman was Vice
President, Sales and Marketing of SepraChem Inc. He was United States Business
Development Manager for Shell Fine Chemical Co. from 1990 to 1992. He holds a
B.Sc. degree and Ph.D. in chemistry from Sheffield University and completed two
years postdoctoral study at Stanford University.
David F. Raynor has served as Vice President, Operations of the Company
since the IPO. From 1991 until the IPO, he was Operations Director of Sterling
Organics Limited and was a member of the MBO Team. Mr. Raynor held several
senior positions with Sterling Organics Limited since 1975. He holds a degree in
chemistry, is a fellow of the Royal Society of Chemistry and obtained a general
management qualification from Henley Business School.
J. Graham Thorpe, Ph.D. has served as Vice President, Commercial
Development of the Company since the IPO. From 1993 until the IPO, Dr. Thorpe
was Business Development Director of Sterling Organics
32
<PAGE> 34
Limited and was a member of the MBO Team. He was Research and Development
Director of Sterling Organics Limited from 1990 through 1993. Dr. Thorpe holds a
B.Sc. and Ph.D. in chemistry and completed approximately two and a half years
post doctoral research at the University of Florida. He is a chartered chemist
and a fellow of the Royal Society of Chemistry.
John E. Weir has served as Vice President, Finance since the IPO and
Treasurer of the Company since October 17, 1996. From June 1994 until the IPO,
Mr. Weir was Finance Director of Sterling Organics Limited and was a member of
the MBO Team. From 1984 to 1994, he was Controller of Sterling Organics Limited.
Mr. Weir holds a diploma in business studies from the University of Northumbria
and qualifications from the Chartered Institute of Management Accountants.
Robert L. Bratzler, Ph.D. is President of Bratzler Associates, a private
consulting firm. He was Chairman of the Board and Chief Executive Officer of the
Company from its incorporation on December 19, 1995 until his resignation on
October 17, 1996. From November 1994 until the IPO, Dr. Bratzler was President
of SepraChem Inc. He served as Executive Vice President of Sepracor from 1985
until his resignation upon the closing of the IPO. Dr. Bratzler holds a B.S.ChE.
in chemical engineering from the University of Michigan and a Ph.D. in chemical
engineering from the Massachusetts Institute of Technology.
Dirk Detert, Ph.D. is a member of the Board of Directors of the Company.
Dr. Detert has 26 years of experience in the pharmaceutical industry. Dr. Detert
was formerly the General Manager of Wellcome GmbH with responsibility for
Central Europe and Germany, as a Managing Director. He is a former Member of the
Board of the German Pharmaceutical Association and the German Chemical
Association. Dr. Detert holds a Ph.D. in Chemistry from the University of
Alberta, Edmonton, Canada and a Bachelor of Science in chemistry from the
University of Kiel.
Elizabeth M. Greetham is a member of the Board of Directors of the Company.
Ms. Greetham has 20 years of investment experience as a health care analyst,
both in Europe and the United States. From 1982 to 1993, she consulted for F.
Eberstadt & Co. and Weiss, Peck & Greer Investments before joining the latter
firm as a Portfolio Manager of the WPG Life Sciences Fund and health care
analyst. Ms. Greetham serves as a member of the Board of Directors of Access
Pharmaceuticals, Guilford Pharmaceuticals, PathoGenesis Corporation and Sangstat
Medical Corp. Ms. Greetham holds a B.Sc. and an M.A. (Honors) from the
University of Edinburgh.
W. Dieter Zander is a member of the Board of Directors of the Company. Mr.
Zander was educated in Germany and Switzerland and founded Henley & Co., Inc.
("Henley & Co."), a chemical pharmaceutical company with offices in the United
States and Canada. In 1980, Henley & Co. was sold to Boehringer Ingelheim GmbH.
Mr. Zander later joined Arnhold and S. Bleichroeder, Inc., a privately owned
investment bank, where he is currently Managing Director in the International
Corporate Finance Department.
------------------------
The Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. The Board is comprised of two Class I
Directors (Messrs. Griffith and Zander), two Class II Directors (Ms. Greetham
and Mr. Detert) and two Class III Directors (Messrs. Bratzler and Clark). At
each annual meeting of stockholders, a class of Directors is elected for a
three-year term to succeed the Directors of the same class whose terms are then
expiring. The terms of the Class I Directors, Class II Directors and Class III
Directors will expire upon the election and qualification of successor Directors
at the annual meeting of stockholders held following the end of calendar years
1996, 1997 and 1998, respectively.
Certain provisions of the Certificate of Incorporation and Amended and
Restated By-Laws of the Company and Delaware law may limit the ultimate
liability of Directors and executive officers of the Company for breaches of
certain of their duties to the Company and its stockholders. See "Description of
Capital Stock -- Delaware Law and Certain Charter and By-Law Provisions."
33
<PAGE> 35
BOARD COMMITTEES
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, and administers and grants stock options and
awards pursuant to the Company's equity incentive plans and an Audit Committee,
which reviews the results and scope of the audit and other services provided by
the Company's independent public accountants.
BOARD COMPENSATION
The Company pays to its non-employee Directors $1,000 per meeting of the
Board attended and reimburses non-employee Directors for their out-of-pocket
expenses incurred in attending meetings. In addition, each non-employee Director
participates in the Company's 1995 Director Stock Option Plan, as described
below.
1995 Director Stock Option Plan. The 1995 Director Stock Option Plan (the
"Director Plan") was adopted by the Board of Directors of the Company in
December 1995, approved by the stockholders of the Company in February 1996 and
amended, subject to stockholder approval at the 1997 Annual Meeting, by the
Board of Directors on February 20, 1997. Under the terms of the Director Plan,
members of the Board of Directors of the Company who are not employees of the
Company or any subsidiary of the Company are eligible to receive non-statutory
options to purchase shares of Common Stock. A total of 100,000 shares of Common
Stock may be issued upon exercise of options granted under the Director Plan.
Each eligible member of the Board of Directors will be granted an option to
purchase 3,000 shares of Common Stock on the date of his or her initial election
to the Board of Directors (an "Initial Option"). An additional option to
purchase 3,000 shares of Common Stock will be granted upon the close of business
on the date of each annual meeting of the stockholders to each eligible member
of the Board of Directors then in office (an "Annual Option"). Each Initial
Option will become exercisable on a cumulative basis as to one-fifth of the
shares subject to the option on each of the first, second, third, fourth and
fifth anniversaries of the date of grant of such option. Each Annual Option will
become exercisable in full immediately prior to the annual meeting of
stockholders next following the date of grant. The exercise price of options
granted under the Director Plan will equal the closing price of the Common Stock
on the Nasdaq National Market on the date of grant. Options granted under the
Director Plan generally may not be exercised unless the optionee, at the time he
or she exercises the option, is, and has been at all times since the date of
grant, a member of the Board of Directors of the Company. In addition, the
options are personal and no rights granted under the Director Plan may be
transferred, assigned, pledged or hypothecated in any way, except by will or by
the laws of descent and distribution. No option is exercisable after the
expiration of ten years from the date of grant. For a description of retirement
benefits provided to certain of the employee Directors of the Company, see
"Management -- Executive Compensation -- Retirement Benefits."
CERTAIN TRANSACTIONS WITH DIRECTORS
Dirk Detert, a member of the Board of Directors, received consulting fees
in the amount of $64,957 during the year ended December 31, 1996 in connection
with his work as a marketing consulting for InNova.
In connection with his resignation as Chairman and Chief Executive Officer
on October 17, 1996, Robert Bratzler and the Company entered into a settlement
agreement and a consulting agreement. See "Executive Compensation -- Settlement
and Consulting Agreements."
In addition, certain other transactions involving directors are described
under "Formation Transactions."
34
<PAGE> 36
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the years ended
December 31, 1995 and 1996 for the Company's current and former Chief Executive
Officer and for each of its five other executive officers whose annual salary
and bonus for the fiscal years ended December 31, 1995 and 1996 exceeded
$100,000 (the Chief Executive Officer and such other executive officers are
hereinafter referred to as the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL -------------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ----------------------------------------- ---- --------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Alan R. Clark............................ 1996 149,193 32,208 84,240(2)
Chairman and Chief Executive Officer 1995 123,240 41,679
Michael A. Griffith...................... 1996 109,485 125,000
Chief Financial Officer, Secretary and
Director(3)
Roger B. Pettman......................... 1996 139,816 37,000 102,857(4) 325,000(6)
Vice President, Sales and Marketing 1995 133,770 9,750
David F. Raynor.......................... 1996 110,498 23,550 20,253(2)
Vice President, Operations 1995 89,029 27,166
J. Graham Thorpe......................... 1996 86,124 18,355 29,835(2)
Vice President, Commercial Development 1995 66,755 20,149
John E. Weir............................. 1996 83,344 17,316 27,300(2)
Vice President, Finance & Treasurer 1995 62,367 18,715
Robert L. Bratzler....................... 1996 178,636 50,000 285,535(5) 141,086(7)
Director and Former Chairman and Chief 1995 168,168 38,549
Executive Officer
</TABLE>
- ---------------
(1) Compensation for Messrs. Clark, Raynor, Thorpe and Weir was paid in Pounds
Sterling and amounts shown were translated from Pounds Sterling into U.S.
Dollars at the rate of L0.64 to $1.00. For the year ended December 31, 1995
and the period from January 1, 1996 until March 11, 1996, compensation for
Messrs. Bratzler and Pettman was paid by SepraChem Inc. and compensation for
Messrs. Clark, Raynor, Thorpe and Weir was paid by Sterling Organics
Limited. Amounts paid by SepraChem Inc. to Messrs. Bratzler and Pettman for
the period from January 1, 1996 until March 11, 1996, were $89,312
(including a $50,000 bonus) and $66,000 (including a $37,000 bonus),
respectively. Amounts paid by Sterling Organics Limited to Messrs. Clark,
Raynor, Thorpe and Weir for the period from January 1, 1996 until March 11,
1996, were $68,553 (including a $32,208 bonus), $52,546 (including a $23,550
bonus), $34,701 (including a $18,355 bonus) and $30,882 (including a $17,316
bonus), respectively.
(2) Other compensation for Messrs. Clark, Raynor, Thorpe and Weir in 1996
represents payments made pursuant to a management retention program entered
into in connection with the MBO on August 10, 1995.
(3) Mr. Griffith was elected Chief Financial Officer of the Company effective as
of April 10, 1996, Secretary of the Company on September 5, 1996 and a
director of the Company on October 17, 1996.
(4) Represents options to purchase 87,857 shares of Common Stock which were
granted in exchange for options to purchase common stock of SepraChem Inc.
in connection with the Merger and options to purchase 15,000 shares of
Common Stock granted under the 1995 Stock Incentive Plan.
(5) Represents options to purchase Common Stock which were granted in exchange
for options to purchase common stock of SepraChem Inc. in connection with
the Merger. Incudes options to purchase 26,797 shares of Common Stock
granted in exchange for options to purchase 61,000 shares of common stock of
SepraChem Inc. granted in 1995.
35
<PAGE> 37
(6) Represents the fair market value at the time of grant of 25,000 shares of
Common Stock granted in exchange for 56,911 shares of common stock of
SepraChem which were transferred to Mr. Pettman prior to the Merger.
(7) Mr. Bratzler resigned from his positions as Chairman and Chief Executive
Officer on October 17, 1996. In connection with his resignation, Mr.
Bratzler and the Company entered into a settlement agreement and a
consulting agreement. Amounts presented include payments made pursuant to
the settlement agreement of $91,180 and the consulting agreement of $49,906
in the year ended December 31, 1996. See "-- Settlement and Consulting
Agreements."
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with Mr. Clark, Mr. Raynor,
Mr. Thorpe and Mr. Weir each dated March 11, 1996. Under each agreement, each
executive is entitled to receive an annual base salary. In addition to a base
salary, each executive is entitled to receive annual bonuses based on the
Company's performance. The agreements also entitle the executives to participate
in certain retirement benefit programs maintained by the Company and to be
provided with the use of a company car. The employment agreements shall continue
in effect until terminated upon 12 months' written notice by either party,
except in the case of certain for cause terminations, in which the Company shall
have the right to terminate each executive immediately. In the event of an
executive's termination, the agreements provide that, under certain
circumstances, the executive may be entitled to receive salary and other
benefits for all or part of the 12 month notice period.
SETTLEMENT AND CONSULTING AGREEMENTS
On October 17, 1996, the Company entered into a settlement agreement with
Mr. Bratzler. The settlement agreement provided for a cash severance payment to
Mr. Bratzler of $91,180. In addition, under the agreement, all of Mr. Bratzler's
options to purchase 285,535 shares of Common Stock became fully vested and
exercisable at the price of $1.48. The Company also agreed to provide Mr.
Bratzler with continued welfare benefit coverage and with office space and
secretarial services until April 17, 1998. The settlement agreement contained
certain restrictive covenants, including provisions relating to noncompetition,
nonsolicitation and the nondisclosure of proprietary information. In addition,
the settlement agreement included a release of claims by the Company in favor of
Mr. Bratzler and a release of claims by Mr. Bratzler in favor of the Company.
The Company is also party to a consulting agreement with Mr. Bratzler for
the period commencing October 17, 1996 and ending on April 17, 1998. Under the
agreement, Mr. Bratzler performs consulting, advisory and related services as
requested by the Company and receives a monthly consultant's fee of $19,583.
RETIREMENT BENEFITS
Employees of the Company, including senior management, are entitled to
participate in the ChiRex Pension Plan (the "Pension Plan"). Messrs. Clark,
Raynor, Thorpe and Weir currently participate in the Pension Plan; however,
Messrs. Griffith and Pettman do not participate.
Currently, the Company is required to make a contribution equal to 9% of
each participant's annual salary, and each participant is required to make a
contribution equal to 3% of his or her annual salary. The funding of the Pension
Plan has been designed to provide sufficient assets to satisfy the pension
liabilities of all participants on a going forward basis. In order to satisfy
the past service liabilities of Pension Plan participants who had previously
participated in the pension plan maintained by Sanofi Winthrop, assets valued at
approximately 31 million pounds were transferred from Sanofi Winthrop to the
trust maintained for the Pension Plan. The amount of the asset transfer was
calculated by the Company's actuary and is sufficient to satisfy the past
service liabilities under the Sanofi Winthrop plan that were assumed by the
Company (including the senior executive supplemental pension benefits for
Messrs. Clark and Raynor, described below).
Upon reaching age 65, a vested participant in the Pension Plan is entitled
to receive a basic benefit equal to the product of (i) 1/60th, multiplied by
(ii) years of continuous service (up to a maximum of 40 years), multiplied by
(iii) final average basic earnings in excess of the state basic pension. Messrs.
Clark and Raynor are entitled to receive a supplemental pension benefit for
senior executives related to their participation in the
36
<PAGE> 38
Sterling Winthrop Senior Executive Pension Plan, which is equal to the product
of (i) 1/30th, multiplied by (ii) years of continuous service (up to a maximum
of 20 years), multiplied by (iii) the participant's final average basic earnings
in excess of the state basic pension. For purposes of the Pension Plan, final
average basic earnings is defined as a participant's highest average 12 months
of basic salary in the past 5 years, plus such participant's average additional
compensation defined as the average of the highest 3 consecutive years of
additional earnings in the past ten years (excluding the value of any stock
options).
Vesting occurs under the Pension Plan after the completion of two years of
service. The Pension Plan provides for annual pension increases for participants
in pay status equal to the lesser of (i) 5% a year or (ii) the increase in the
Retail Price Index. The Pension Plan also provides for early retirement, ill
health retirement and death in service benefits.
The following table provides estimates of annual retirement benefits
payable under the Pension Plan:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ----------------------------------------------
COMPENSATION(1) 10 20 30 40 OR MORE
- --------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 80,000 $12,900 $25,000 $38,700 $ 51,600
100,000 16,250 32,500 48,750 65,000
120,000 19,580 39,160 58,740 78,320
140,000 22,900 45,800 68,700 91,600
160,000 26,250 52,500 78,750 105,000
180,000 29,580 59,160 88,740 118,320
</TABLE>
- ------------------------
(1) Compensation and annual retirements benefits for all employees covered under
the Pension Plan are paid
in Pounds Sterling and amounts shown were translated from Pounds Sterling
into U.S. Dollars at the rate of L0.64 to $1.00.
The Named Executive Officers have been credited with the following years of
service; Mr. Clark, 20 years; Mr. Raynor, 22 years; Mr. Thorpe, 22 years; Mr.
Weir, 19 years. Under the Executive Pension Plan, Mr. Clark and Mr. Weir's
estimated annual retirement benefits are equivalent to the estimated benefits
payable under the Pension Plan for employees with 40 or more years of service.
The Pension Plan defines "compensation" generally to include all remuneration to
an employee for services rendered, including base pay, bonuses and special forms
of pay. The definition of "covered compensation" under the Pension Plan, is not
substantially different that the amount reflected in the Annual Compensation
column of the Summary Compensation Table set forth above.
37
<PAGE> 39
OPTION GRANTS AND EXERCISES
The following tables set forth certain information concerning grants and
exercises of options to purchase securities of the Company during the fiscal
year ended December 31, 1996 to or by the Named Executive Officers and the
number and value of any such unexercised options held by such persons on
December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------- ---------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alan R. Clark.......... 0 0 0 0 0 0
Michael A. Griffith.... 125,000(2) 13.3 10.875 4/10/03 553,402 1,289,662
Roger B. Pettman....... 87,857(3) 9.3 1.48 3/11/03 1,477,079 2,095,681
15,000(4) 1.6 11.50 6/28/03 70,225 163,654
David F. Raynor........ 0 0 0 0 0 0
J. Graham Thorpe....... 0 0 0 0 0 0
John E. Weir........... 0 0 0 0 0 0
Robert L. Bratzler..... 285,535(3) 30.3 1.48 3/11/03 4,800,502 6,810,958
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. Actual gains, if any, on stock option exercises will depend
on the future performance of the Common Stock and the date on which the
options are exercised.
(2) Represents (i) options to purchase 100,000 shares of Common Stock, 30% of
which vested upon the commencement of Mr. Griffith's employment on April 10,
1996 and the remaining 70% of which vest at annual rate of 20% and (ii)
options to purchase 25,000 shares of Common Stock which vested upon the
filing of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
(3) Represents fully vested options to purchase shares of Common Stock which
were granted in exchange for options to purchase shares of common stock of
SepraChem Inc. in connection with the Merger.
(4) Represents options to purchase 15,000 shares of Common Stock granted on June
28, 1996 which vest at an annual rate of 20%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Alan R. Clark............ 0 0 0 0
Michael A. Griffith...... 0 0 30,000/95,000 33,750/106,875
Roger B. Pettman......... 0 0 87,857/15,000 924,255/ 7,500
David F. Raynor.......... 0 0 0 0
J. Graham Thorpe......... 0 0 0 0
John E. Weir............. 0 0 0 0
Robert L. Bratzler....... 22,000 264,000 263,535/0 2,772,388/0
</TABLE>
- ---------------
38
<PAGE> 40
STOCK REPURCHASE OPTION
In connection with the closing of the Formation Transactions, Messrs.
Bratzler and members of senior management including (Messrs. Clark, Pettman,
Raynor, Thorpe and Weir) each entered into an Escrow Agreement (the "Escrow
Agreements") with the Company and an escrow agent. Messrs. Bratzler's and
Pettman's Escrow Agreements were terminated and the repurchase options described
below were not exercised with respect to their shares or shares subject to
options. Pursuant to the Escrow Agreements of the other members of senior
management, in the event that the executive ceases to be employed by the Company
or any subsidiary of the Company prior to March 11, 1998, a committee, five
members of whom are from the members of management who are parties to such
Escrow Agreements and two of whom were selected by the Board of Directors of the
Company shall, under certain conditions after a termination of employment, have
the right to repurchase at a price of $1.00 per share the shares acquired by
such executive in connection with the Contribution. The number of shares subject
to such repurchase option shall be determined by multiplying (i) the number of
shares initially subject to such repurchase option by (ii) a fraction, the
denominator of which shall be 730 and the numerator of which shall be (x) 730
minus (y) the number of days elapsed between the date of the applicable Escrow
Agreement and the date of termination of employment. Shares held in escrow
pursuant to the Escrow Agreements will be released from escrow on March 11,
1998, or earlier (i) with the consent of the Board of Directors, or (ii) in the
event of a sale of all or substantially all the assets of the Company or a
consolidation or merger involving the Company in which the outstanding shares of
Common Stock of the Company are exchanged for securities, cash or other property
of any other corporation or business entity.
STOCK PLANS
1995 STOCK INCENTIVE PLAN
The Company's 1995 Stock Incentive Plan (the "1995 Incentive Plan") was
adopted by the Board of Directors of the Company in December 1995 and approved
by the stockholders of the Company in February 1996. The 1995 Incentive Plan
provides for the grant of Stock Options, Stock Appreciation Rights ("SARs"),
Performance Shares and Restricted or Unrestricted Stock to employees, officers
and members of the Board of Directors of, and consultants or advisors to, the
Company. A total of 1,500,000 shares of Common Stock may be awarded under the
1995 Incentive Plan. The maximum number of shares of Common Stock which may be
granted to any employee under the 1995 Incentive Plan shall not exceed 350,000
shares during any calendar year. The exercise price (or purchase price, as the
case may be) of such Awards is set by the Board and may be below, at or above
the fair market value of the Common Stock at the date of grant. The 1995
Incentive Plan is administered by the Board, which may authorize a Committee to
adopt, amend or repeal the administrative rules, guidelines and practices
relating to the plan.
The Board may award Incentive Stock Options and Nonstatutory Stock Options,
and determine the number of shares to be covered by each option, the conditions
and limitations applicable to the exercise of the option and the option price
therefor, which, in the case of Incentive Stock Options, must be at least 100%
(110% in the case of Incentive Stock Options granted to a stockholder owning in
excess of 10% of the Common Stock) of the fair market value of the Common Stock
as of the date of grant. Incentive Stock Options shall be subject to and comply
with Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Payment of the option exercise price may be made in cash, check, shares of
Common Stock or by any other method (including delivery of a promissory note
payable on terms specified by the Board) approved by the Board. The option
exercise period for Incentive Stock Options shall not exceed ten years from the
date of grant, or five years if granted to a stockholder owning in excess of 10%
of the Common Stock.
The Board may award SARs entitling recipients on exercise of the SAR to
receive an amount, in cash or stock or a combination thereof, determined in
whole or in part by reference to appreciation in the fair market value of the
Common Stock between the date of the award and the exercise of the award. SARs
may be granted in tandem with, or independently of, options granted under the
1995 Incentive Plan.
The Board may make Performance Share Awards entitling recipients to acquire
shares of Common Stock upon the attainment of specified performance goals, as
determined by the Board. The Board may make
39
<PAGE> 41
Performance Share Awards independent of or in connection with any other award
under the Incentive Plan. Performance Share Awards and all rights with respect
to such awards may not be sold, assigned, transferred, pledged or otherwise
encumbered.
The Board may grant Restricted Stock Awards entitling recipients to acquire
shares of Common Stock subject to the right of the Company to repurchase all or
part of such shares at their purchase price from the recipient in the event that
conditions specified by the Board are not satisfied prior to the end of the
applicable Restricted Period established by the Board for such award. Shares of
Restricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered during the applicable Restricted Period. The Board may, in its sole
discretion, grant or sell to participants shares of Common Stock free of any
restrictions under the 1995 Incentive Plan at a price per share equal to at
least 85% of the fair market value of the Common Stock.
To the extent required to qualify for the exemption provided by Rule 16b-3
under the Exchange Act, any Stock Option, SAR, Performance Share Award or other
similar right related to an equity security issued under the 1995 Incentive Plan
to a person required to file reports under Section 16(a) of the Exchange Act
shall not be transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. In the event
of the sale of all or substantially all of the assets of the Company or a
consolidation or merger involving the Company in which the outstanding shares of
Common Stock are exchanged for security, cash or other property of any other
corporation or business entity, then all of the outstanding stock options
granted under the 1995 Incentive Plan shall become exercisable immediately prior
to such event. The 1995 Incentive Plan shall terminate upon the earlier of (i)
the close of business on the day next preceding the tenth anniversary of the
date of its adoption, or (ii) the date on which all shares available for
issuance under the 1995 Incentive Plan shall have been awarded.
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Stock Incentive Plan")
was adopted by the Board of Directors of the Company on February 20, 1997, and
is subject to approval of the stockholders of the Company at the 1997 Annual
Meeting. The 1997 Stock Incentive Plan is substantially similar to the 1995
Stock Incentive Plan, except that a total of 2,000,000 shares of Common Stock
may be awarded under the 1997 Stock Incentive Plan and the exercise period for
Incentive Stock Options shall not exceed seven years from the date of grant.
1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan"),
which became effective upon the closing of the IPO, was adopted by the Board of
Directors of the Company in December 1995 and approved by the stockholders of
the Company in February 1996. The Purchase Plan authorizes the issuance of up to
a total of 480,000 shares of Common Stock to participating employees.
All employees of the Company, including Directors of the Company who are
employees, and all employees of any participating subsidiaries whose customary
employment is more than 20 hours per week and more than five months in any
calendar year, are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% of the fair market value per share of
the Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's annualized
base pay divided by
40
<PAGE> 42
85% of the market value of a share of Common Stock on the commencement date of
the Offering Period. The Purchase Plan provides for six Offering Periods of
80,000 shares each. Shares not purchased during an Offering Period become
available for purchase in subsequent Offering Periods. Each Offering Period will
be six months in length, provided that the Compensation Committee may, in its
discretion, choose any other Offering Period of twelve months or less.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when the employment of such employee ceases for any reason.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. Members also evaluate
the Company's research programs, recommend personnel to the Company and advise
the Company on technological matters. In addition, the Company has established
consulting relationships with scientific and chemical experts who advise the
Company on a project-specific basis.
No member of the Scientific Advisory Board is employed by the Company, and
members may have other commitments to or consulting or advisory contracts with
their employers or other entities that may conflict or compete with their
obligations to the Company. Accordingly, such persons are expected to devote
only a small portion of their time to the Company.
The members of the Company's Scientific Advisory Board are as follows:
<TABLE>
<S> <C>
Roger B. Pettman, Ph.D. ......................... Chairman
Stephen Buchwald, Ph.D. ......................... Massachusetts Institute of Technology
Eric N. Jacobsen, Ph.D. ......................... Harvard University
J. Bryan Jones, Ph.D. ........................... University of Toronto
Alexander McKillop, Ph.D. ....................... University of East Anglia
William H. Pirkle, Ph.D. ........................ University of Illinois
Christian Roussel, Ph.D. ........................ University of Marseilles
K. Barry Sharpless, Ph.D. ....................... Scripps Research Institute
</TABLE>
41
<PAGE> 43
THE FORMATION TRANSACTIONS
The Company is a combination of ChiRex Ltd. (formerly Sterling Organics
Limited), a fine chemicals manufacturer, and the chiral chemistry business of
Sepracor, conducted through its former subsidiary ChiRex America (formerly
SepraChem Inc.). The Company completed its IPO of 6,675,000 shares of Common
Stock on March 11, 1996.
Immediately prior to the IPO, the Contribution occurred, which consisted of
the contribution of all issued and outstanding share capital of ChiRex Holdings
Ltd. (formerly Crossco (157) Limited), the holding company of ChiRex Ltd., to
the Company in exchange for Common Stock and promissory notes. In connection
with the Contribution, Messrs. Clark, Raynor, Thorpe and Weir received an
aggregate of 300,205 shares of Common Stock and $4.2 million in cash in exchange
for shares of capital stock of ChiRex Holdings Ltd. held by them prior to the
Contribution. See "Principal and Selling Stockholders." The terms and conditions
of the Contribution are set forth in a Contribution Agreement dated February 7,
1996 among the Company and the shareholders of Crossco (157) Limited (the
"Contribution Agreement"). Immediately prior to the IPO, the Merger occurred,
whereby Sepracor contributed ChiRex America to the Company through a merger of a
newly formed wholly owned subsidiary of the Company with and into ChiRex
America. In connection with the Merger, Sepracor received 3,489,301 shares of
Common Stock and Messrs. Bratzler, Pettman and Zander received options to
purchase 285,535, 87,857, and 2,635 shares of Common Stock, respectively, in
exchange for options to purchase shares of common stock of ChiRex America. Each
option is exercisable at a price of $1.48 per share. In addition, Mr. Pettman
received 25,000 shares of Common Stock in exchange for 56,911 shares of common
stock of ChiRex America granted to him prior to the IPO by Sepracor in
consideration of his business development efforts in the formation of InNova.
See "Executive Compensation -- Summary Compensation Table" and "-- Option Grants
in Last Fiscal Year" and "Principal and Selling Stockholders." The terms and
conditions of the Merger are set forth in an Agreement and Plan of Merger dated
as of February 6, 1996 among the Company, Sepracor, SepraChem Inc., Roger B.
Pettman, Certain Trusts Affiliated with Victor H. Woolley and SepraChem Merger
Corporation, as amended (the "Merger Agreement").
In connection with the Merger Agreement, Sepracor was granted registration
rights pursuant to a registration rights agreement (the "Sepracor Registration
Rights Agreement") with respect to the shares of Common Stock received by it in
the Formation Transactions which it is exercising in connection with the
offering made hereby. Upon consummation of this offering, the Sepracor
Registration Rights Agreement will be terminated.
The foregoing is a summary of all the material terms of the Formation
Transactions and is qualified in its entirety by reference to the Contribution
Agreement and the Merger Agreement, copies of which are filed as Exhibits to the
Registration Statement of which this Prospectus is a part.
42
<PAGE> 44
RELATIONSHIP WITH SEPRACOR
The Company is a combination of the chiral chemistry business of Sepracor
conducted through SepraChem Inc. and the fine chemicals manufacturing business
of Sterling Organics Limited. Following this offering, Sepracor will not own any
shares of Common Stock. As a result of the reduction of Sepracor's ownership of
the Company following this offering, certain of the agreements described below
may be terminated by either party as early as six months following the date of
this offering. See "Principal and Selling Stockholders."
The Company has entered into the following separate agreements with
Sepracor. The following summaries do not purport to be complete and are subject
to, and qualified in their entirety by the agreements, copies of which have been
included as exhibits to the Registration Statement of which this Prospectus is a
part.
Technology Transfer and License Agreement. Under the Technology Transfer
and License Agreement, effective January 1, 1995, Sepracor granted to the
Company (with certain exceptions) an exclusive, royalty-free perpetual right and
license to use and practice certain of the ChiRex Technologies (and improvements
thereto) licensed and sublicensed thereunder (the "Licensed Technologies") on a
worldwide basis in a field (the "Company field") described as the development,
manufacture, use and sale of pharmaceutical intermediates, active ingredients,
agrichemicals, flavors, fragrances and other chemicals and compounds. The term
of this agreement ends on December 31, 1998, unless either party exercises its
option to terminate such agreement on six months written notice after the date
on which Sepracor's ownership of the outstanding voting stock of the Company
first drops below 20%, which will occur upon the consummation of this offering.
The termination of the agreement shall not affect the Company's ability to
continue using the Licensed Technologies in the Company field, the Company's
ability to continue using improvements developed by Sepracor during the term of
such agreement in the Company field or Sepracor's ability to continue using
improvements developed by the Company during the term of such agreement outside
the Company field. In the period since the IPO, the Company has paid $158,000 to
Sepracor under the Technology Transfer and License Agreement for patent and
licensing expenses and has received $609,000 in licensing royalties.
Supply Agreement. Pursuant to the terms of the Supply Agreement, Sepracor
is required to purchase all of its current needs with respect to certain
pharmaceutical active ingredients from the Company. However, Sepracor may
manufacture such active ingredients itself or license the technology to other
sources, solely to manufacture for Sepracor, if: (i) the price which the Company
charges to Sepracor for such active ingredients is greater than 115% of the
price charged by comparable suppliers for the same active ingredient; (ii) the
Company does not accept a firm order placed by Sepracor for such active
ingredient with a requested delivery date at least 12 months after Sepracor
placed such order; (iii) such active ingredient previously delivered by the
Company was repeatedly found not to conform to the agreed-upon specifications;
or (iv) the Company repeatedly and materially fails to deliver the active
ingredients by the agreed-upon dates (unless such failure is beyond the
Company's control). Notwithstanding the preceding sentence, Sepracor retains the
right to manufacture such products, subject to certain quantity limitations for
Sepracor's own use in manufacturing products. The price charged by the Company
for any products manufactured for Sepracor pursuant to the Supply Agreement is
cost plus 25%. The term of the agreement is until December 31, 2001, and is
subject to automatic extensions of one year each unless either party, in its
sole discretion, elects not to extend the agreement. To date no products have
been manufactured by the Company under the Supply Agreement.
43
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 10, 1997 (unless otherwise indicated
by footnote) and as adjusted to reflect the sale of the shares of Common Stock
offered hereby by (i) each person or entity known to the Company to beneficially
own more than 5% of the Common Stock, (ii) each of the Directors, (iii) each of
the Named Executive Officers, (iv) all Directors and executive officers as a
group and (v) the Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER THE OFFERING
---------------------- ------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Sepracor Inc................................ 3,489,301 31.9% -0- --
33 Locke Drive
Marlborough, MA 01752
Mellon Bank Corporation(1).................. 1,380,000 12.6 1,380,000 12.6
One Mellon Bank Center
Pittsburgh, PA 15258
State of Wisconsin Investment Board(2)...... 852,000 7.8 852,000 7.8
P.O. Box 7842
Madison, WI 53707
American Express Company(3)................. 603,500 5.5 603,500 5.5
American Express Tower
200 Vesey Street
New York, NY 10285
Robert L. Bratzler(4)....................... 285,535 2.6 285,535 2.6
Alan R. Clark............................... 93,828 * 93,828 *
Dirk Detert................................. -0- -- -0- --
Elizabeth M. Greetham....................... -0- -- -0- --
Michael A. Griffith(5)...................... 60,000 * 60,000 *
W. Dieter Zander(6)......................... 2,635 * 2,635 *
Roger B. Pettman(7)......................... 112,857 1.0 112,857 1.0
David F. Raynor............................. 69,459 * 69,459 *
J. Graham Thorpe............................ 69,459 * 69,459 *
John E. Weir................................ 71,459 * 71,459 *
Directors and executive officers as a group
(10 persons)(8)........................... 765,232 6.7 765,232 6.7
</TABLE>
- ---------------
* Less than one percent
(1) As reported on Schedule 13G filed with the Securities and Exchange
Commission for the year ended December 31, 1996. Mellon Bank Corporation is
the parent holding company of Mellon Bank N.A. and The Dreyfus Corporation,
a registered Investment Adviser under Section 203 of the Investment Advisers
Act of 1940. Mellon Bank Corporation has voting power over 1,380,000 shares,
sole dispositive power over 126,000 shares and shared dispositive power over
1,254,000 shares; Mellon Bank N.A. has voting power over 1,026,000 shares,
sole dispositive power over 20,000 shares and shared dispositive power over
1,006,000 shares; and The Dreyfus Corporation has voting power over
1,006,000 shares.
(2) As reported on Schedule 13G filed with the Securities and Exchange
Commission for the year ended December 31, 1996.
(3) As reported on Schedule 13G filed with the Securities and Exchange
Commission for the year ended December 31, 1996. American Express Company is
the parent holding company of American Express Financial Corporation, a
registered Investment Adviser under Section 203 of the Investment Advisers
Act of 1940 and IDS Discovery Fund, Inc., a registered Investment Company
under Section 8 of the Investment Company Act of 1940. American Express
Company has shared voting power over 3,500 shares and shared dispositive
power over 603,500 shares; American Express Financial Corporation has shared
voting power over 3,500 shares and shared dispositive power over 603,500
shares; and IDS Discovery Fund, Inc. has sole voting power over 600,000
shares and shared dispositive power over 600,000 shares.
(4) Includes 263,535 shares subject to vested options.
(5) Includes 55,000 shares subject to vested options.
(6) Represents shares subject to vested options.
(7) Includes 87,857 shares subject to vested options.
(8) Includes an aggregate of 409,027 shares subject to vested options.
44
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
As of March 17, 1997, there were outstanding an aggregate of 10,943,678
shares of Common Stock held of record by approximately 2,800 stockholders. If
the Underwriters' over-allotment option is exercised in full, there will be
11,467,073 shares outstanding.
The following summary of certain provisions of the Company's capital stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the Company's Certificate of Incorporation, which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part, and by the provisions of applicable law.
COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
30,000,000 shares of Common Stock, $.01 par value per share. Holders of Common
Stock are entitled to one vote for each share held on all matters submitted to a
vote of stockholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of Common Stock entitled to vote in any
election of directors may elect all of the directors standing for election.
Holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights of outstanding Preferred
Stock. Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding Preferred Stock. Holders of
Common Stock have no preemption, subscription, redemption or conversion rights.
The outstanding shares of Common Stock are fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.
PREFERRED STOCK
The Certificate of Incorporation authorizes the issuance of up to 4,000,000
shares of Preferred Stock, $.01 par value per share. Under the terms of the
Certificate of Incorporation, the Board of Directors is authorized, subject to
any limitations prescribed by law, without stockholder approval, to issue such
shares of Preferred Stock in one or more series. Each such series of Preferred
Stock shall have such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors. Accordingly, the Board of Directors, without stockholder approval,
may issue undesignated stock with terms that could adversely effect the voting
power and other rights of holders of Common Stock.
The existence of undesignated preferred stock may have the effect of
discouraging attempts to acquire control of the Company with a view to effecting
a merger, sale or exchange of assets or a similar transaction. The anti-takeover
effects of the undesignated shares may deny stockholders the opportunity to
receive a premium on their stock and may also have a depressive effect on the
market price of the Common Stock.
RIGHTS PLAN
Rights
The Board of Directors of the Company intends, subject to their final
approval, to declare a dividend of one right (the "Rights") for each outstanding
share of Common Stock. The Rights will be issued to the holders of record of
Common Stock outstanding on the Rights issuance date, and with respect to Common
Stock issued thereafter until the Distribution Date (as defined below), and, in
certain circumstances, with respect to Common Stock issued after the
Distribution Date. Each Right, when it becomes exercisable as described below,
will entitle the registered holder to purchase from the Company one
one-thousandth (1/1000th) of a share of Preferred Stock (the "Preferred Shares")
at a price of $50 per (1/1000th) of a share, subject to adjustment in certain
circumstances (the "Purchase Price"). The description and terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement") between the Company
and the Rights Agent named therein. The Rights will not be exercisable until the
Distribution Date and will expire on
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<PAGE> 47
the tenth annual anniversary of the Rights Agreement (the "Expiration Date"),
unless earlier redeemed by the Company. Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends with
respect to the Rights or the Preferred Shares relating thereto.
Distribution Date
Under the Rights Agreement, the Distribution Date is the earlier of (i)
such time as the Company learns that a person or group (including any affiliate
or associate of such person or group) has acquired, or has obtained the right to
acquire, beneficial ownership of more than 15% of the outstanding shares of
Common Stock (such person or group being an "Acquiring Person"), unless
provisions preventing accidental triggering of the distribution of the Rights
apply, and (ii) the close of business on such date, if any, as may be designated
by the Board of Directors following the commencement of, or first public
disclosure of an intent to commence, a tender or exchange offer for more than
15% or more of the outstanding shares of Common Stock.
Triggering Event and Effect of Triggering Event
At such time as there is an Acquiring Person, the Rights will entitle each
holder (other than such Acquiring Person) of a Right to purchase, for the
Purchase Price, that number of one one-thousandths (1/1000ths) of a Preferred
Share equivalent to the number of shares of Common Stock which at the time of
such event would have a market value of twice the Purchase Price.
In the event the Company is acquired in a merger or other business
combination by an Acquiring Person or an affiliate or associate of an Acquiring
Person that is a publicly traded corporation or 50% or more of the Company's
assets or assets representing 50% or more of the Company's revenues or cash flow
are sold, leased, exchanged or otherwise transferred (in one or more
transactions) to an Acquiring Person or an affiliate or associate of an
Acquiring Person, each Right will entitle its holder (other than Rights
beneficially owned by such Acquiring Person or its affiliates or associates) to
purchase, for the Purchase Price, that number of common shares of such
corporation (or, if such corporation is not a publicly traded corporation, that
number of common shares of an affiliate of such corporation that has publicly
traded shares) which at the time of the transaction would have a market value
or, in certain circumstances, book value of twice the Purchase Price.
Redemption
At any time prior to the earlier of (i) such time as a person or group
becomes an Acquiring Person and (ii) the Expiration Date, the Board of Directors
may redeem the Rights in whole, but not in part, at a price (in cash or Common
Stock or other securities of the Company deemed by the Board of Directors to be
at least equivalent in value) of $.01 per Right (which amount shall be subject
to adjustment as provided in the Rights Agreement) (the "Redemption Price").
Immediately upon the action of the Board of Directors ordering the redemption of
the Rights, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
In addition, at any time after there is an Acquiring Person, the Board of
Directors may elect to exchange each Right for consideration per Right
consisting of one-half of the securities that would be issuable at such time
upon exercise of one Right pursuant to the terms of the Rights Agreement.
Amendment
At any time prior to the Distribution Date, the Company may, without the
approval of any holder of any Rights, supplement or amend any provision of the
Rights Agreement (including, without limitation, the date on which the
Distribution Date shall occur, the definition of Acquiring Person, the time
during which the Rights may be redeemed or the terms of the Preferred Shares),
except that no supplement or amendment shall be made which reduces the
Redemption Price (other than pursuant to certain adjustments therein) or
provides for an earlier Expiration Date.
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<PAGE> 48
Certain Effects of the Rights Plan
The Rights Plan is designed to protect stockholders of the Company in the
event of unsolicited offers to acquire the Company and other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent stockholder interests. The provisions of the Rights Plan
may render an unsolicited takeover of the Company more difficult or less likely
to occur or might prevent such a takeover, even though such takeover may offer
the Company's stockholders the opportunity to sell their stock at a price above
the prevailing market rate and may be favored by a majority of the stockholders
of the Company.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Amended and Restated By-Laws provide for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Amended and
Restated By-Laws provide that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the corporation entitled to vote. Under the Company's Amended and Restated
By-Laws, any vacancy on the Board of Directors, however occurring, including a
vacancy resulting from an enlargement of the Board, may only be filled by vote
of a majority of the directors then in office. The classification of the Board
of Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
The Company's Amended and Restated By-Laws also provide that any action
required or permitted to be taken by the stockholders of the Company at an
annual meeting or special meeting of stockholders may only be taken if it is
properly brought before such meeting and may not be taken by written action in
lieu of a meeting. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must give written notice thereof to the
Secretary of the Company, subject to certain exceptions, not less than 70 days
nor more than 90 days prior to the anniversary date of the previous annual
meeting. In addition, the Amended and Restated By-Laws provide that the Company
need not present a stockholder proposal which was otherwise submitted properly,
if such stockholder or its representative does not appear to present such
proposal at the annual meeting. The Amended and Restated By-Laws further provide
that special meetings of the stockholders may only be called by the Chairman of
the Board of Directors, the Chief Executive Officer or the President of the
Company or by the Board of Directors. Under the Company's Amended and Restated
By-Laws, in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain other requirements regarding
notice to the Company. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Common Stock, because such person or entity, even
if it acquired a majority of the outstanding voting securities of the Company,
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders meeting, and not by
written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Company's Amended and Restated By-Laws
require the affirmative vote of the holders of at
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<PAGE> 49
least 75% of the shares of capital stock of the Company issued and outstanding
and entitled to vote to amend or repeal any of the provisions described in the
prior two paragraphs.
The Company's Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. These provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Company's Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe
L.P., an affiliate of The First National Bank of Boston.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
GENERAL
The following is a general discussion of United States Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
holder who is not a United States person (a "Non-U.S. Holder"), as defined
below. This discussion does not address all aspects of United States Federal
income and estate taxes and does not address any foreign, state or local tax
consequences. Furthermore, this discussion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing, temporary and
proposed regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. Each prospective purchaser of Common Stock is advised to
consult a tax advisor with respect to current and possible future U.S. Federal
income and estate tax consequences of holding and disposing of Common Stock as
well as any tax consequences that may arise under the laws of any state, local,
foreign or other taxing jurisdiction. For purposes of this summary, a "U.S.
Holder" with respect to Common Stock is (i) an individual who is a citizen or
resident of the United States, (ii) a corporation or other entity taxable as a
corporation created or organized in the United States or under the laws of the
United States or of any state thereof (including the District of Columbia),
(iii) an estate or trust the income of which is includable in gross income for
United States Federal income tax purposes regardless of its source, or (iv) a
person otherwise subject to United States Federal income taxation with respect
to income from the Common Stock on a net income basis; and a "Non-U.S. Holder"
is any person other than a U.S. Holder.
DISTRIBUTIONS
Distributions on the shares of Common Stock (other than distributions in
redemption of the shares of Common Stock subject to section 302(b) of the Code)
will constitute dividends for Federal income tax purposes to the extent paid
from current or accumulated earnings and profits of the Company (as determined
under Federal income tax principles). Dividends paid to a Non-U.S. Holder of
Common Stock that are not effectively connected with a U.S. trade or business of
the Non-U.S. Holder will be subject to United States withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
Under the terms of the tax treaty between Canada and the United States (the
"Treaty"), dividends paid to a Non-U.S. Holder owning less than 10% of the
Common Stock are subject to withholding tax at the reduced rate of 15%, provided
that such Non-U.S. Holder is entitled to the benefits of the Treaty. Moreover,
under United States Treasury regulations that are currently in effect,
withholding is generally imposed on the gross amount of the distribution,
without regard to whether the corporation has sufficient earnings and profits to
cause the distribution to be a dividend for Federal income tax purposes.
Dividends that are effectively connected with the conduct of a trade or business
within the United States or, if a tax treaty applies, are attributable to a U.S.
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<PAGE> 50
permanent establishment of the Non-U.S. Holder, are exempt from United States
Federal withholding tax but are subject to United States Federal income tax on a
net income basis at applicable graduated individual or corporate rates. Any such
dividends effectively connected with the conduct of a trade or business within
the U.S. or attributable to a U.S. permanent establishment received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Certain certification and disclosure requirements
must be complied with in order to be exempt from withholding under the
effectively connected income or permanent establishment exemptions.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury regulations (the "Proposed Regulations") not currently in effect,
however, a Non-U.S. Holder of Common Stock would be required to satisfy
applicable certification and other requirements to qualify for withholding at an
applicable treaty rate. The Proposed Regulations would require a Non-U.S. Holder
to file a beneficial owner withholding certificate, e.g., a Form W-8, to obtain
the lower treaty rate. The Proposed Regulations would apply to dividends paid
after December 31, 1997, subject to certain transitional rules.
A Non-U.S. Holder of Common Stock may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the Internal Revenue
Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States Federal
income tax with respect to gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, (ii) in the case of a
Non-U.S. Holder who is an individual and holds Common Stock as a capital asset,
such holder is present in the United States for 183 or more days in the taxable
year of the sale or other disposition and certain other conditions are met, or
(iii) the Company is or has been a "U.S. real property holding corporation" for
United States Federal income tax purposes at any time during the five-year
period ending on the date of the disposition, or, if shorter, the period during
which the Non-U.S. Holder held the Common Stock (the "applicable period"), and
the Non-U.S. Holder owns, actually or constructively, at any time during the
applicable period more than five percent of the Common Stock. The Company
believes that it has not been, is not currently and, based upon its current
business plans, is not likely to become a "U.S. real property holding
corporation" for Federal income tax purposes.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under Treasury regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a United States trade or business of the
Non-U.S. Holder or withholding was reduced or eliminated by an applicable income
tax treaty. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides under the provisions of an applicable income
tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements) will
generally not apply to dividends paid to Non-U.S. Holders that either are
subject to the
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<PAGE> 51
U.S. withholding tax, whether at 30% or a reduced treaty rate, or that are
exempt from such withholding of effectively connected income. As a general
matter, information reporting and backup withholding will not apply to a payment
by or through a foreign office of a foreign broker of the proceeds of a sale of
Common Stock effected outside the United States. However, information reporting
requirements (but not backup withholding) will apply to a payment by or through
a foreign office of a broker of the proceeds of a sale of Common Stock effected
outside the United States where that broker (i) is a United States person, (ii)
is a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States or (iii) is
a "controlled foreign corporation" as defined in the Code (generally, a foreign
corporation controlled by certain United States shareholders), unless the broker
has documentary evidence in its records that the holder is a Non-U.S. Holder and
certain conditions are met or the holder otherwise establishes an exemption.
Payment by a United States office of a broker of the proceeds of a sale of
Common Stock is subject to both backup withholding and information reporting
unless the holder certifies to the payor in the manner required as to its
non-United States status under penalties of perjury or otherwise establishes an
exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate United States Federal income tax. Rather, any amounts withheld under
the backup withholding rules will be refunded or allowed as a credit against the
holder's United States Federal income tax liability, if any, provided the
required information or appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL UNITED STATES
FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER
DISPOSITION OF COMMON STOCK BY NON-U.S. HOLDERS. ACCORDINGLY, INVESTORS ARE
URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON STOCK
INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR
OTHER TAXING JURISDICTION.
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UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Selling Stockholder has agreed to sell to such
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Smith Barney Inc..................................................................
Credit Suisse First Boston Corporation............................................
Legg Mason Wood Walker, Incorporated..............................................
---------
Total........................................................................ 3,489,301
=========
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Credit Suisse First Boston
Corporation and Legg Mason Wood Walker, Incorporated are acting as
Representatives, propose initially to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain other dealers. After
the initial public offering, the public offering price and such concessions may
be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 523,395
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company and its officers and directors have agreed that, for a period
of 90 days after the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, Common Stock except in certain limited
circumstances.
In connection with this offering and in compliance with applicable law and
industry practice, the Underwriters may overallot or effect transactions which
stabilize, maintain or otherwise affect the market price of the Common Stock at
a level above that which might otherwise prevail in the open market, including
by entering stabilizing bids, effecting syndicate covering transactions or
imposing penalty bids. A stabilizing bid means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining the
price of a security. A syndicate covering transaction means the placing of any
bid on behalf of
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<PAGE> 53
the underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits Smith Barney Inc., as managing underwriter, to reclaim
a selling concession from a syndicate member in connection with the offering
when Common Stock originally sold by the syndicate member is purchased in
syndicate covering transactions. Such transactions may be effected on The Nasdaq
Stock Market's National Market, or otherwise. The Underwriters are not required
to engage in any of these activities. Any such activities, if commenced, may be
discontinued at any time.
The Underwriters and certain selling group members that currently act as
market makers for the Common Stock may engage in "passive market making" in the
Common Stock in accordance with Rule 103 of Regulation M under the Exchange Act.
Rule 10b-6A permits, upon the satisfaction of certain conditions, underwriters
and selling group members participating in a distribution that are also market
makers in the security being distributed to engage in limited market making
transactions during the period when Rule 101 of Regulation M would otherwise
prohibit such activity. In general, under Rule 103, any Underwriter or selling
group member engaged in passive market making in the Common Stock (i) may not
bid for or purchase Common Stock at a price that exceeds the highest bid for the
Common Stock displayed by a market maker that is not participating in the
distribution of the Common Stock, (ii) may not have net daily purchases of the
Common Stock that exceed the greater of 200 shares or 30% of its average daily
trading volume in such stock for a specified two-month period preceding the
filing date of the registration statement of which this Prospectus forms a part
and (iii) must identify its bids as bids made by a passive market maker.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cravath, Swaine & Moore, New York, New York. Certain
legal matters will be passed upon for the Selling Stockholder by Hale and Dorr,
Boston, Massachusetts and for the Underwriters by Dewey Ballantine, New York,
New York.
EXPERTS
The balance sheet of ChiRex Inc. as of December 31, 1995 and the related
statements of operations, shareholders' equity and cash flows for each of the
two years in the period then ended included in this Prospectus have been audited
by Coopers & Lybrand L.L.P., independent accountants, as stated in their report
appearing in this Prospectus and have been so included in reliance upon the
report of such firm, given upon their authority as experts in accounting and
auditing.
The consolidated balance sheet of ChiRex Inc. as of December 31, 1996 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the twelve months then ended included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants to the extent and
for the periods as indicated in their report with respect thereto and have been
included herein in reliance upon the authority of such firm as experts in
accounting and auditing in giving such reports.
The combined balance sheet of Sterling Organics Limited as of December 31,
1994 and its combined statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1994 and the
period ended August 10, 1995 included in this Prospectus have been audited by
Coopers & Lybrand, independent accountants, as stated in their report appearing
in this Prospectus and have been so included in reliance upon the report of such
firm, given upon their authority as experts in accounting and auditing.
The consolidated balance sheet of Crossco (157) Limited as of December 31,
1995 and its consolidated statements of operations, shareholders' equity and
cash flows for the period from inception (July 14, 1995) to December 31, 1995
included in this Prospectus have been audited by Coopers & Lybrand, independent
accountants, as stated in their report appearing in this Prospectus and have
been so included in reliance upon the report of such firm, given upon their
authority as experts in accounting and auditing.
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<PAGE> 54
On September 5, 1996, the Company engaged Arthur Andersen LLP as its
independent accountant and dismissed Coopers & Lybrand L.L.P. from such
position. The decision to change accountants was made by the Board of Directors
of the Company. During the fiscal years ended December 31, 1994 and 1995 and the
subsequent interim period immediately preceding the date of this change in
accountants, the Company and each of its subsidiaries (the "Subsidiaries") had
no disagreements with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statements disclosure or auditing scope or
procedure, which disagreement(s), if not resolved to the satisfaction of Coopers
& Lybrand L.L.P., would have caused Coopers & Lybrand L.L.P. to make a reference
to the subject matter of the disagreement in connection with its reports on the
financial statements of the Company or any of the Subsidiaries.
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<PAGE> 55
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the public reference facilities of the Commission,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the
following Commission Regional Offices: Seven World Trade Center, 13th Floor, New
York, NY 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies can be obtained from the Commission by mail
at prescribed rates. Requests should be directed to the Commission's Public
Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
Such material may also be accessed electronically by means of the Commission's
home page on the Internet (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock being offered hereby. This Prospectus, which forms a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and,
where such contract or other document is an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be examined without charge or obtained upon payment of certain
prescribed fees at the public reference facilities of the Commission described
above.
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<PAGE> 56
CHIREX INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ChiRex Inc.
Reports of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996...................... F-4
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996....................................................................... F-6
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1994, 1995 and 1996............................................................ F-7
Notes to Consolidated Financial Statements........................................ F-8
Sterling Organics Limited (renamed ChiRex Limited on March 11, 1996)
Report of Independent Accountants................................................. F-22
Combined Balance Sheet as of December 31, 1994.................................... F-23
Combined Statements of Operations for the years ended December 31, 1993 and 1994
and the period ended August 10, 1995........................................... F-24
Combined Statements of Shareholders' Equity for the years ended December 31, 1993
and 1994 and for the period ended August 10, 1995.............................. F-25
Combined Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the period ended August 10, 1995....................................... F-26
Notes to Combined Financial Statements............................................ F-27
Crossco (157) Limited (renamed ChiRex (Holdings) Limited on March 11, 1996)
Report of Independent Accountants................................................. F-42
Consolidated Balance Sheet as of December 31, 1995................................ F-43
Consolidated Statement of Operations for the period from inception (July 14, 1995)
to December 31, 1995........................................................... F-44
Consolidated Statement of Shareholders' Equity for the period from inception (July
14, 1995) to December 31, 1995................................................. F-45
Consolidated Statement of Cash Flows for the period from inception (July 14, 1995)
to December 31, 1995........................................................... F-46
Notes to Consolidated Financial Statements........................................ F-47
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of ChiRex Inc.:
We have audited the accompanying consolidated balance sheet of ChiRex Inc.
(a Delaware corporation) and its subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, Stockholders' equity and cash
flows for the year ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ChiRex Inc.
and its subsidiaries as of December 31, 1996, and the results of its operations
and its cash flows for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 17, 1997
F-2
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of ChiRex, Inc.:
We have audited the accompanying balance sheet of ChiRex Inc. (formerly
SepraChem Inc.) as of December 31, 1995 and the related statements of
operations, shareholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ChiRex Inc. as of December
31, 1995, and the results of its operations and its cash flows for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
F-3
<PAGE> 59
CHIREX INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1995 1996
-------- --------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 1 $ 291
Trade and other receivables...................................... 546 12,764
Inventories...................................................... 193 23,350
Other current assets............................................. 1,646 4,448
-------- -------
Total current assets..................................... 2,386 40,853
Property, plant and equipment, net................................. 307 61,349
Intangible asset, net (Note 2)..................................... 0 28,604
-------- -------
Total Assets..................................................... $ 2,693 $130,806
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 0 $ 11,421
Accrued expenses................................................. 0 9,232
Accrued income taxes payable (Note 4)............................ 0 2,383
Current deferred income taxes (Note 4)........................... 0 2,369
-------- -------
Total current liabilities................................ 0 25,405
Long-term debt (Note 7)............................................ 0 3,933
Deferred income taxes (Note 4)..................................... 0 7,411
Deferred income.................................................... 0 3,989
Contingencies (Note 6).............................................
-------- -------
Total Liabilities........................................ 0 40,738
-------- -------
Stockholders' Equity (see Notes 1 and 2):
Preferred Stock of ChiRex Inc., $.01 par value, 4,000,000 shares
authorized, none issued and outstanding....................... 0 0
Common stock of ChiRex Inc., $.01 par value, 30,000,000
authorized; 10,933,735 issued and outstanding................. 0 109
Additional paid-in capital of ChiRex Inc......................... 1 95,479
Preferred Stock of ChiRex America, Inc., $.01 par value,
1,000,000 authorized; none issued or outstanding.............. 0 0
Common stock of ChiRex America, Inc., $.01 par value, 14,000,000
authorized; 8,015,000 issued and outstanding.................. 80 0
Additional paid-in capital of ChiRex America, Inc................ 5,064 0
Accumulated deficit.............................................. (2,452) (10,761)
Cumulative translation adjustment................................ 0 5,241
-------- -------
Total Stockholders' Equity............................... 2,693 90,068
-------- -------
Total Liabilities and Stockholders' Equity............... $ 2,693 $130,806
======== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-4
<PAGE> 60
CHIREX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Product sales........................................... $ 1,135 $ 1,854 $73,440
License fee and royalty income.......................... 675 900 1,175
------- ------- -------
Total revenues.................................. 1,810 2,754 74,615
------- ------- -------
Costs and expenses:
Cost of goods sold (Note 10)............................ 814 1,715 56,508
Research and development................................ 2,343 595 3,517
Write-off of in-process research and development (Note
2)................................................... 0 0 5,790
Selling, general and administrative (Note 10)........... 1,964 2,099 8,876
Stock compensation charge (Note 2)...................... 0 0 5,611
------- ------- -------
Total operating expenses........................ 5,121 4,409 80,302
------- ------- -------
Operating loss............................................ (3,311) (1,655) (5,687)
Interest expense (Note 7)............................... 0 0 755
Other expenses (Note 8)................................. 0 797 0
------- ------- -------
Loss before income taxes.................................. (3,311) (2,452) (6,442)
Provision for income taxes (Note 4)....................... 0 0 1,867
------- ------- -------
Net loss.................................................. (3,311) (2,452) (8,309)
======= ======= =======
Net loss per common share:................................ $ (0.88)
Weighted average number of common shares outstanding (Note
1)...................................................... 9,485
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-5
<PAGE> 61
CHIREX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(3,311) $(2,452) $ (8,309)
Add back: Depreciation & amortization................................ 148 148 8,371
Write-off of in-process research and development (Note 2).......... 0 0 5,790
Executive stock compensation charge (Note 2)....................... 0 0 5,611
Provision for doubtful accounts.................................... 0 70 434
Deferred income.................................................... 0 0 682
Deferred income tax................................................ 0 0 (1,468)
Changes in assets and liabilities:
Trade and other receivables.......................................... 1,018 22 (1,970)
Inventories.......................................................... 133 (6) (855)
Other current assets................................................. (180) 0 973
Accounts payable and accrued expenses................................ 0 0 1,101
Income taxes payable................................................. 0 0 1,614
-------- ------- -------
Net cash provided from (used in) operations................... (2,192) (2,218) 11,974
-------- ------- -------
Cash flows from investing activities:
Capital expenditures................................................. (48) 0 (4,290)
(Increase) in other current assets................................... (593) (1,053) 0
-------- ------- -------
Net cash used in investing activities......................... (641) (1,053) (4,290)
-------- ------- -------
Cash flows from financing activities:
Long-term debt activity:
Borrowings on revolving line of credit, net........................ 0 0 3,588
Repayment of subordinated note..................................... 0 0 (53,534)
Redemption of common stock........................................... 0 0 (40,472)
Proceeds from the issuance of common stock........................... 0 11 83,285
Investment by Sepracor............................................... 2,833 3,261 0
-------- ------- -------
Net cash provided from (used in) financing activities......... 2,833 3,272 (7,133)
-------- ------- -------
Effect of exchange rate changes on cash................................ 0 0 (261)
-------- ------- -------
Net increase in cash................................................... 0 1 290
Cash at beginning of period............................................ 0 0 1
-------- ------- -------
Cash at end of period.................................................. $ 0 $ 1 $ 291
======== ======= =======
Cash paid for:
Interest............................................................. 0 0 755
Income taxes......................................................... 0 0 1,081
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 2, ChiRex America Inc. was contributed to ChiRex Inc.
in exchange for the issuance of 3,520,889 shares of Common Stock through a
merger with and into a newly formed wholly-owned subsidiary of ChiRex Inc. on
March 11, 1996. The net assets contributed by ChiRex America Inc. were at
historical cost basis of $3,123,000.
In addition, as discussed in Note 2, the shareholders of
ChiRex(Holdings)Limited contributed to ChiRex Inc. all outstanding equity
capital of ChiRex (Holdings) Limited for 3,739,206 shares of Common Stock and
promissory notes of ChiRex Inc. Certain of the shares were repurchased and all
of the promissory notes were repaid with the proceeds from the initial public
offering of ChiRex Inc. The net assets of ChiRex(Holdings)Limited were initially
recorded at its purchase price $48,610,000.
The accompanying notes are an integral part
of the consolidated financial statements
F-6
<PAGE> 62
CHIREX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHIREX AMERICA INC. (SEE NOTE 1) CHIREX INC.
--------------------------------------------------------------------------- -------------------------
COMMON
PREFERRED STOCK COMMON STOCK ADDITIONAL INVESTMENT PREFERRED STOCK STOCK
---------------- ---------------- PAID-IN ACCUMULATED BY ---------------- ------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SEPRACOR SHARES AMOUNT SHARES
------ ------- ------ ------- ---------- ----------- ---------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................. 0 $ 0 0 $ 0 $ 0 $ 0 $ 2,351
Net Loss............... 0 0 0 0 0 0 (3,311)
Investment by
Sepracor............. 0 0 0 0 0 0 2,833
------ ------- ------ ------- ------- ------- ------- ------ ------- -------
Balance at December 31,
1994................. 0 0 0 0 0 0 1,873
Net Loss............... 0 0 0 0 0 (2,452) 0
Issuance of common
stock................ 0 0 8,000 80 1,793 0 (1,873)
Proceeds under common
stock plans.......... 0 0 15 0 10 0 0
Investment by
Sepracor............. 0 0 0 0 3,261 0 0
------ ------- ------ ------- ------- ------- ------- ------ ------- -------
Balance at December 31,
1995................. 0 0 8,015 80 5,064 (2,452) 0
Net Income............. 0 0 0 0 0 431 0
Exchange of ChiRex Inc.
shares for shares of
ChiRex America
Inc.................. (8,015) $ (80) $ (5,064) $ 2,021 $ 0 0 0 3,496
Issuance of Common
stock................ 0 0 10,414
Redemption of Common
stock................ 0 0 (3,091)
Net Loss............... 0 0 0
Effect of stock
compensation charge
(note 2)............. 0 0 25
Options Exercised...... 0 0 90
Translation
Adjustment........... 0 0 0
------ ------- ------ ------- ------- ------- ------- ------ ------- -------
Balance at December 31,
1996................. 0 $ 0 0 $ 0 $ 0 $ 0 $ 0 0 $ 0 10,934
====== ======= ====== ======= ======= ======= ======= ====== ======= =======
<CAPTION>
ADDITIONAL CURRENCY TOTAL
PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ---------- ----------- ---------- ------------
<S> <<C> <C> <C> <C> <C>
Balance at December 31,
1993................. $ 2,351
Net Loss............... (3,311)
Investment by
Sepracor............. 2,833
------- -------- -------- ------- --------
Balance at December 31,
1994................. 1,873
Net Loss............... (2,452)
Issuance of common
stock................ 0
Proceeds under common
stock plans.......... 10
Investment by
Sepracor............. 3,261
------- -------- -------- ------- --------
Balance at December 31,
1995................. 2,692
Net Income............. 431
Exchange of ChiRex Inc.
shares for shares of
ChiRex America
Inc.................. $ 35 $ 5,109 $ (2,021) $ -- $ 0
Issuance of Common
stock................ 104 125,065 0 0 125,169
Redemption of Common
stock................ (31) (40,441) 0 0 (40,472)
Net Loss............... 0 0 (8,740) 0 (8,740)
Effect of stock
compensation charge
(note 2)............. 0 5,611 0 0 5,611
Options Exercised...... 1 135 0 0 136
Translation
Adjustment........... 0 0 0 5,241 5,241
------- -------- -------- ------- --------
Balance at December 31,
1996................. $ 109 $ 95,479 $ (10,761) $ 5,241 $ 90,068
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ChiRex Inc. ("the Company") was incorporated in December 1995 and,
effective March 11, 1996, merged with SepraChem Inc. ("SepraChem"), a chiral
chemistry business (the "Merger"), and acquired the business of Crossco (157)
Limited ("Crossco") (including its wholly-owned subsidiary Sterling Organics
Limited) a fine chemical manufacturer located in Dudley, England (the
"Contribution"). Simultaneously, Crossco, Sterling Organics Limited and
SepraChem changed their names to ChiRex (Holdings) Limited ("Holdings"), ChiRex
Limited ("Limited"), and ChiRex America, Inc. ("ChiRex America") respectively.
SepraChem was established in November 1994 as a wholly-owned subsidiary of
Sepracor Inc. ("Sepracor"). SepraChem manufactured and sold fine chemical
intermediates and bulk active pharmaceuticals to pharmaceutical companies
worldwide. SepraChem also leased pharmaceutical separation modules to a company
in Japan. Effective January 1, 1995, in exchange for 7,999,999 shares of Common
Stock, Sepracor transferred to SepraChem the pharmaceutical fine chemical
manufacturing business of Sepracor.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
The financial statements of the Company combine the historical results of
ChiRex America (formerly SepraChem) for the three years ended December 31, 1996
with the results of ChiRex Inc. from the date of incorporation. The results of
Holdings and Limited are included from the date of acquisition on March 11,
1996.
The January 1, 1995 exchange discussed above has been treated as a transfer
between entities under common control and therefore the financial statements
present the assets, liabilities, revenues and expenses of the transferred
business at Sepracor's historical cost at the date of transfer. Operating losses
from inception of SepraChem through January 1, 1995 have been recorded as a
reduction in the net balance advanced to SepraChem by Sepracor. SepraChem
entered into various agreements wherein Sepracor agreed to provide certain
services and facilities to SepraChem in accordance with terms described in Note
9.
REVENUE RECOGNITION
Product Sales
Product Sales represent the invoiced value of goods and services, excluding
value added tax, supplied in the normal course of business. Revenues are
recognized as services are provided or goods are shipped.
The cost of specific equipment required to implement a new custom synthesis
process for a customer is incurred by the Company and included in fixed assets.
An engineering premium is sometimes charged to applicable customers, either by
installments or by an increment to the unit sales price, to recover an agreed
upon element of these costs. These revenues are recognized on a systematic basis
over the life of the project at the same rate as the depreciation on the related
fixed assets. The difference between amounts invoiced during the year and
revenue earned is accounted for as deferred income.
License Fee and Royalty Income
License fee and royalty income is recognized as amounts become due based on
contract terms.
UK GOVERNMENT GRANTS
UK government grants for capital expenditures are credited to a deferred
grant account when received and are recognized as an offset to depreciation
expense over the expected useful life of the related property, plant and
equipment.
F-8
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
STOCK BASED COMPENSATION PLANS
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no accounting
recognition is given to stock options granted at fair market value until they
are exercised. Upon exercise, net proceeds, including tax benefits realized,
will be credited to equity. If stock options are granted for less than fair
market value, the difference between the exercise price and the fair market
value at the date of the grant is charged to earnings as a compensation expense
over the period in which the employee vests in the options.
INCOME TAXES
Charges for taxation are based on income for the year and take into account
adjustments for deferred taxes.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes", the Company recognizes deferred income taxes
based on future tax consequences of differences between the financial statement
basis and the tax basis of assets and liabilities, calculated using enacted tax
rates in effect for the year in which the differences are expected to be
reflected in the tax return.
NET LOSS PER COMMON SHARE
Net loss per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding during the period.
Weighted average shares for the year ended December 31, 1996 include shares
issued to the former owners of ChiRex America in connection with the Merger.
Common equivalent shares are not included in the per share calculations where
the effect of their inclusion would be anti-dilutive except that, in accordance
with Securities and Exchange Commission requirements, all common equivalent
shares issued during the twelve-month period prior to the effective date of the
Company's initial public offering have been included in the calculation, as if
they were outstanding, for the period prior to such offering. Net loss per share
for the years ended December 31, 1995 and 1994 have not been presented since
ChiRex America operated as a division of Sepracor for such periods.
INVENTORIES
Inventories are stated at the lower of cost or market value and include
materials, labor and manufacturing overhead. The components of inventories are
as follows:
<TABLE>
<CAPTION>
1995 1996
---- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials...................................................... $ 46 $ 6,176
Work in progress................................................... 0 6,158
Finished goods..................................................... 147 11,016
---- ------
--
Total.................................................... $193 $23,350
==== =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
The costs of capital additions and improvements are capitalized, while
maintenance and repairs are expensed as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows : buildings 40 years; machinery and
equipment 3 to 13 years.
F-9
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 0 $ 1,146
Buildings........................................................ 0 9,307
Machinery and equipment.......................................... 1,673 59,709
------- -------
1,673 70,162
Less: Accumulated depreciation................................... (1,366) (8,813)
------- -------
$ 307 $61,349
======= =======
</TABLE>
Depreciation expense was $7,447,000, $148,000 and $148,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
OTHER CURRENT ASSETS
At December 31, 1996, other current assets consist primarily of prepaid
expenses and other miscellaneous non-trade receivables. At December 31, 1995
other current assets consist of an option fee of $789,000 relating to the
Contribution which was credited against amounts due to the former owners of
Holdings at March 11, 1996 and $857,000 of deferred costs incurred in connection
with the initial public offering of the Company.
INTANGIBLE ASSET
The intangible asset on the accompanying balance sheet relates to the
excess cost over the fair value of net assets of Holding and Limited acquired on
March 11, 1996. The intangible asset is amortized using the straight-line method
over 25 years. Accumulated amortization at December 31, 1996 was $924,000. The
Company assesses the future useful life of this asset whenever events or changes
in circumstances indicate that the current useful life has diminished. The
Company considers combined undiscounted cash flows of Holding and Limited in
assessing the recoverability of their asset. If impairment has occurred, any
excess of carrying value over fair value would be recorded as a loss.
FOREIGN CURRENCY
All assets and liabilities of the Company's UK subsidiaries are translated
at year-end exchange rates, and revenues and expenses are translated at average
exchange rates for the year in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation." Resulting translation
adjustments are reflected as a separate component of shareholders' investment
titled "Cumulative translation adjustment." Foreign Currency transaction gains
and losses are included in the accompanying statement of operations and are not
material for the three years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and a balance due under a revolving line of credit.
Their respective carrying amounts in the accompanying balance sheet approximate
fair value due either to the short term nature of the balances or in the case of
the revolving line of credit because the interest rate is variable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-10
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
ACCOUNTING FOR LONG LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of " in 1995. SFAS 121 requires that long-lived
assets be reviewed for impairment by comparing the fair value of the assets with
their carrying amount. Any write-downs are to be treated as permanent reductions
in the carrying amount of the assets. The adoption of FAS 121 did not have any
material financial impact on the Company.
ENVIRONMENTAL COSTS
Liabilities for costs relating to environmental and remedial work which
must be performed to comply with Her Majesty's Inspector of Pollution and other
environmental guidelines are recorded when it is probable that obligations have
been incurred and the amounts can be reasonably estimated.
2. SIGNIFICANT CURRENT YEAR TRANSACTIONS
INITIAL PUBLIC OFFERING, ACQUISITION AND MERGER
On March 11, 1996 the Company completed the sale of 6,675,000 shares of its
Common Stock, $0.01 par value per share, pursuant to an underwritten initial
public offering ( the "IPO"). Concurrent with the IPO, ChiRex America was
contributed to the Company in exchange for the issuance of 3,520,889 shares of
Common Stock through a merger with and into a newly formed and wholly-owned
subsidiary of the Company. In conjunction with the Merger certain executives and
directors of ChiRex America received stock and or stock options of the Company
with an intrinsic value totaling $5,611,000. Such amount has been recorded as a
compensation charge and an increase to additional paid in capital in the
accompanying financial statements.
Immediately prior to the IPO, the equity share capital of Holdings, a
private company incorporated in England and the sole shareholder of Limited, was
recapitalized. Concurrent with the closing of the IPO, the shareholders of
Holdings contributed to the Company all of the outstanding newly recapitalized
equity share capital of Holdings in exchange for 3,739,206 shares of Common
Stock and promissory notes of the Company (the "Notes"). As part of this
contribution, all redeemable preferred shares of Holdings were exchanged for a
promissory note of the Company (the "Loan Stock Note"). As a result of these
transactions the Company holds all of the outstanding share capital of Holdings
which in turn holds all the outstanding share capital of Limited. Certain shares
held by the original shareholders of Holdings, the Notes and the Loan Stock Note
were redeemed by the Company concurrently with, and using the proceeds from, the
IPO.
The acquisition of Holdings and Limited by the Company was accounted for
using the purchase method of accounting and its results of operations has been
included in the accompanying financial statements from the date of acquisition.
The cost of this acquisition exceeded the estimated fair value of the acquired
net assets by $29,528,000, which is being amortized over 25 years. Allocation of
the purchase price for this acquisition was based on estimates of fair value of
net assets, including purchased in-process research and development costs which
was written off immediately following the acquisition of $5,790,000. The balance
of goodwill is subject to adjustment upon finalization of the purchase price
allocation.
The following table presents pro forma revenues, net loss and net loss per
common share for the Company assuming the incorporation of the Company, the
merger with ChiRex America and the acquisition of Holdings and Limited on
January 1, 1995 are as follows:
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Revenues.......................................................... 88,957 89,827
Net Income (loss)................................................. 13,330 4,073
Net loss per common share......................................... (1.23) .36
</TABLE>
F-11
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition Holdings and
Limited been made at the beginning of 1995. Additional pro forma information for
the Company, Holdings and Limited is included elsewhere in this prospectus.
DISSOLUTION OF INNOVA PHARMACEUTICALS SRL
During 1995 ChiRex America agreed to form a fifty percent owned joint
venture, InNova Pharmaceuticals SRL "InNova" with Dabur India Limited ("Dabur")
to manufacture semi-synthetic paclitaxel. This joint venture did not carry out
any significant operations during 1996 or 1995.
The Company has agreed in principle with Dabur to dissolve the joint
venture. Both the Company and Dabur recognized significant changes in the
generic drug market, and in particular in the market for paclitaxel, sufficient
to enable each company to exploit its own position of strength within the
market, without the need for a joint venture.
InNova was never capitalized and it was mutually agreed between the Company
and Dabur that each partner would expense costs that it had incurred on InNova's
behalf. Such costs incurred by the Company relate substantially to research and
development.
3. EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLANS
Stock Option Plan
On December 20, 1995 the Company adopted an incentive stock-based
compensation plan for its employees, directors and Scientific Advisory Board,
which permits the grant of a variety of stock and stock-based awards as
determined by the Compensation Committee of the Company's Board of Directors
(the "Compensation Committee"), including stock, restricted stock, stock
options, stock appreciation rights or performance based shares. The option
recipients and the terms of options granted under this plan are determined by
the Compensation Committee. Options granted generally vest ratably over a five
year period. In some instances, vesting for certain stock options may be
accelerated due to achievement of specific events determined by the Compensation
Committee at the date of the grant. Typically, options are immediately
exercisable upon vesting. Non-qualified stock options may be granted at any
price determined by the Compensation Committee, although incentive stock options
must be granted at an exercise price not less than the fair market value of the
Company's common stock on the date of the grant. The Company also has a
directors stock option plan, adopted on December 20, 1995, that provides for the
grant of stock options to outside directors. Initial grants under this plan
generally vest over five years, while subsequent grants on reelection will
generally vest within one year and will be immediately exercisable at that time.
To date, all options from the incentive stock option plan have been granted
at fair market value, except for stock options granted in conjunction with the
Merger, which are discussed below. No options have been granted under the
directors' stock option plan.
In conjunction with the Merger, the Compensation Committee granted 458,821
stock options to certain directors and employees of ChiRex America at an
exercise price of $1.48 per option, when the fair market value per share of
Common Stock was $13.00 which resulted in a compensation charge of $5,286,000.
In addition, immediately prior to the Merger, ChiRex America granted an employee
56,911 shares of common stock in ChiRex America in consideration for services
performed. This stock grant resulted in a compensation charge of $325,000. These
shares were converted into 25,000 shares of Common Stock of the Company at the
time of the Merger.
F-12
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Stock Option Activity under the ChiRex Inc. plans in 1996
may be summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Options outstanding beginning of period.......... -- $ --
Granted.......................................... 941,822 6.38
Exercised........................................ (90,331) 1.51
Lapsed/Canceled.................................. (750) 11.00
-------
Options outstanding end of period................ 850,741 $ 6.89
-------
Options exercisable.............................. 554,490 $ 4.66
=======
Options available for grant...................... 658,178
=======
Weighted average fair value of options granted $ 7.35
during period..................................
</TABLE>
As of December 31, 1996, the options outstanding were exercisable at prices
ranging from $1.48 to $13.00 and had a weighted-average remaining contractual
life of 6.4 years.
In 1994 and 1995 the stock option plans of ChiRex America provided for the
grant of both incentive stock options and nonstatutory stock options to
officers, directors, and key employees of and consultants to the Company. A
total of up to 960,000 and 240,000 shares of common stock of ChiRex America were
contingently issuable upon the exercise of options granted under the 1994 and
1995 Plans, respectively.
In November 1994, options to purchase 960,000 shares of common stock were
granted under the 1994 Plan. These options vested over a five year period and
had an exercise price of $2.40, determined to be the then current fair market
value by the Board of Directors of ChiRex America. In August 1995, these options
were repriced at an exercise price of $.65, determined to be the then current
fair market value by the Board of Directors of ChiRex America. In August 1995,
the Board of Directors of ChiRex America also authorized a change in the vesting
provisions of these options such that 20% of options previously granted became
immediately vested. In October 1995, 60,000 options under the 1994 Plan were
cancelled and 15,000 shares were exercised. As of December 31, 1995, options for
314,692 shares were exercisable.
In January 1995, options to purchase 134,500 shares of common stock were
granted under the 1995 Plan. These options vested over a five year period and
had an exercise price of $2.40, determined to be the then current fair market
value by the Board of Directors of ChiRex America. In August 1995, these options
were repriced at an exercise price of $.65, determined to be the then current
fair market value by the Board of Directors of ChiRex America. In August 1995,
the Board of Directors of ChiRex America also authorized a change in the vesting
provisions of these options such that 20% of options previously granted became
immediately vested. As of December 31, 1995, options for 26,900 shares were
exercisable. No shares had been exercised under this plan as of December 31,
1995.
The 1994 Director Option Plan (the "Director Plan") provides for the
granting of nonstatutory stock options to directors of ChiRex America who were
not officers or employees. A total of up to 100,000 shares of common stock were
authorized to be issued under the Director Plan therein. The exercise price per
share equaled the fair market value of a share of common stock on the date on
which the option is granted. Options granted under the Director Plan vested over
a five year period.
In November 1994 and January 1995, options to purchase 15,000 and 10,000
shares of common stock, respectively, were granted under the Director Plan at an
exercise price of $2.40, determined to be the then current fair market value by
the Board of Directors. A total of 75,000 options remained available for grant
at December 31, 1995. In August 1995, these options were repriced at an exercise
price of $.65 determined to be the then current fair market value by the Board
of Directors of ChiRex America. In August 1995, the Board of Directors of ChiRex
America also authorized a change in the vesting provisions of these options such
that 20% of options previously granted became immediately vested. As of December
31, 1995, options for 5,000 shares were exercisable. No shares had been
exercised under this plan as of December 31, 1995.
F-13
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the date of the Merger all outstanding options were exchanged for
458,821 options of the Company as discussed above.
1995 Employee Stock Purchase Plan
The Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors of the Company on December 20, 1995 and became
effective on March 11, 1996. The Purchase Plan authorizes the issuance of up to
a total of 480,000 shares of Common Stock to participating employees. All US
employees and certain UK employees are eligible to participate in the Purchase
Plan, subject to certain limitations.
The Purchase Plan is effective for a three year term, and includes six plan
periods ("Plan Period"), which are each six month increments. Eligible employees
may authorize payroll deductions between 1% and 10% of gross wages, limited to a
pre-determined percentage of an employee's annual gross wages. At the end of
each Plan Period the amounts accumulated under the Purchase Plan by employees
will be used to purchase shares of Common Stock of the Company at 85% of the
fair value of Common Stock at either the first day or the last day of the Plan
Period, whichever is lower. The Purchase Plan provides for six Plan Periods of
80,000 shares each. Shares not purchased during a Plan Period will be eligible
for purchase in subsequent Plan Periods. As of December 31, 1996, the Company
had not implemented this plan for employee participation.
UK Employee Stock Purchase Plan
Substantially all of the Company's full-time UK employees are eligible to
participate in a employee stock purchase plan approved by Inland Revenue. Under
this plan, employees obtain the right to purchase a pre-determined number of
shares at 85% of the fair market value at the beginning of the plan period.
Shares are purchased through pre-determined payroll deductions which may not
exceed a pre-determined maximum dollar amount. These funds accumulate in a
savings account in the name of the employee over a three year period, at the end
of which such savings may be used to purchase the allocated shares.
F-14
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Stock-based Compensation Plan Expense
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company has
elected to continue to apply APB 25 in accounting for its stock-based
compensation plans. Had compensation cost for awards in 1996 under the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates consistent with the method set forth under SFAS No. 123, the effect
on the Company's net loss and net loss per common share would have been as
follows:
<TABLE>
<CAPTION>
1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Net loss:
As reported.................................................... $ (8,039)
Pro forma...................................................... (9,001)
Net loss per common share........................................
As reported.................................................... (0.88)
Pro forma...................................................... (0.95)
</TABLE>
The resulting pro forma compensation expense may not be representative of
the amount to be expected in future years as pro forma compensation expense may
vary based upon the number of options granted.
The pro forma net loss and pro forma net loss per common share presented
above have been computed assuming no tax benefit. The effect of a tax benefit
has not been considered since a substantial portion of the stock options granted
are incentive stock options and the Company does not anticipate a future
deduction associated with the exercise of these stock options.
The fair value of each option grant is estimated on the grant date using
the Black-Scholes options-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Volatility.................................................................. 30%
Risk-free interest rate..................................................... 6.2%
Expected life of options.................................................... 5 years
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Information related to the fair value of stock option grants under the
ChiRex America stock option plans has not been quantified due to the fact that
all such options were cancelled in exchange for the options issued on March 11,
1996.
At December 31, 1996, the Company had reserved 658,178 unissued shares of
its common stock for possible issuance under the stock-based compensation plans.
DEFINED BENEFIT PENSION PLAN
The Company's U.K. subsidiary has a defined benefit pension plan covering
substantially all of its full-time employees. Benefits are based on a percentage
of eligible earnings for each year of service from the date of employment. The
Company's funding policy is to make contributions within a range required by
applicable regulations. Eligible employees are required to contribute 3% of
their current earnings under the plan. The participants also have the ability to
voluntarily contribute up to an additional 12% of their current earnings.
F-15
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension costs included the following components:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Service cost........................................................... $ 2,008
Interest cost on projected benefit obligation.......................... 3,217
Return of plan assets.................................................. (3,878)
Amortization of unrecognized obligation................................ (332)
-------
Net Periodic Pension Cost.............................................. $ 1,015
=======
</TABLE>
The funded status of the Company's defined pension plan is as follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits...................................................... $ 40,869
Non-vested benefits.................................................. 0
-------
Accumulated benefit obligation....................................... 40,869
Effect of projected future salary increases............................ 5,501
-------
Projected benefit obligation........................................... 46,370
Plan assets at fair value.............................................. 54,817
-------
Projected benefit obligation less than plan assets..................... 8,447
Unrecognized net gain.................................................. 2,544
Initial unrecognized net obligation.................................... 5,450
-------
Prepaid pension costs................................................ $ 453
=======
</TABLE>
Significant actuarial assumptions used to determine the net periodic
pension costs during 1996 were:
<TABLE>
<CAPTION>
1996
--------------
<S> <C>
Discount rate.......................................................... 8.5%
Rate of increase in salary levels...................................... 6.0%
Expected long-term rate of return on assets............................ 9.0%
</TABLE>
4. INCOME TAXES
Prior to 1996, ChiRex America was in a net loss position for both financial
reporting and tax purposes; thus, no detailed analysis of income taxes is
presented for these periods. The components of loss before provision for income
taxes are as follows :
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Domestic............................................................... $ (5,832)
Foreign................................................................ (610)
-------
Total.................................................................. $ (6,442)
=======
</TABLE>
F-16
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Currently payable :
Federal.............................................................. 0
State................................................................ 0
Foreign.............................................................. $2,530
------
$2,530
------
Deferred:
Federal.............................................................. 0
State................................................................ 0
Foreign.............................................................. $ (663)
------
(663)
------
$1,867
======
</TABLE>
The provision for income taxes in the accompanying statements of income for
the period ended December 31, 1996 differs from the benefit calculated by
applying the statutory federal income tax rate of 34% to income before income
taxes due to the following:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Benefit for income taxes at statutory rate............................. $ (2,190)
Foreign tax rate differential.......................................... (61)
Non deductible amortization of goodwill................................ 314
Non deductible research and development expenses....................... 1,811
Valuation allowance on US tax net operating loss carryforwards and
executive stock compensation......................................... 1,953
Other, net............................................................. 40
------
$ 1,867
======
</TABLE>
Prepaid income taxes, included in other assets, and deferred income taxes
in the accompanying balance sheet consist of the following :
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes:
US net operating loss carryforwards and executive stock
compensation................................................ $ 993 $ 1,953
Reserves and other accruals.................................... 62 1,227
Accrued compensation........................................... 0 1,394
Other, net..................................................... (42) 130
Valuation allowance............................................ (1,013) (1,953)
------- -------
$ 0 $ 2,751
------- -------
Deferred income taxes:
Inventory basis difference..................................... $ 0 $ 2,369
Depreciation................................................... 0 7,411
------- -------
$ 0 $ 9,780
======= =======
</TABLE>
F-17
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, the Company had US federal and state net tax
operating loss carryforwards of approximately $2.3 million. These net tax
operating loss carryforwards were not transferred in the Merger. In the period
subsequent to the Merger, the Company has generated $0.8 million in US federal
and state net tax operating losses, which have been fully reserved through a
valuation allowance.
A provision has not been made for US taxes on undistributed earnings of the
Company's UK subsidiary that could be subject to taxation if remitted to the US
because the Company currently plans to keep these amounts permanently reinvested
overseas.
5. COMMITMENTS
The Company leases executive office and warehouse space under various
operating arrangements. The accompanying statement of income includes expenses
from operating leases of $148,000, in 1996. Future minimum lease payments due
under the non-cancelable operating leases at December 31, 1996 are $181,000 in
1997; $185,000 in 1998; $189,000 in 1999; $193,000 in 2000; and $296,000 in 2001
and thereafter. Total future minimum lease payments are $1,044,000.
6. CONTINGENCIES
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of these proceedings, the Company believes that the outcome of such
proceedings will not have a material adverse effect on the financial position or
results of operations of the Company.
In a proceeding now pending before the U.S. Patent and Trademark Office's
Trademark Trial and Appeal Board, Phenomenex Inc. of Torrance, California, has
formally opposed the Company's attempt to register the ChiRex name for "single
isomer chiral intermediate chemical compounds and active ingredients for use in
the manufacture of pharmaceuticals." The Company's management strongly disputes
Phenomenex's allegations, and intends to vigorously defend the Company's
position. However, there can be no assurance that the Company will prevail in
any such proceeding or be able to settle such dispute on terms favorable to the
Company.
7. REVOLVING CREDIT FACILITY
In August 1996, Holdings entered into a revolving credit facility agreement
with a major UK clearing bank secured by certain assets of the Company,
including real estate assets. This facility allows a maximum borrowing limit of
L 10.5 million ($18.0 million as at December 31, 1996), renewable every two
years, at an interest rate of LIBOR plus 1.25% and a commitment fee of 0.375%.
The LIBOR rate can be fixed by the Company for a period from one to twelve
months. The Company has elected a one month LIBOR rate during 1996 which has
resulted in an average rate of 7.40%. Currently, interest is due monthly,
although payment periods can fluctuate with the LIBOR rate election. The Company
is subject to certain covenants under this facility, including a minimum
tangible net worth requirement and a cash flow multiple. Management believes
that it has complied with all covenants of the facility.
As of December 31, 1996 the Company had drawn down the equivalent of $3.9
million of this facility.
8. OTHER EXPENSES
In 1995, ChiRex America recorded a charge of $797,000 representing costs
relating to an offering of securities that was not completed.
F-18
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. AGREEMENTS WITH SEPRACOR
ChiRex America and Sepracor entered into the following agreements which
were effective with the closing of the initial public offering except for the
Technology Transfer and License Agreement which was effective between ChiRex
America and Sepracor as of January 1, 1995:
Technology Transfer and License Agreement. Under the Technology Transfer
and License Agreement Sepracor granted to ChiRex America an exclusive,
royalty-free perpetual right and license to use and practice the ChiRedox
Technologies licensed and sublicensed thereunder (the "Licensed Technologies")
on a worldwide basis in a field (the "Company field") described as the
development, manufacture, use and sale of pharmaceutical intermediaries, active
ingredients, agrichemicals, flavours, fragrances and other chemicals and
compounds.
Pursuant to the terms of the Technology Transfer and License Agreement,
ChiRex America is permitted to use Sepracor's improvements to the Licensed
Technologies on a non-exclusive basis in the Company field. Similarly, Sepracor
is allowed to use ChiRex America's improvements to the Licensed Technologies
with respect to the development, manufacture, use, and sale of the compounds
outside of the Company field. Furthermore, ChiRex America agreed not to use
improvements to the Licensed Technologies jointly developed or acquired by
Sepracor and ChiRex America outside the Company field, and Sepracor agreed not
to use such improvements in the Company field.
The term of this agreement ends on December 31, 1998, unless either party
exercises its option to terminate such agreement on six months written notice
after the date on which Sepracor's ownership of the outstanding voting stock of
the Company first drops below 20%. The termination of the agreement shall not
affect ChiRex America's ability to continue using the Licensed Technologies in
the Company field, ChiRex America's ability to continue using improvements
developed by Sepracor during the term of such agreements in the Company field or
Sepracor's ability to continue using improvements developed by ChiRex America
during the term of such agreement outside the Company field.
Contract Manufacturing Agreement. Pursuant to the terms of the Contract
Manufacturing Agreement, upon ChiRex America's request, Sepracor may sell
various commercial products to ChiRex America and provide related services to
the Company, in connection with procuring supplies and raw materials, invoicing
and warehousing. Sepracor's price for those products shall be its cost plus 25%
per unit. However, if Sepracor is unwilling or unable to supply these products,
then ChiRex America shall be provided access to Sepracor's manufacturing plant
and equipment to manufacture such products. Sepracor will warrant that its
products conform to the agreed-upon specifications and that they are
manufactured in compliance with cGMP or other relevant regulations promulgated
by the FDA. The term of this agreement is until December 31, 2001, and is
subject to automatic extensions of one year each unless either party, in its
sole discretion, decides to block further extensions. In addition, each of
ChiRex America and Sepracor has the option to terminate this agreement on twelve
(12) months' written notice after the date on which Sepracor's ownership of the
outstanding voting stock of ChiRex America first drops below 20%.
Supply Agreement. Pursuant to the terms of the Supply Agreement, Sepracor
is required to purchase all of its needs with respect to ICE (Improved Chemical
Entities) pharmaceutical active ingredients from ChiRex America, however,
Sepracor may buy such ingredients from other sources if; (i) the price which
ChiRex America charges to Sepracor for such ingredients is greater than 115% of
the price charged by comparable suppliers for the same ingredient; (ii) ChiRex
America does not accept a firm order placed by Sepracor for such ingredient with
a requested delivery date at least 12 months after Sepracor placed such order;
or (iii) such ingredient previously delivered by ChiRex America was repeatedly
found not to conform to the agreed-upon specifications; or (iv) ChiRex America
failed to deliver the active ingredients by the agreed upon dates (unless such
failure is beyond the Company's control). The price charged by ChiRex America
for any products manufactured for Sepracor pursuant to the Supply Agreement is
cost plus 25%. The term of the agreement is until December 31, 2001, and is
subject to automatic extensions of one year each unless either party, in its
sole discretion, elects not to extend the agreement.
F-19
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contract Research Agreement. Under the Contract Research Agreement, either
party may provide scientific research and experimental development services to
the other party. Such services may include procuring supplies and materials used
in performing such services, providing scientific and technical personnel and
equipment in order to perform such services and contracting with specialized
third parties in connection with such services. The party rendering such
services shall charge for those services 110% of the sum of: (i) the salaries of
its employees who are directly engaged in performing such services, (ii) an
allocation of overhead directly related to those services equal to 65% of the
amount set forth in (i) above, (iii) any other direct expenditures related to
those services, including the cost of materials, the costs of leased equipment
and expenditures directly undertaken on behalf of the party receiving such
services; and (iv) any payments to third parties in connection with those
services. Under the Contract Research Agreement, each ChiRex America and
Sepracor shall own the intellectual property rights that they each conceive.
Pursuant to the terms of the Contract Research Agreement, the conceiving party,
however, grants to the other party an exclusive, perpetual, worldwide license,
with the right to grant sublicenses, with respect to use and practice of those
rights in a designated field (for ChiRex America, in the Company field; for
Sepracor, outside the Company field) for a reasonable royalty to be negotiated
between the parties. Intellectual property rights conceived jointly by the
parties shall be owned jointly. The Company has agreed not to use or license
such jointly owned rights outside the Company field, and Sepracor has agreed not
to use or license such rights in the Company field. The term of this agreement
is until December 31, 1997, and shall be subject to automatic extensions of one
year unless either party, in its sole discretion, decides to block further
extensions. In addition, either party shall have the option to terminate this
agreement on twelve (12) months written notice after the date on which
Sepracor's ownership of the outstanding voting stock of ChiRex America first
drops below 20%.
10. RELATED PARTY TRANSACTIONS
In 1996 the Company has paid $158,000 to Sepracor under the Technology
Transfer and License Agreement for legal expenses and has received $609,000 in
license royalty income.
Prior to January 1, 1996 certain facilities and support services of ChiRex
America, including administrative support, were provided by Sepracor. For these
facilities and services, ChiRex America, was charged approximately $1,005,000,
and $220,000 for the years ended December 31, 1994 and 1995, respectively. These
charges represent an allocation of ChiRex America's proportionate share of
Sepracor's overhead costs using formulas which the management of ChiRex America
believed were reasonable based upon the use of such facilities and services. In
developing the formulas for these allocations, the management of ChiRex America
recognized the fact that the incremental costs for the ChiRex America's
facilities and administrative support services were lower than separate or
independent alternatives. All costs of the ChiRex America during 1994 and 1995,
including payroll costs, were paid by Sepracor.
In 1995 and prior ChiRex America purchased equipment from HemaSure Inc., an
affiliate of Sepracor, at prices based upon a pricing agreement between HemaSure
and ChiRex America. Under this agreement, the equipment which was leased or sold
to third parties by ChiRex America was purchased at cost plus a 25% margin. The
value of these purchases was approximately $275,000 and $476,000 for the years
ended December 31, 1994, and 1995, respectively.
ChiRex America sold certain pharmaceutical compounds to Sepracor in 1995
and 1996. Total revenue from these transactions amounted to $344,000 in 1995 and
$38,600 in 1996, respectively. In 1995 ChiRex America purchased certain
compounds at cost plus a 20% margin from a wholly-owned subsidiary of Sepracor.
The total cost of goods sold related to those purchases was $434,000.
11. SUBSEQUENT EVENTS
Acetaminophen Business
The Company is actively negotiating the disposition of its acetaminophen
business. Although acetaminophen (paracetamol), an OTC analgesic, is the largest
volume product manufactured by the Company, representing approximately 31% of
the Company's 1996 pro forma revenues, it is not highly profitable at the
F-20
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
gross margin level. In connection with the disposition of the business, the
impact on net income will depend on the Company's ability to add new
non-acetaminophen business and the effectiveness of the Company's cost reduction
efforts. In addition, any such disposition would result in a one-time charge
related to plant closure, severance and other costs related to the disposition
of the business. The magnitude and timing of this charge cannot currently be
estimated with certainty. The Company's decision to dispose of its acetaminophen
business followed a strategic review of several alternatives and was based on a
number of factors, including the continued domination of the acetaminophen
business by high volume, low cost manufacturers and the Company's expectation
that the market price of acetaminophen will continue to erode.
12. SIGNIFICANT CUSTOMERS
In 1996 the Company's three largest customers account for a approximately
66% percentage of its total revenues. Sanofi S.A. ("Sanofi"), SmithKline Beecham
plc ("SmithKline Beecham") and Rohm and Haas Company ("Rohm and Haas") accounted
for approximately 36%, 19% and 11%, respectively, of the Company's 1996
Revenues. In 1995 two customers represented 62% and 11% of revenues and in 1994
one customer represented 42% of revenue.
13. GEOGRAPHICAL INFORMATION
The Company is engaged in one business segment: the development,
manufacture and marketing of pharmaceutical fine chemicals. The following table
shows data for the Company by geographical area.
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues :
United States...................................... $ 1,810 $ 2,754 $ 6,296
Europe............................................. 0 0 63,072
Other.............................................. 0 0 5,247
------ ------ --------
1,810 2,754 74,615
====== ====== ========
Income (Loss) before non-recurring charges and
provision for income taxes:
United States...................................... (3,311) (2,452) 947
Europe............................................. 0 0 5,631
Other.............................................. 0 0 340
------ ------ --------
(3,311) (2,452) 6,918
====== ====== ========
Identifiable assets :
United States...................................... 1,873 2,692 1,117
Europe............................................. 0 0 126,938
------ ------ --------
127,431 2,692 128,055
====== ====== ========
</TABLE>
In general, export sales are denominated in pounds sterling.
F-21
<PAGE> 77
STERLING ORGANICS LIMITED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Sterling Organics Limited
We have audited the accompanying combined balance sheet of Sterling
Organics Limited and Sterling Organics Division (together "the Company") as of
31 December 1994, and the related combined statements of operations, equity and
cash flows for each of the two years in the period ended 31 December 1994 and
the period ended 10 August 1995. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in Note C to the combined financial statements, the
Company has not "pushed down" certain purchase accounting adjustments related to
fiscal periods when the Company was owned by other parent companies. In our
opinion, generally accepted accounting principles, as established by the
Securities and Exchange Commission for public companies, require that such
adjustments be reflected in the financial statements.
In our opinion, except for the effects of not pushing down certain purchase
accounting adjustments as described in the preceding paragraph, the combined
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Company as of 31 December 1994, and the
combined results of its operations and its cash flows for each of the two years
in the period ended 31 December 1994 and the period ended 10 August 1995, in
conformity with accounting principles generally accepted in the United States.
COOPERS & LYBRAND
Newcastle upon Tyne
England
February 27, 1996
F-22
<PAGE> 78
STERLING ORGANICS LIMITED
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
31 DECEMBER
1994
FOOTNOTE -----------
-------- $'000
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................ --
Accounts and other receivables.................................. D 8,040
Inventories..................................................... E 20,273
Prepayments..................................................... 371
-------
Total current assets............................................ 28,684
Property, plant and equipment, net.............................. F 48,332
-------
Total assets............................................ 77,016
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term borrowings........................................... G 612
Accounts payable................................................ H 1,604
Accrued expenses................................................ I 5,538
Accrued income taxes............................................ 1,170
-------
Total current liabilities....................................... 8,924
-------
NON-CURRENT LIABILITIES
Deferred income................................................. J 2,926
Deferred income taxes........................................... K 3,675
Accrued expenses................................................ I 6,642
-------
Total non-current liabilities................................... 13,243
-------
Total liabilities....................................... 22,167
-------
Commitments and contingencies................................... L
SHAREHOLDERS' EQUITY
Common stock, L1 and FF100 par value; authorised, issued and
fully paid shares............................................ M 196
Donated capital................................................. N 45,272
Retained earnings............................................... 19,198
Cumulative translation adjustments.............................. (9,817)
-------
Total shareholders' equity.............................. 54,849
-------
Total liabilities and shareholders' equity.............. 77,016
=======
</TABLE>
The accompanying footnotes are an integral part of the combined financial
statements.
F-23
<PAGE> 79
STERLING ORGANICS LIMITED
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERIOD
31 DECEMBER ENDED
----------------------- 10 AUGUST
FOOTNOTE 1993 1994 1995
-------- ------- ------- ---------
$'000 $'000 $'000
<S> <C> <C> <C> <C>
Gross revenues........................ O 74,497 78,859 51,375
Cost of goods sold.................... (66,529) (68,572) (44,220)
Research and development.............. (1,564) (1,816) (1,115)
------- ------- -------
6,404 8,471 6,040
Selling and distribution expenses..... (1,819) (1,696) (1,048)
Administrative expenses............... (3,089) (3,902) (1,108)
------- ------- -------
Operating income...................... 1,496 2,873 3,884
Interest income....................... 286 255 24
Interest expense...................... (22) (18) (8)
Other income, net..................... 379 481 402
------- ------- -------
Income before income tax expense...... 2,139 3,591 4,302
Income tax expense.................... P (935) (1,061) (1,327)
------- ------- -------
Net income............................ 1,204 2,530 2,975
======= ======= =======
</TABLE>
The accompanying footnotes are an integral part of the combined financial
statements.
F-24
<PAGE> 80
STERLING ORGANICS LIMITED
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL DONATED RETAINED CUMULATIVE TOTAL
PAID IN CAPITAL EARNINGS TRANSLATION SHAREHOLDERS'
CAPITAL ------- -------- ADJUSTMENTS EQUITY
COMMON ---------- ------------ ------------
STOCK $'000 $'000
------ $'000 $'000 $'000
$'000
<S> <C> <C> <C> <C> <C> <C>
Balance at 1 January 1993............ 196 -- 45,272 15,925 (11,569) 49,824
Net income........................... -- -- -- 1,204 -- 1,204
Translation adjustments.............. -- -- -- -- (526) (526)
--- ------- -------- -------- -------- -------
Balance at 31 December 1993.......... 196 -- 45,272 17,129 (12,095) 50,502
Net income........................... -- -- -- 2,530 -- 2,530
Dividends on common stock............ -- -- -- (461) -- (461)
Translation adjustments.............. -- -- -- -- 2,278 2,278
--- ------- -------- -------- -------- -------
Balance at 31 December 1994.......... 196 -- 45,272 19,198 (9,817) 54,849
Capital donation (Note N)............ -- -- 1,202 -- -- 1,202
Issue of common stock (Note N)....... 163 56,809 (46,474) (15,487) 4,989 --
Net income........................... -- -- -- 2,975 -- 2,975
Translation adjustments.............. -- -- -- -- 795 795
--- ------- -------- -------- -------- -------
Balance at 10 August 1995............ 359 56,809 -- 6,686 (4,033) 59,821
=== ======= ======== ======== ======== =======
</TABLE>
The accompanying footnotes are an integral part of the combined financial
statements.
F-25
<PAGE> 81
STERLING ORGANICS LIMITED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED PERIOD
31 DECEMBER ENDED
------------------ 10 AUGUST
1994 1995
------- ---------
1993 $'000 $'000
------
$'000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before dividends.................................. 1,204 2,530 2,975
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 7,589 8,039 4,924
Loss/(profit) on sale of equipment........................ 96 12 (5)
Government grant release.................................. (471) (231) (72)
Release of engineering premium............................ (1,091) (2,502) (723)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease/(increase) in accounts receivable................... 1,520 (2,157) (1,480)
Decrease in accounts receivable from related parties......... 2,406 1,187 1,725
Decrease/(increase) in prepayments........................... 271 (140) (559)
Decrease/(increase) in inventories........................... 1,383 2,499 (1,407)
(Decrease)/increase in accounts payable...................... (361) 159 1,276
(Decrease) in accounts payable to related parties............ (222) (385) (134)
(Decrease)/increase in accrued expenses...................... (404) 2,422 953
Increase in income taxes..................................... 288 199 1,452
(Decrease)/increase in deferred income taxes................. (321) 429 (110)
------ ------ ------
Net cash provided by operating activities...................... 11,887 12,061 8,815
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment.............................. 48 97 78
Payments for purchase of equipment........................... (9,240) (11,475) (9,037)
------ ------ ------
Net cash used in investing activities.......................... (9,192) (11,378) (8,959)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash receipt on issue of common stock........................ -- -- 454
(Decrease)/increase in short term borrowings................. (5,721) 601 (624)
Receipt of related party loan (Note Q)....................... 8,086 -- --
Repayment of related party loan (Note Q)..................... (3,757) (5,153) --
Payment of dividends......................................... -- (461) --
Receipt of government grants................................. 300 154 --
Engineering premium received................................. 1,320 466 736
------ ------ ------
Net cash provided by/(used in) financing activities............ 228 (4,393) 566
------ ------ ------
Net increase/(decrease) in cash................................ 2,923 (3,710) 422
Cash at beginning of period.................................... -- 3,287 --
Effect of foreign exchange rate changes on cash................ 364 423 (26)
------ ------ ------
Cash at end of period.......................................... 3,287 -- 396
====== ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash received for interest................................... 288 255 24
====== ====== ======
Cash paid for interest....................................... (22) (18) (8)
====== ====== ======
Cash paid for income taxes................................... (971) (434) --
====== ====== ======
</TABLE>
The accompanying footnotes are an integral part of the combined financial
statements.
F-26
<PAGE> 82
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS
A ORGANISATION AND HISTORY OF STERLING ORGANICS LIMITED
Sanofi Winthrop Limited (SWL) was established in the United Kingdom as a
joint venture between Sterling Winthrop Group Limited (SWGL) and Elf Sanofi UK
Limited on 1 January 1992. As part of its business operations SWL had interests
in:-
(a) Sterling Organics Division (Division) -- a manufacturing division
of the company located at Dudley together with limited activities at
Fawdon, both in the North East of England. Division was primarily a
production site for chemical intermediates to be used elsewhere within the
Sanofi Group and for made to order products for third parties; and
(b) Sterling Organics Limited -- a wholly owned subsidiary of SWL
whose sole purpose was to act as an intermediate sales company for the sale
of the majority of third party products manufactured by Division.
Prior to the establishment of the joint venture in 1992, Division and
Sterling Organics Limited were respectively a division and wholly owned
subsidiary of SWGL.
SWGL sold its interest in SWL to Sanofi UK Limited (formerly Elf Sanofi UK
Limited) on 30 September 1994. The business, assets and liabilities of Division
were transferred to Sterling Organics Limited on 31 March 1995 in anticipation
of the forthcoming sale of the business as part of a Sanofi Group plan to divest
non-core activities.
On 10 August 1995 Crossco (157) Limited, a company whose equity is owned by
Sterling Management and the HSBC Entities, purchased the entire issued share
capital of Sterling Organics Limited from SWL.
These combined financial statements have been prepared as if Sterling
Organics Limited and Division had operated as a single entity (the Company)
throughout the period to 10 August 1995.
B NATURE OF THE BUSINESS
The Company is a manufacturer of fine chemical intermediates, mainly for
the pharmaceuticals industry in Europe. Historically, the Company's business had
been concentrated in the bulk manufacture of the pharmaceutical requirements of
related parties, although over the years the business has developed a presence
in the fine chemicals market, offering both:
(a) custom synthesis services, whereby customers' process technology
is used to toll manufacture a product under contract for a fixed
period; and
(b) a range of standard fine chemical products.
C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1 Basis of presentation
The combined financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The combined
financial statements are presented in US Dollars ("$").
For all fiscal periods presented, the Company was owned by two large
international companies, each of whom acquired the Company's parent utilizing
the purchase method of accounting. Pursuant to regulations established by the
Securities and Exchange Commission for public companies, generally accepted
accounting principles require that the new purchase accounting basis in an
acquired company's assets be "pushed down" to a subsidiary's stand-alone
financial statements. Because the predecessor owners could not provide the
detailed information necessary to allocate these purchase accounting adjustments
to the Company, management has not been able to comply with this accounting
requirement. Had push down accounting been applied
F-27
<PAGE> 83
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
to the Company's financial statements, the balance sheet of the Company would
have been adjusted to reflect higher values for inventory and fixed assets and a
new asset for goodwill would have been recorded; accordingly, in the Company's
statements of operations, cost of goods sold would have been increased because
of the inventory uplift, depreciation expense would have been higher, resulting
in increased cost of goods sold and administrative expenses, and a new expense
would have been recorded for goodwill amortization. Following the acquisition of
the Company by Crossco (157) Limited on August 10, 1995, a new basis of
accounting was established for the Company and any such push down adjustments
with respect to goodwill and fixed assets would have been eliminated.
2 Principles of combination
The combined financial statements present the financial position,
statements of operations, and cash flows as if Sterling Organics Limited and
Division had operated as a single entity (the Company) throughout the two year
period ended 31 December 1994 and the 32 week period ended 10 August 1995.
Transactions between Sterling Organics Limited and Division and all
intercompany accounts have been eliminated in combination.
3 Revenue recognition
(a) Trading revenue
Trading revenue represents the invoiced value of goods and services,
excluding value added tax, supplied in the normal course of business.
Revenues are recognised as services are provided and as goods are shipped.
(b) Engineering premium
The cost of equipment required to develop a new custom synthesis
process is incurred by the Company and included in fixed assets. An
engineering premium is charged to customers, either by instalments or by an
increment to the unit sales price, to recover an agreed element of these
costs. Revenues are recognised on a systematic basis over the life of the
project at the same rate as the depreciation charge on the related fixed
assets. The difference between amounts invoiced during the year and revenue
earned is accounted for as deferred income.
(c) Government grants
Government grants for capital expenditure are credited to a deferred
income account in the balance sheet and the income is recognised over the
expected useful life of the related property, plant and equipment.
Government grants for operating expenditure are treated as income in the
period in which the related expenditure is charged.
4 Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation charged
to date.
The cost of property, plant and equipment represents the purchase cost,
together with any incidental costs of acquisition.
F-28
<PAGE> 84
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The maximum lives assumed for depreciating assets are as
follows:
<TABLE>
<S> <C>
Freehold buildings..................................................... 40 years
Short leasehold properties............................................. Lease life
Building installations................................................. 13 years
Machinery and equipment................................................ 8 to 10 years
Automobiles and trucks................................................. 5 years
Office machines........................................................ 3 to 10 years
Furniture and fittings................................................. 10 years
</TABLE>
The depreciation charge for assets acquired and disposed of during the year
is calculated in proportion to the number of months that the assets are in use.
No depreciation is calculated on freehold land or assets in the course of
construction.
When assets are sold or otherwise disposed of, the cost and accumulated
depreciation are removed from the balance sheet and any resulting gain or loss
is reflected in income.
5 Operating leases
Operating lease rentals are charged to the statement of operations in equal
instalments over the life of the lease.
6 Inventories
Inventories are stated at the lower of cost or market. In general, cost is
determined on a first-in first-out basis and includes transport and handling
costs.
In the case of manufactured products, cost includes all direct expenditure
and fixed overheads incurred in bringing each product to its present location
and condition based on the normal level of activity. Where necessary, provision
is made for obsolete, slow moving and defective inventories.
Market value is the estimated selling price reduced by all costs of
marketing, selling and distribution.
7 Research and development costs
Research and development costs are expensed as incurred.
8 Retirement plan
SWL has a defined benefit pension plan which covers substantially all
employees of the Company. The benefits are based on years of service and the
employee's compensation during each year of employment. The scheme is funded by
contributions partly from the employees and partly from the Company at rates
determined by a professionally qualified actuary.
The cost of providing retirement pensions and related benefits is charged
to the statement of operations over the periods benefitting from the employees'
services. The effects of variations from regular cost arising from actuarial
valuations of the pension scheme are spread over the expected average remaining
service lives of the members of the scheme. The difference between the charge to
the statement of operations and the contributions paid to the scheme is shown as
an asset or a liability in the balance sheet.
F-29
<PAGE> 85
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9 Income taxes
The charge for taxation is based on the income for the year and takes into
account deferred taxation. Deferred tax assets and liabilities are recognised
for the tax consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts based on enacted
tax laws and statutory tax rates expected to be in effect in the periods in
which the differences are expected to affect taxable income.
10 Foreign currencies
The functional currency of the Company is Pounds Sterling. For the purposes
of these financial statements, the reporting currency has been taken to be US
Dollars as in periods subsequent to the offering, for the purpose of which these
financial statements have been prepared, financial information in respect of the
Company will need to be recast in US Dollars for comparative purposes pursuant
to accounting requirements of the Securities and Exchange Commission.
(a) Transaction gains and losses
Transaction gains and losses arise when transactions are
denominated in a currency other than Pounds Sterling. Changes in
exchange rates then increase or decrease the expected amount of
functional currency cash flows upon settlement of the transaction,
giving rise to a transaction gain or loss.
Transactions in foreign currencies are accounted for as follows:
(i) At the date the transaction is recognised, each asset,
liability, revenue, expense, gain or loss arising from the
transaction is measured in Pounds Sterling by use of the
exchange rate in effect at that date; and
(ii) At each balance sheet date, recorded balances that are
denominated in a currency other than Pounds Sterling are
adjusted to reflect the current exchange rate.
(b) Translation adjustments
Translation adjustments result from the process of translating the
Company's financial statements into US Dollars. Assets and liabilities
are translated using the exchange rate at the balance sheet date.
Reserves, expenses, gains and losses are translated using an
appropriately weighted average exchange rate for the period. Translation
adjustments are separately reported as cumulative translation
adjustments within shareholders' equity and are not included in the
determination of net income.
11 Restructuring and reorganisation costs
Severance liabilities in respect of rationalisation, reorganisation and
related measures are recorded when such obligations are committed. Other such
costs which are not associated with or that do not benefit activities that will
be continued are recognised as liabilities from the commitment date. Associated
expenditure is then charged against the related provision to the extent that it
is covered by that provision, or directly against reserves to the extent that it
is not so covered.
12 Environmental costs
Liabilities for costs relating to environmental and remedial work which
must be performed to comply with Her Majesty's Inspector of Pollution and other
environmental guidelines are recorded when it is probable that obligations have
been incurred and the amounts can be reasonably estimated. Associated
expenditure is then charged against the related provision to the extent that it
is covered by that provision, or directly against reserves to the extent that it
is not so covered.
F-30
<PAGE> 86
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13 Cash equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
D ACCOUNTS AND OTHER RECEIVABLES
The components of accounts and other receivables are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
Trade accounts receivable............................................. 5,398
Less allowance for doubtful accounts receivable....................... (144)
------
5,254
Accounts receivable from related parties.............................. 1,690
Other receivables..................................................... 1,096
------
8,040
======
</TABLE>
Amounts charged/(credited) to administrative expenses relating to doubtful
accounts receivable totalled $Nil and $129,000 for the fiscal years 1993 and
1994 respectively, and $(144,000) for the period ended 10 August 1995. The
allowance for doubtful accounts receivable at the end of 1994 related to
specific doubtful accounts in Iran. The provision of $144,000 was reversed in
1995 when those accounts were paid. There were no significant doubtful accounts
at 10 August 1995.
E INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
Raw materials.......................................................... 1,422
Work in progress....................................................... 5,214
Finished goods......................................................... 10,673
Engineering stores and replacement parts............................... 2,964
------
20,273
======
</TABLE>
Amounts charged/(credited) to cost of goods sold relating to slow-moving
and obsolete inventories totalled $622,000 and $(574,000) for the fiscal years
1993 and 1994, and $(123,000) for the period ended 10 August 1995. During 1994,
work in progress for a chemical intermediate relating to an obsolete Sanofi
product valued at $389,000 was written off and disposed of and the related
provision was released. In the period ended 10 August 1995, a previously
recorded provision for Glaxo Sulphonamide of $145,000 was reversed in response
to improved sales of the product.
F-31
<PAGE> 87
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
F PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
Land................................................................ 158
Buildings........................................................... 10,451
Building installations.............................................. 7,300
Machinery and equipment............................................. 89,021
Automobiles and trucks.............................................. 770
Office machines..................................................... 2,948
Furniture and fittings.............................................. 316
---------
110,964
Accumulated depreciation............................................ (68,034)
Assets in the course of construction................................ 5,402
---------
Property, plant and equipment, net.................................. 48,332
=========
</TABLE>
Depreciation expense relating to property, plant and equipment totalled
$7,589,000 and $8,039,000 for the fiscal years 1993 and 1994 respectively and
$4,924,000 for the period ended 10 August 1995.
G SHORT TERM BORROWINGS
As part of the operations of SWL, the Company had access to a short term
credit facility with Midland Bank plc between 1 January 1992 and 10 August 1995.
The main terms of this credit facility were:
(a) Repayable on demand;
(b) Maximum drawdown of L3,000,000 ($4,700,000);
(c) Secured by a fixed and floating charge over the assets of the
Company; and
(d) Interest rate charged at LIBOR (London Inter-Bank Offer Rate) +1% on
the outstanding balance.
H ACCOUNTS PAYABLE
Accounts payable include:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
Trade accounts payable............................................... 1,472
Accounts payable to related parties.................................. 132
------
1,604
======
</TABLE>
F-32
<PAGE> 88
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
I ACCRUED EXPENSES
These consist of the following:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
CURRENT LIABILITIES
Accrued payroll and payroll taxes...................................... 967
Capital accruals....................................................... 2,283
Retirement plan (Note R)............................................... 152
Restructuring provision................................................ 307
Environmental provision................................................ 45
Other liabilities...................................................... 1,784
------
5,538
------
NON-CURRENT LIABILITIES
Retirement plan (Note R)............................................... 4,610
Restructuring provision................................................ 497
Environmental provision................................................ 1,535
------
6,642
------
Total accrued expenses....................................... 12,180
======
</TABLE>
Restructuring provision
<TABLE>
<CAPTION>
YEAR ENDED
31 DECEMBER
1994
-----------
$'000
<S> <C>
Balance at beginning of period......................................... 760
Translation adjustments................................................ 44
------
Balance at end of period............................................... 804
======
Due less than one year................................................. 307
Due after more than one year........................................... 497
------
804
======
</TABLE>
The provision remaining at 31 December 1994 is in respect of 7 planned
employee terminations and the expected write down of fixed assets at Fawdon.
F-33
<PAGE> 89
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental provision
<TABLE>
<CAPTION>
YEAR ENDED
31 DECEMBER
1994
-----------
$'000
<S> <C>
Balance at beginning of period....................................... 1,735
Cash payments........................................................ (133)
Amounts charged to provision......................................... 27
Translation adjustments.............................................. (49)
-----
Balance at end of period............................................. 1,580
=====
Due less than one year............................................... 45
Due after more than one year......................................... 1,535
-----
1,580
=====
</TABLE>
The two main elements of the environmental provision are:
Fawdon relocation
Historically, Fawdon housed the Company's Pilot Plant and Research and
Development facilities. A decision was taken in late 1991 to move these
facilities to the site at Dudley and close down the operations at Fawdon. This
transfer of operations began in 1991 and is expected to be completed by the end
of 1996. A provision of $915,000 was made in respect of the decommissioning
costs expected to be incurred.
Waste treatment plant
In 1991 a provision of $1,635,000 was set up when it was decided to build a
new waste treatment plant at Dudley. The provision was made in respect of
environmental clean-up costs relating to lagoons which were used to store waste
effluent before the commissioning of the new plant which came on line during
1993. Costs of $1,166,000 have been incurred to date, and the remaining
provision is expected to be utilised by the end of 1996.
J DEFERRED INCOME
The components of deferred income are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
Government grants.................................................... 1,009
Engineering premium.................................................. 1,917
-----
2,926
=====
</TABLE>
F-34
<PAGE> 90
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
K DEFERRED INCOME TAXES
The deferred tax assets and liabilities consist of:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
DEFERRED TAX ASSETS:
Non-current:
Engineering premium................................................ (634)
Retirement plan provision.......................................... (50)
------
(684)
------
CURRENT:
Environmental provision............................................ (211)
Retirement plan provision.......................................... (1,522)
Restructuring provision............................................ (264)
Other differences.................................................. (65)
------
(2,062)
------
Total deferred tax assets.................................. (2,746)
DEFERRED TAX LIABILITIES:
Non-current:
Excess capital allowances.......................................... 6,421
------
3,675
======
</TABLE>
L COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment used in its operations. The rental
costs arising from operating leases are expensed in the year they are incurred.
Rental expense was $382,000 and $361,000 for the fiscal years 1993 and 1994
respectively and was $230,000 for the period ended 10 August 1995.
The minimum lease commitments under non-cancellable operating leases at 31
December 1994 were as follows:
<TABLE>
<CAPTION>
1994
-----
$'000
<S> <C>
0 - 1 years.................................................................. 386
1 - 2 years.................................................................. 349
2 - 3 years.................................................................. 207
3 - 4 years.................................................................. 188
4 - 5 years.................................................................. 136
thereafter................................................................... 330
-----
1,596
=====
</TABLE>
Existing leases are expected to be renewed or replaced by leases on other
assets in the normal course of business.
F-35
<PAGE> 91
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
M COMMON STOCK AND ADDITIONAL PAID IN CAPITAL
The composition of the common stock of the Company is set out below:
<TABLE>
<CAPTION>
$'000
<S> <C>
DURING THE PERIOD 1 JANUARY 1993 TO 30 MARCH 1995:
Authorised, issued and fully paid; 100,000 ordinary shares of L1 ($1.96)
each........................................................................ 196
===
DURING THE PERIOD 31 MARCH 1995 TO 9 AUGUST 1995:
Authorised, issued and fully paid; 200,000 ordinary shares of L1 (average of
$1.795) each................................................................ 359
===
ON 10 AUGUST 1995:
Authorised, issued and fully paid;
200,000 deferred shares of L1 (average of $1.795) each...................... 359
2 shares of FF100 ($20.37) each............................................. --
---
359
===
</TABLE>
On 30 March 1995, authorised share capital was increased to 200,000
ordinary shares of L1 each, the new shares ranking pari passu with those already
in existence. On 31 March 1995, 100,000 ordinary shares of L1 each were issued
to SWL in consideration for the transfer of the assets and liabilities of
Division at a net book value of $56,972,000 from SWL. This transaction resulted
in the creation of additional paid in capital of $56,809,000 (see Note N).
On 10 August 1995, there were further changes in the common stock and
attached rights as follows:
(a) The authorised share capital was increased to include two shares of
FF100 each, ranking pari passu with the existing ordinary shares,
which were duly issued to Sanofi UK Limited on that date;
(b) The existing 200,000 ordinary shares were converted to 200,000
deferred shares of L1 each; and
(c) The rights of the shares in existence were amended so that:
(i) the deferred shares were attributed no voting rights or rights
to share in profits; and
(ii) the deferred shares were given the right to participate in a
capital distribution at par only once L1,000,000 ($1,589,000)
had been paid in respect of each FF100 share. Any remaining
capital would then be applied equally to the FF100 shares.
N DONATED CAPITAL
Immediately prior to the formation of the SWL joint venture, a capital
donation of $45,272,000 was made to Division by SWGL. This donation was effected
by the waiver of debts owed by Division to SWGL.
On 31 March 1995, a further capital donation of $1,202,000 was made by SWL
to Division by the transfer of credit balances to SWL from Division for nil
consideration.
F-36
<PAGE> 92
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On 31 March 1995, the entire net assets of Division of $56,972,000 were
transferred to the Company by SWL in consideration for the issue of 100,000
ordinary shares of L1 ($1.63) each by the Company to SWL. The effect of this
transaction is set out below:
<TABLE>
<CAPTION>
$'000
<S> <C>
NET ASSETS OF DIVISION AT 31 MARCH 1995, REPRESENTED BY:
Donated capital........................................................... 41,485
Retained earnings......................................................... 15,487
------
56,972
======
CONVERTED TO:
Common stock.............................................................. 163
Additional paid in capital................................................ 56,809
------
56,972
======
</TABLE>
O SEGMENT INFORMATION
The Company considers that it operates in one industry segment, the
manufacture of fine chemical intermediates for the pharmaceuticals industry.
Gross revenues, operating profits and identifiable assets of the Company
all relate to UK operations. Gross revenues by destination are set out below:
<TABLE>
<CAPTION>
UNITED
KINGDOM & CONTINENTAL ASIA,
REPUBLIC EUROPE AMERICA AFRICA TOTAL
OF IRELAND ----------- ------- & PACIFIC ------
------------ $'000 $'000 --------- $'000
$'000 $'000
<S> <C> <C> <C> <C> <C> <C>
GROSS REVENUES
1993 Related parties......... 42,011 -- 975 -- 42,986
Third parties........... 15,222 14,940 264 1,085 31,511
------ ------ ----- ----- ------
57,233 14,940 1,239 1,085 74,497
====== ====== ===== ===== ======
1994 Related parties......... 40,845 207 255 -- 41,307
Third parties........... 19,771 15,917 326 1,538 37,552
------ ------ ----- ----- ------
60,616 16,124 581 1,538 78,859
====== ====== ===== ===== ======
10 August 1995 Related parties......... 28,222 787 -- -- 29,009
Third parties........... 11,685 7,188 2,677 816 22,366
------ ------ ----- ----- ------
39,907 7,975 2,677 816 51,375
====== ====== ===== ===== ======
</TABLE>
F-37
<PAGE> 93
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Gross revenues from each of five customers exceeded 10% during one or more
of the periods presented. These customers accounted for the following
percentages of gross revenues.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
31 DECEMBER ENDED
------------- 10 AUGUST
1994 1995
---- ---------
1993 % %
----
%
<S> <C> <C> <C>
Related party (United Kingdom & Republic of Ireland)
Related party A........................................... 17 15 17
Related party B........................................... 29 31 36
Related party C........................................... 11 12 2
== == ==
Third party (United Kingdom & Republic of Ireland)
Third party A............................................. 12 11 11
== == ==
Third party (Continental Europe)
Third party B............................................. 10 8 8
== == ==
</TABLE>
All related parties referred to above were fellow group companies at the
time of the relevant transactions. Prices charged to related parties were based
on a cost plus formula (see Note Q) and normal commercial payment terms were
applied to these transactions.
P INCOME TAX EXPENSE
Income tax expense comprised the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
31 DECEMBER ENDED
--------------- 10 AUGUST
1994 1995
----- ---------
1993 $'000 $'000
-----
$'000
<S> <C> <C> <C>
United Kingdom corporation tax at 33% based on income
for the year.......................................... 1,256 632 1,437
Deferred taxation....................................... (321) 429 (110)
--- ---- ----
Total taxes on income................................... 935 1,061 1,327
=== ==== ====
</TABLE>
Total taxes on income varied from the amount computed by applying the
corporate tax rate to income before taxes. The differences were mainly
attributable to the following factors:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
31 DECEMBER ENDED
------------- 10 AUGUST
1993 1994 1995
---- ---- ---------
% % %
<S> <C> <C> <C>
United Kingdom statutory corporation tax rate........... 33.0 33.0 33.0
Group charges disallowed (see Note Q)................... 7.3 -- --
Release of government grants............................ (1.7) (0.7) (0.6)
Adjustments in respect of prior years................... 4.5 (3.1) 0.4
Other differences....................................... 0.6 0.4 (2.0)
---- ---- ----
43.7 29.6 30.8
==== ==== ====
</TABLE>
F-38
<PAGE> 94
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred taxation (credit)/charge was mainly the result of the tax
effect of timing differences as follows:
<TABLE>
<CAPTION>
YEAR ENDED 31 PERIOD
DECEMBER ENDED
------------- 10 AUGUST
1993 1994 1995
---- ---- ---------
$'000 $'000 $'000
<S> <C> <C> <C>
Excess capital allowances/(depreciation)................ 266 (46) (153)
Engineering premium..................................... (76) 672 --
Retirement plan provision............................... (391) (854) 26
Restructuring provision................................. -- 423 102
Environmental provision................................. 42 91 --
Other differences....................................... (162) 143 (85)
---- ---- ----
(321) 429 (110)
==== ==== ====
</TABLE>
Q RELATED PARTY TRANSACTIONS
The Company had the following total amounts of transactions and balances
with related parties:
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED 31 DECEMBER ENDED
---------------------- 10 AUGUST
1993 1994 1995
------ ----------- ---------
$'000 $'000 $'000
<S> <C> <C> <C>
Sales............................................. 42,986 41,307 29,009
====== ====== ======
Other income...................................... 929 451 30
====== ====== ======
Purchases and other expenses...................... 6,341 4,860 1,704
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE
Related party A................................... 1,661
==========
ACCOUNTS PAYABLE
Related party B................................... 35
Other group companies............................. 94
-----------
129
==========
</TABLE>
During the periods under examination, the Company's main objective was the
delivery of active ingredients to fellow group companies. Prices charged were
based on a cost-plus formula. Following completion of the management buy-out on
10 August 1995, trading with Sanofi Group companies is governed by the terms of
an arm's length supply agreement.
Related party purchases consisted principally of charges such as interest,
car fleet management, insurance, pension, rates, utilities and raw materials.
These charges were generally charged based on a specific identification of the
costs incurred, or an allocation of total costs. Management believes that these
allocation methods are reasonable and that they result in the allocation of
expenses that are applicable to the Company's operations. Additionally,
management believes that the expenses so charged are representative of the
amounts which the Company would have incurred had it operated as an unrelated
entity.
The Company incurred administration charges of $475,000 in the fiscal year
1993, relating to administration carried out by related parties, which, in the
opinion of management, would not have been incurred had the Company operated
independently. These charges have been treated as disallowable for taxation
purposes.
F-39
<PAGE> 95
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1993, the Company received an interest free loan of L5,679,000
($8,086,000) from a related party. This loan was repaid as follows:
<TABLE>
<CAPTION>
$'000
<S> <C>
March 1993................................................................... 1,183
October 1993................................................................. 2,506
December 1993................................................................ 68
-----
3,757
October 1994................................................................. 5,153
Translation differences...................................................... (824)
-----
8,086
=====
</TABLE>
R RETIREMENT PLAN
The employees of the Company participate in the Sanofi Winthrop Pension
Plan (SWPP). Benefits are based on years of service and the employee's
compensation throughout that period.
SWPP commenced on 31 October 1992 with the initial membership comprising
the active members of the Sterling-Winthrop Group Pension Fund (SWGPF), who
agreed to transfer their rights following the creation of SWL in the United
Kingdom.
The transferring members were granted back-dated service under the plan and
a transfer of assets from SWGPF to SWPP took place.
Following a transition period after the change in ownership of the Company
on 10 August 1995, the Company's participation in SWPP will terminate. A new
plan is expected to be established in substantially the same form as SWPP
covering the Company's employees. It is intended that there will then be a
transfer of assets between SWPP and the new plan in an amount equal to the
present value of the accrued benefits.
The assets of SWPP are invested in a portfolio of investments managed by
Mercury Asset Management Limited.
The following table sets forth the funded status of the element of SWPP in
which the Company has an interest:
<TABLE>
<CAPTION>
31 DECEMBER
1994
-----------
$'000
<S> <C>
Vested benefit obligations................................ 18,807
------
Accumulated benefit obligations........................... 18,807
------
Projected benefit obligations............................. 30,741
Fair value of plan assets................................. 27,337
------
Funded status............................................. (3,404)
Unrecognised transition asset............................. (3,015)
Unrecognised net loss..................................... 1,657
------
Accrued pension expense................................... (4,762)
======
Due less than one year.................................... 152
Due after more than one year.............................. 4,610
------
4,762
======
</TABLE>
F-40
<PAGE> 96
STERLING ORGANICS LIMITED
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The pension costs and related assumptions in respect of the fiscal years
1993 and 1994 and the period ended 10 August 1995 are set out below:
Pension costs and related assumptions
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
31 DECEMBER ENDED 10
--------------------- AUGUST
1994 1995
------ ---------
1993 % %
------
%
<S> <C> <C> <C>
ASSUMPTIONS
Discount rate...................... 6 3/4 9 8 1/2
Return on plan assets.............. 9 1/2 9 1/2 9 1/2
Salary increases................... 6 1/2 7 7
PENSION EXPENSE $'000 $'000 $'000
Service cost....................... 1,681 2,725 1,182
Interest cost...................... 2,296 2,711 1,722
Return on plan assets.............. (2,475) (2,947) (1,616)
Amortisation of transition asset... (321) (329) (210)
Amortisation of net loss........... -- 425 --
------ ------ ------
Net periodic pension cost.......... 1,181 2,585 1,078
Employer contribution.............. -- -- (1,155)
Translation adjustments............ (33) 160 74
------ ------ ------
(Increase)/decrease in accrued
pension expense.................. (1,148) (2,745) 3
====== ====== ======
</TABLE>
The Company enjoyed a pension contribution holiday from the establishment
of the SWPP until 31 December 1994. The Company resumed normal contribution
levels on 1 January 1995.
In line with FAS 87 the cost of providing retirement pensions and related
benefits must be charged to the statement of operations over the periods
benefitting from the employees' service. The amount by which the charge to the
statement of operations has exceeded contributions paid is shown as a liability
in the balance sheet.
S FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions gave rise to gains/(losses) of $139,000;
$(31,000) and $(13,000) in the fiscal years 1993, 1994 and the period ended 10
August 1995, respectively.
F-41
<PAGE> 97
CROSSCO (157) LIMITED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Crossco (157) Limited:
We have audited the accompanying consolidated balance sheet of Crossco
(157) Limited as of 31 December 1995 and the related consolidated statements of
operations, equity and cash flows for the period from inception (July 14, 1995)
to 31 December 1995. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the combined financial position of
Crossco (157) Limited as of 31 December 1995, and the combined results of its
operations and its cash flows for the period from inception (July 14, 1995) to
31 December 1995, in conformity with accounting principles generally accepted in
the United States.
COOPERS & LYBRAND
Newcastle upon Tyne
England
February 27, 1996
F-42
<PAGE> 98
CROSSCO (157) LIMITED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
31 DECEMBER
1995
FOOTNOTE -----------
-------- $'000
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................................. 7,845
Accounts and other receivables....................................... D 8,335
Inventories.......................................................... E 18,547
Prepayments.......................................................... 366
Total current assets.............................................. 35,093
Property, plant and equipment, net................................... F 44,868
Total assets................................................. 79,961
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................................... 5,374
Accrued expenses..................................................... G 7,881
Accrued income taxes................................................. 996
Current portion of long-term debt.................................... J 660
Total current liabilities......................................... 14,911
NON-CURRENT LIABILITIES
Deferred income...................................................... H 2,962
Deferred income taxes................................................ I 3,453
Accrued expenses..................................................... G 4,425
Long term debt....................................................... J 40,304
Total non-current liabilities..................................... 51,144
Total liabilities............................................ 66,055
Cumulative redeemable preferred stock at redemption value.............. K 13,541
Commitments and contingencies.......................................... L
SHAREHOLDERS' EQUITY
Common stock, ordinary (on incorporation L1 par value, 100 shares
authorised, 1 share issued and outstanding. At 31 December 1995, L0.1
par value, 300,000 shares authorised, issued and outstanding)........ M 48
Common stock, Series A (on incorporation none authorised, issued or
outstanding. At 31 December 1995 L0.1 par value, 790,909 shares
authorised, issued and outstanding).................................. M 125
Additional paid in capital............................................. 1,560
Accumulated deficit.................................................... (1,201)
Cumulative translation adjustments..................................... (167)
Total shareholders' equity........................................ 365
Total liabilities and shareholders' equity................... 79,961
</TABLE>
The accompanying footnotes are an integral part of the consolidated financial
statements.
F-43
<PAGE> 99
CROSSCO (157) LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED
31 DECEMBER
1995
FOOTNOTE ------------
-------- $'000
<S> <C> <C>
Gross revenues........................................................ O 34,828
Cost of goods sold.................................................... (30,836)
Research and development.............................................. (651)
------------
3,341
Selling and distribution expenses..................................... (681)
Administrative expenses............................................... (2,047)
------------
Operating income...................................................... 613
Interest income....................................................... 143
Interest expense...................................................... (2,070)
Other income, net..................................................... 5
------------
Loss before income tax expense........................................ (1,309)
Income tax expense.................................................... P 351
------------
Net loss.............................................................. (958)
Dividends on preference shares........................................ (243)
------------
Net loss for ordinary shares.......................................... (1,201)
==========
</TABLE>
The accompanying footnotes are an integral part of the consolidated financial
statements.
F-44
<PAGE> 100
CROSSCO (157) LIMITED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ORDINARY L1 ADDITIONAL CUMULATIVE
COMMON STOCK ORDINARY L0.1 SERIES A L0.1 PAID-IN ACCUMULATED TRANSLATION TOTAL
COMMON STOCK COMMON STOCK CAPITAL DEFICIT ADJUSTMENTS SHARE-
------------ ---------------- ---------------- ---------- ----------- ---------- HOLDERS'
EQUITY
--------
NO $'000 NO $'000 NO $'000 $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 14 July
1995............. 1 -- -- -- -- -- -- -- -- --
Conversion of L1
ordinary shares
into L0.1
ordinary
shares........... (1) -- 10 -- -- -- -- -- -- --
L0.1 ordinary
shares issued for
cash............. -- -- 299,990 48 -- -- 428 -- -- 476
L0.1 ordinary A
shares issued for
cash............. -- -- -- -- 790,909 125 1,132 -- -- 1,257
Net loss for
period........... -- -- -- -- -- -- -- (958) -- (958)
Dividends on
preference
shares........... -- -- -- -- -- -- -- (243) -- (243)
Translation
adjustments...... -- -- -- -- -- -- -- -- (167) (167)
-- -- --
--- ------- ------- --- --- --- ---
Balance at 31
December 1995.... -- -- 300,000 48 790,909 125 1,560 (1,201) (167) 365
=== == ======= == ======= == === === === ===
</TABLE>
The accompanying footnotes are an integral part of the consolidated financial
statements.
F-45
<PAGE> 101
CROSSCO (157) LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
ENDED
31 DECEMBER
1995
-----------
$'000
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss before dividends....................................................... (958)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation.................................................................... 2,576
Loss on sale of equipment....................................................... 11
Government grant release........................................................ (50)
Release of engineering premium.................................................. (374)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in accounts receivable................................................. (692)
Decrease in prepayments......................................................... 549
Decrease in inventories......................................................... 4,831
Increase in accounts payable.................................................... 2,694
Increase in accrued expenses.................................................... 327
Increase in preference share dividends payable.................................. 243
Decrease in income taxes........................................................ (858)
Decrease in deferred income taxes............................................... (704)
-------
Net cash provided by operating activities....................................... 7,595
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of equipment.............................................. (4,107)
Proceeds from sale of equipment................................................. 424
Purchase of subsidiary undertaking, (net of cash acquired) (Note N)............. (53,762)
-------
Net cash used in investing activities........................................... (57,445)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash receipt on issue of common shares (Note M)................................. 1,733
Proceeds from issuance of cumulative redeemable preference shares (Note K)...... 13,606
Proceeds from issuance of long term debt (Note J)............................... 41,911
Engineering premium received.................................................... 542
-------
Net cash provided by financing activities....................................... 57,792
-------
Net increase in cash............................................................ 7,942
Cash at beginning of period..................................................... --
Effect of foreign exchange rate charges on cash................................. (97)
-------
Cash at end of period........................................................... 7,845
=======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash received for interest...................................................... 143
=======
Cash paid for interest.......................................................... (1,466)
=======
Cash paid for income taxes...................................................... (1,221)
=======
</TABLE>
The accompanying footnotes are an integral part of the consolidated financial
statements.
F-46
<PAGE> 102
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A ORGANISATION AND HISTORY OF CROSSCO (157) LIMITED
The Company was incorporated on 14 July 1995. On 10 August 1995 the Company
acquired the entire issued share capital of Sterling Organics Limited from
Sanofi Winthrop Limited (SWL) (see Note N).
SWL was established in the United Kingdom as a joint venture between
Sterling Winthrop Group Limited (SWGL) and Elf Sanofi UK Limited on 1 January
1992. As part of its business operations SWL had interests in:-
(a) Sterling Organics Division (Division) -- a manufacturing division
of the company located at Dudley together with limited activities at
Fawdon, both in the North East of England. Division was primarily a
production site for chemical intermediates to be used elsewhere within the
Sanofi Group and for made to order products for third parties; and
(b) Sterling Organics Limited (SOL) -- a wholly owned subsidiary of
SWL whose sole purpose was to act as an intermediate sales company for the
sale of the majority of third party products manufactured by Division.
Prior to the establishment of the joint venture in 1992, Division and SOL
were respectively a division and wholly owned subsidiary of SWGL.
SWGL sold its interest in SWL to Sanofi UK Limited (formerly Elf Sanofi UK
Limited) on 30 September 1994 and the business, assets and liabilities of
Division were transferred to SOL on 31 March 1995 in anticipation of the
forthcoming sale of the business as part of a Sanofi Group plan to divest
non-core activities.
B NATURE OF THE BUSINESS
The Company's wholly owned subsidiary, SOL, is a manufacturer of fine
chemical intermediates, mainly for the pharmaceuticals industry in Europe.
Historically, SOL's business had been concentrated in the bulk manufacture of
the pharmaceutical requirements of related parties, although over the years the
business has developed a presence in the fine chemicals market, offering both:
(a) custom synthesis services, whereby customers' process technology
is used to toll manufacture a product under contract for a fixed
period; and
(b) a range of standard fine chemical products.
C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1 Basis of presentation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The consolidated
financial statements are presented in US Dollars ("$").
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
2 Principles of consolidation
The consolidated financial statements present the financial position,
statement of operations, and cash flows of the Company and its subsidiary
undertaking (the Group) for the period to 31 December 1995.
On acquisition of a subsidiary, all of the subsidiary's separable assets
and liabilities that exist at the date of acquisition are recorded at their fair
values reflecting their condition at that date (see Note N).
F-47
<PAGE> 103
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions between the Company and SOL and all intercompany accounts have
been eliminated on consolidation.
3 Revenue recognition
(a) Trading revenue
Trading revenue represents the invoiced value of goods and services,
excluding value added tax, supplied in the normal course of business.
Revenues are recognised as services are provided and as goods are shipped.
(b) Engineering premium
The cost of equipment required to develop a new custom synthesis
process is incurred by the Group and included in fixed assets. An
engineering premium is charged to customers, either by instalments or by an
increment to the unit sales price, to recover an agreed element of these
costs. Revenues are recognised on a systematic basis over the life of the
project at the same rate as the depreciation charge on the related fixed
assets. The difference between amounts invoiced during the year and revenue
earned is accounted for as deferred income.
(c) Government grants
Government grants for capital expenditure are credited to a deferred
income account in the balance sheet and the income is recognised over the
expected useful life of the related property, plant and equipment.
Government grants for operating expenditure are treated as income in the
period in which the related expenditure is charged.
4 Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation charged
to date.
The cost of property, plant and equipment represents the purchase cost,
together with any incidental costs of acquisition.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The maximum lives assumed for depreciating assets are as
follows:
<TABLE>
<S> <C>
Freehold buildings..................................................... 40 years
Short leasehold properties............................................. Lease life
Building installations................................................. 13 years
Machinery and equipment................................................ 8 to 10 years
Automobiles and trucks................................................. 5 years
Office machines........................................................ 3 to 10 years
Furniture and fittings................................................. 10 years
</TABLE>
The depreciation charge for assets acquired and disposed of during the year
is calculated in proportion to the number of months that the assets are in use.
No depreciation is calculated on freehold land or assets in the course of
construction.
When assets are sold or otherwise disposed of, the cost and accumulated
depreciation are removed from the balance sheet and any resulting gain or loss
is reflected in income.
5 Operating leases
Operating lease rentals are charged to the statement of operations in equal
instalments over the life of the lease.
F-48
<PAGE> 104
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6 Inventories
Inventories are stated at the lower of cost or market. In general, cost is
determined on a first-in first-out basis and includes transport and handling
costs.
In the case of manufactured products, cost includes all direct expenditure
and fixed overheads incurred in bringing each product to its present location
and condition based on the normal level of activity. Where necessary, provision
is made for obsolete, slow moving and defective inventories.
Market value is the estimated selling price reduced by all costs of
marketing, selling and distribution.
7 Research and development costs
Research and development costs are expensed as incurred.
8 Retirement plan
SWL has a defined benefit pension plan which covers substantially all
employees of SOL. The benefits are based on years of service and the employee's
compensation during each year of employment. The scheme is funded by
contributions partly from the employees and partly from the Group at rates
determined by a professionally qualified actuary.
The cost of providing retirement pensions and related benefits is charged
to the income statement over the periods benefitting from the employees'
services. The effects of variations from regular cost arising from actuarial
valuations of the pension scheme are spread over the expected average remaining
service lives of the members of the scheme. The difference between the charge to
the statement of operations and the contributions paid to the scheme is shown as
an asset or a liability in the balance sheet.
9 Income taxes
The charge for taxation is based on the income for the year and takes into
account deferred taxation. Deferred tax assets and liabilities are recognised
for the tax consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts based on enacted
tax laws and statutory tax rates expected to be in effect in the periods in
which the differences are expected to affect taxable income.
10 Foreign currencies
The functional currency of the Company is Pounds Sterling. For the purposes
of these financial statements, the reporting currency has been taken to the US
Dollars as in periods subsequent to the offering, for the purpose of which these
financial statements have been prepared, financial information in respect of the
Company will need to be recast in US Dollars for comparative purposes pursuant
to accounting requirements of the Securities Exchange Commission.
(a) Transaction gains and losses
Transaction gains and losses arise when transactions are denominated in a
currency other than Pounds Sterling. Changes in exchange rates then increase or
decrease the expected amount of functional currency cash flows upon settlement
of the transaction, giving rise to a transaction gain or loss.
Transactions in foreign currencies are accounted for as follows:
(i) At the date the transaction is recognized, each asset, liability,
revenue, expense, gain or loss arising from the transaction is
measured in Pounds Sterling by use of the exchange rate in effect
at that date; and
(ii) At each balance sheet date, recorded balances that are
denominated in a currency other than Pounds Sterling are adjusted
to reflect the current exchange rate.
F-49
<PAGE> 105
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Translation adjustments
Translation adjustments result from the process of translating the
Company's financial statements into US Dollars. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Reserves,
expenses, gains and losses are translated using an appropriately weighted
average exchange rate for the period. Translation adjustments are separately
reported as cumulative translation adjustments within shareholders' equity and
are not included in the determination of net income.
11 Restructuring and reorganisation costs
Severance liabilities in respect of rationalisation, reorganisation and
related measures are recorded when such obligations are committed. Other such
costs which are not associated with or that do not benefit activities that will
be continued are recognised as liabilities from the commitment date. Associated
expenditure is then charged against the related provision to the extent that it
is covered by that provision, or directly against reserves to the extent that it
is not so covered.
12 Environmental costs
Liabilities for costs relating to environmental and remedial work which
must be performed to comply with Her Majesty's Inspector of Pollution and other
environmental guidelines are recorded when it is probable that obligations have
been incurred and the amounts can be reasonably estimated. Associated
expenditure is then charged against the related provision to the extent that is
covered by that provision, or directly against reserves to the extent that it is
not so covered.
13 Cash equivalents
For the purposes of the statement of cash flows, the Group considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
14 Other
The Company adopted Statement of Financial Accounting Standards No. 121
(FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" in 1995. FAS 121 requires that long-lived
assets be reviewed for impairment by comparing the fair value of the assets with
their carrying amount. Any write-downs are to be treated as permanent reductions
in the carrying amount of the assets. The adoption of FAS 121 did not have any
material financial impact on the Company.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation." FAS 123 encourages but does not require the recognition of
compensation expense for grants of stock, stock options, and other equity
instruments based upon new fair value accounting rules (the "recognition
method"). Companies that choose not to adopt the recognition method must
disclose pro forma net income and earnings per share amounts under that method
and make detailed disclosures about plan terms, exercise prices, and assumptions
used in measuring the fair value of stock-based grants (the "disclosure
method"). The Company plans to adopt the disclosure method in 1996. The Company
has not determined the effect, on a pro forma basis to 1995 net loss, of
applying fair value accounting rules to grants of stock-based awards in 1995.
F-50
<PAGE> 106
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D ACCOUNTS AND OTHER RECEIVABLES
The components of accounts and other receivables are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
1995
-----------
$'000
<S> <C>
Trade accounts receivable.............................................. 7,775
Less allowance for doubtful accounts receivable........................ (144)
7,631
Other receivables...................................................... 704
8,335
</TABLE>
Amounts charged to administrative expenses relating to doubtful accounts
receivable totalled $144,000 for the period ended 31 December 1995. $64,000 of
this charge related to specific doubtful debts with Iranian customers, the
remainder being a general provision for doubtful accounts which was created
during the period.
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of accounts receivable.
Concentration of credit risk with respect to accounts receivable is
significantly due to two customers (see Note O).
E INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
1995
-----------
$'000
<S> <C>
Raw materials.......................................................... 1,792
Work in progress....................................................... 5,024
Finished goods......................................................... 8,704
Engineering stores and replacement parts............................... 3,027
------
18,547
======
</TABLE>
The cost of products sold for the period ended 31 December 1995 has been
charged with $105,000, which relates to slow-moving and obsolete inventories.
F PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
31 DECEMBER
1995
------------
$'000
<S> <C>
Land.................................................................. 151
Buildings............................................................. 8,642
Building installations................................................ 7,538
Machinery and equipment............................................... 85,437
Automobiles and trucks................................................ 727
Office machines....................................................... 3,263
Furniture and fittings................................................ 365
--
106,123
Accumulated depreciation.............................................. (72,089)
Assets in the course of construction.................................. 10,834
--
Property, plant and equipment, net.................................... 44,868
==
</TABLE>
F-51
<PAGE> 107
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense relating to property, plant and equipment totalled
$2,576,000 for the period ended 31 December 1995.
G ACCRUED EXPENSES
These consist of the following:
<TABLE>
<CAPTION>
31 DECEMBER
1995
------------
$'000
<S> <C>
CURRENT LIABILITIES
Accrued payroll and payroll taxes..................................... 1,385
Capital accruals...................................................... 1,087
Retirement plan (Note R).............................................. 151
Restructuring provision............................................... 1,510
Environmental provision............................................... 1,510
Other liabilities..................................................... 2,238
--
7,881
NON-CURRENT LIABILITIES
Retirement plan (Note R).............................................. 4,425
--
Total accrued expenses...................................... 12,306
==
</TABLE>
Restructuring provision
<TABLE>
<CAPTION>
$'000
<S> <C>
Balance at 14 July 1995................................................ --
Provision acquired upon acquisition of SOL............................. 505
Amounts charged to provision........................................... 1,094
Provision utilised for write off of fixed assets....................... (69)
Translation adjustments................................................ (20)
-----------
Balance at 31 December 1995............................................ 1,510
=========
</TABLE>
During the period the provision was partially utilised to effect the write
down of fixed assets at Fawdon.
The increase in the provision is substantially in respect of additional
employee terminations planned in order to restructure and integrate the business
following a business process simplification review performed during 1995. The
provision at 31 December 1995 includes $1,354,000 in relation to 24 planned
employee terminations in the administration, supervisory and support functions.
The provision is expected to be utilised during 1996.
Environmental provision
<TABLE>
<CAPTION>
WASTE
TREATMENT OTHER TOTAL
PLANT ----- -----
FAWDON ---------
RELOCATION $'000 $'000
---------- $'000
$'000
<S> <C> <C> <C> <C>
Balance at 14 July 1995......................... -- -- -- --
Provision acquired upon acquisition of SOL...... 794 477 291 1,562
Cash payments................................... -- -- (16) (16)
Translation adjustments......................... (18) (11) (7) (36)
--- --- ----- -----
Balance at 31 December 1995..................... 776 466 268 1,510
======= ======= ==== =====
</TABLE>
F-52
<PAGE> 108
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fawdon relocation
Historically, Fawdon housed SOL's Pilot Plant and Research and Development
facilities, however a decision was taken in late 1991 to move these facilities
to the site at Dudley and close down the operations at Fawdon. This transfer of
operations began in 1991 and is expected to be completed by the end of 1996. The
provision was made in respect of the decommissioning costs expected to be
incurred.
Waste treatment plant
In 1991 a provision of $1,635,000 was set up in SOL when it was decided to
build a new waste treatment plant at Dudley. The provision was made in respect
of environmental clean-up costs relating to lagoons which were used to store
waste effluent before the commissioning of the new plant which came on line
during 1993. Costs of $1,169,000 have been incurred to date, and the remaining
provision is expected to be utilised by the end of 1996.
H DEFERRED INCOME
The components of deferred income are as follows:
<TABLE>
<CAPTION>
31 DECEMBER
1995
-----------
$'000
<S> <C>
Government grants...................................................... 882
Engineering premium.................................................... 2,080
-----------
2,962
=========
</TABLE>
I DEFERRED INCOME TAXES
The deferred tax assets and liabilities consist of:
<TABLE>
<CAPTION>
31 DECEMBER
1995
------------
$'000
<S> <C>
DEFERRED TAX ASSETS:
NON-CURRENT:
Engineering premium................................................. (686)
Retirement plan provision........................................... (50)
------------
(736)
------------
CURRENT:
Environmental provision............................................. (191)
Retirement plan provision........................................... (1,462)
Restructuring provision............................................. (498)
Other differences................................................... (302)
------------
(2,453)
------------
Total deferred tax assets............................................. (3,189)
DEFERRED TAX LIABILITIES:
Non-current:
Excess capital allowances........................................... 6,594
Current:
Revaluation of inventories.......................................... 48
------------
3,453
==========
</TABLE>
F-53
<PAGE> 109
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J LONG-TERM DEBT
<TABLE>
<S> <C>
Long-term debt at 31 December 1995 consisted of: $'000
Note payable of L9,384,000 to shareholders with interest at 10% per annum.
Interest is paid bi-annually on 30 June and 31 December. Principal is
repayable in three equal instalments on 31 December 2002, 2003 and 2004.
The note is guaranteed by a fixed and floating charge over all of the
property and assets of the Group.......................................... 14,570
Note payable of L17,000,000 to a bank. Interest is charged bi-annually on 30
June and 31 December at LIBOR plus 1.875% per annum. Principal is
repayable in twenty four instalments through to 30 September 2002. The
note is guaranteed by a fixed and floating charge over all of the property
and assets of the Group................................................... 26,394
-------
40,964
Less current portion; L425,000 (due 31 December 1996)....................... (660)
-------
Long-term portion of debt................................................... 40,304
=======
The balance of 31 December 1995 comprises: $'000
Proceeds from issuance of long-term debt.................................... 41,911
Translation adjustments..................................................... (947)
-------
40,964
=======
</TABLE>
The Company entered into a revolving group credit facility with its bank
for L2,900,000 ($4,600,000) in August 1995. The main terms of this credit
facility are:
(a) service charge of 0.875% per annum;
(b) interest charged at LIBOR plus 1.875% per annum;
(c) secured against the net assets of the Group; and
(d) repayable on demand.
The Company paid an arrangement fee of $430,000 in respect of long-term
debt and the revolving group credit facility.
K CUMULATIVE REDEEMABLE PREFERRED STOCK
On 10 August 1995, the Company was authorised to issue 8,565,000 cumulative
redeemable preference shares with a par value of L0.5 ($0.795) each. On the same
date, 7,650,913 of these preference shares were issued, with the remainder being
issued on 30 November 1995. The shares were issued for a total consideration of
L8,565,000 ($13,606,000).
The balance at 31 December 1995 consists of:
<TABLE>
<CAPTION>
$'000
<S> <C>
Proceeds from issuance of cumulative redeemable preference shares...... 13,606
Accrued preference share dividends payable............................. 243
Translation adjustments................................................ (308)
-----------
13,541
=========
</TABLE>
The shares have no voting rights except in exceptional circumstances to
protect the rights of the preference shareholders. In such instances the shares
carry one vote each.
F-54
<PAGE> 110
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The shares are entitled to a fixed cumulative preferential dividend at the
following rates:
5% per annum for the year to 10 August 1996
6% per annum for the year to 10 August 1997
7% per annum for the year to 10 August 1998
8% per annum thereafter
In the event that the preference dividends are not paid on the due date the
amount of the overdue dividend shall be increased by way of a further cumulative
dividend at the rate of 3% per annum above the Midland Bank plc base rate,
calculated on a daily basis, until the dividend is paid.
The shares are redeemable, in whole or in part, at the option of the
Company at the issue price.
To the extent that the shares have not been redeemed by the Company on each
of the dates set out below, the Company shall redeem the number of shares as set
out below:
<TABLE>
<CAPTION>
DATE NUMBER
-------------------------------------------------------------------------- ---------
<S> <C>
30 June 2005.............................................................. 2,855,000
30 June 2006.............................................................. 2,855,000
30 June 2007.............................................................. 2,855,000
---------
8,565,000
========
</TABLE>
The shares are preferred upon liquidation of the Company to the full extent
of the issue price and any unpaid arrears and accruals of dividends.
L COMMITMENTS AND CONTINGENCIES
The Group leases certain equipment used in its operations. The rental costs
arising from operating leases are expensed in the period they are incurred.
Rental expense was $157,000 for the period to 31 December 1995.
The minimum lease commitments under non-cancellable operating leases at 31
December 1995 were as follows:
<TABLE>
<CAPTION>
1995
-----
$'000
<S> <C>
0 - 1 years.................................................................. 366
1 - 2 years.................................................................. 227
2 - 3 years.................................................................. 185
3 - 4 years.................................................................. 141
4 - 5 years.................................................................. 79
thereafter................................................................... 256
---
1,254
===
</TABLE>
Existing leases are expected to be renewed or replaced by leases on other
assets in the normal course of business.
F-55
<PAGE> 111
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M COMMON STOCK AND ADDITIONAL PAID IN CAPITAL
The composition of the common stock of Crossco (157) Limited is set out
below:
<TABLE>
<S> <C>
UPON INCORPORATION ON 14 JULY 1995:
Authorised; 100 ordinary shares of L1 ($1.59) each........................... $ 159
======
Issued and outstanding; 1 ordinary share of L1 ($1.59) each.................. $ 2
======
FROM 10 AUGUST 1995 ONWARDS: $'000
Authorised
300,000 ordinary shares of L0.1 ($0.159) each................................ 48
790,909 'A' shares of L0.1 ($0.159) each..................................... 125
------
173
======
</TABLE>
On 10 August 1995, each authorised ordinary share with a par value of L1
was subdivided into 10 ordinary shares with a par value of L0.1 each.
On the same date, the authorised share capital was increased to L109,000
($173,000) by the creation of:
(a) 299,000 ordinary shares with a par value of L0.1 each; and
(b) 790,909 'A' shares with a par value of L0.1 each.
ISSUED AND OUTSTANDING:
The issued share capital was increased from $2 to $173,000 as follows:
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID IN PROCEEDS
ISSUE ------ CAPITAL --------
SHARES ISSUED NUMBER PAR VALUE PRICE ----------
- ------------------------------------ --------- ----------- -------- $'000 $'000 $'000
<S> <C> <C> <C> <C> <C> <C>
On 10 August 1995:
Ordinary shares................ 299,990 L0.1($0.159) L1($1.59) 48 428 476
A shares....................... 706,500 L0.1($0.159) L1($1.59) 112 1,010 1,122
On 30 November 1995:
A shares....................... 84,409 L0.1($0.159) L1($1.59) 13 122 135
--------- ----------- -------- ------ ---------- --------
173 1,560 1,733
====== ======= ======
</TABLE>
Ordinary shares
The ordinary shares carry one vote per share.
The ordinary shares and 'A' shares have equal rights to participate in
dividends providing all of the preference share dividends (see Note K for
details of rights of preference shares) and cumulative participating dividends
on the 'A' shares have all been paid.
The ordinary shares have the right to participate in a capital distribution
upon liquidation after the preference shareholders and 'A' shareholders. They
are entitled to the issue price of the shares. Any remaining capital available
for distribution would be applied equally in respect of the 'A' shares and
ordinary shares.
'A' shares
The 'A' shares carry one vote per share.
The shares have the right to a cumulative participating dividend of 5% of
the consolidated profit before taxes, extraordinary items and directors'
emoluments, in respect of each fiscal year commencing with the year ending 31
December 1995. In the event that the participating dividends are not paid on the
due date the amount of the overdue dividend shall be increased by way of a
further cumulative dividend at the rate of
F-56
<PAGE> 112
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3% per annum over and above the Midland Bank plc base rate, calculated on a
daily basis, until the dividend is paid.
The shares are preferred (after the preference shares) upon liquidation to
the full extent of the issue price and any unpaid arrears and accruals of
dividends.
N ACQUISITIONS
On 10 August 1995 the Company acquired the whole of the issued share
capital of SOL for a total consideration of $54,158,000.
The assets and liabilities of SOL acquired are set out below:
<TABLE>
<CAPTION>
NEW BOOK BASIS
BOOK VALUE REVALUATION --------------
---------- ----------- $'000
$'000 $'000
<S> <C> <C> <C>
CURRENT ASSETS
Cash........................................... 396 -- 396
Accounts receivable............................ 7,825 -- 7,825
Inventories.................................... 21,983 1,897 23,880
Prepayments.................................... 932 -- 932
------ ------ ------
Total current assets................. 31,136 1,897 33,033
Property, plant and equipment, net............. 51,591 (6,933) 44,658
------ ------ ------
Total assets......................... 82,727 (5,036) 77,691
------ ------ ------
CURRENT LIABILITIES
Accounts payable............................... 2,764 -- 2,764
Accrued expenses............................... 7,115 -- 7,115
Accrued income taxes........................... 1,889 -- 1,889
------ ------ ------
Total current liabilities............ 11,768 -- 11,768
------ ------ ------
NON-CURRENT LIABILITIES
Deferred income................................ 2,912 -- 2,912
Deferred income taxes.......................... 3,622 626 4,248
Accrued expenses............................... 4,605 -- 4,605
------ ------ ------
Total non-current liabilities........ 11,139 626 11,765
------ ------ ------
Total liabilities.................... 22,907 626 23,533
------ ------ ------
Net assets..................................... 59,820 (5,662) 54,158
====== ====== ======
Satisfied by cash.............................. 54,158
======
</TABLE>
In accordance with Accounting Principles Board Opinion 16, negative
goodwill has been allocated to reduce the value assigned to property, plant and
equipment in determining their fair value.
Analysis of the net cash outflow in respect of the purchase of SOL:
<TABLE>
<CAPTION>
$'000
<S> <C>
Cash consideration..................................................... 54,158
Cash acquired.......................................................... (396)
-------
Net cash outflow....................................................... 53,762
=======
</TABLE>
O SEGMENT INFORMATION
The Group considers that it operates in one industry segment, the
manufacture of fine chemical intermediates for the pharmaceuticals industry.
F-57
<PAGE> 113
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Gross revenues, operating profits and identifiable assets of the Group all
relate to UK operations. Gross revenues by destination are set out below:
<TABLE>
<CAPTION>
CONTINENTAL ASIA,
EUROPE AMERICA AFRICA TOTAL
----------- ------- & PACIFIC ------
UNITED ---------
KINGDOM & $'000 $'000 $'000
THE REPUBLIC $'000
OF IRELAND
------------
$'000
<S> <C> <C> <C> <C> <C>
GROSS REVENUES -- PERIOD ENDED
DECEMBER 31, 1995
Third parties........................... 17,372 16,103 1,121 232 34,828
===== ===== === = =====
</TABLE>
Gross revenues from each of two customers exceeded 10% during the period
presented. These customers accounted for the following percentages of gross
revenues:
<TABLE>
<CAPTION>
PERIOD ENDED
31 DECEMBER
1995
------------
%
<S> <C>
THIRD PARTY (UNITED KINGDOM & REPUBLIC OF IRELAND)
Third party A........................................................... 12
Third party B........................................................... 24
==
</TABLE>
Concentration of credit risk with respect to accounts receivable is
significant in respect of two third party customers. Total accounts receivable
due from third party A and third party B were $1,251,000 and $2,047,000;
respectively accounting for 16% and 26% of trade accounts receivable at 31
December 1995.
P INCOME TAX EXPENSE
Income tax expense comprised the following:
<TABLE>
<CAPTION>
PERIOD ENDED
31 DECEMBER
1995
------------
$'000
<S> <C>
United Kingdom corporation tax at 33% based on income for the period.... 363
Deferred taxation....................................................... (714)
---
Total taxes on income......................................... (351)
===
</TABLE>
Total taxes on income varied from the amount computed by applying the
corporate tax rate to income before taxes. The differences were mainly
attributable to the following factors:
<TABLE>
<CAPTION>
PERIOD ENDED
31 DECEMBER
1995
------------
%
<S> <C>
United Kingdom statutory corporation tax rate........................... 33
Release of government grants............................................ 1.3
Other differences....................................................... (7.5)
----
26.8
====
</TABLE>
F-58
<PAGE> 114
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred taxation credit was mainly the result of the tax effect of
timing differences as follows:
<TABLE>
<CAPTION>
PERIOD
ENDED
31 DECEMBER
1995
-----------
$'000
<S> <C>
Excess capital allowances.............................................. 374
Engineering provision.................................................. (58)
Retirement plan provision.............................................. 25
Restructuring provision................................................ (338)
Environmental provision................................................ (291)
Revaluation of inventories............................................. (578)
Other.................................................................. 152
--
(714)
==
</TABLE>
Q RELATED PARTY TRANSACTIONS
Included within the cost of acquisition of SOL of $54,158,000 (Note N) is
an amount of $590,000 which was paid to the HSBC Entities in respect of the
provision of equity and loan finance to the Company. This transaction was
undertaken on normal commercial terms.
The Company's shareholders provide loan finance to the Company. During the
period ended December 31, 1995, the Company's interest expense included $626,000
of interest on a note payable to shareholders. At December 31, 1995, accrued
expenses -- other liabilities includes an amount of $574,000 in respect of
interest due to shareholders. Details of the note payable to shareholders are
set out in Note J. These transactions were undertaken on normal commercial
terms.
The Company's bank is a related party of the HSBC Entities. During the
period ended December 31, 1995, the Company's interest expense included
$1,444,000 of interest on a note payable to the bank and arrangement fees in
respect of long-term debt and the revolving group credit facility. At December
31, 1995, accrued expenses -- other liabilities includes an amount of $25,000 in
respect of interest due to the bank. Details of the arrangements with and the
note payable to the bank at December 31, 1995 are set out in Note J. These
transactions were undertaken on normal commercial terms.
R RETIREMENT PLAN
The employees of the Group participate in the Sanofi Winthrop Pension Plan
(SWPP). Benefits are based on years of service and the employee's compensation
throughout that period.
SWPP commenced on 31 October 1992 with the initial membership comprising
the active members of the Sterling-Winthrop Group Pension Fund (SWGPF), who
agreed to transfer their rights following the creation of SWL in the United
Kingdom.
The transferring members were granted back-dated service under the plan and
a transfer of assets from SWGPF to SWPP took place.
Following a transition period after the acquisition of SOL on 10 August
1995, the Group's participation in SWPP will terminate. A new plan is expected
to be established in substantially the same form as SWPP covering the Group's
employees. It is intended that there will then be a transfer of assets between
SWPP and the new plan in an amount equal to the present value of the accrued
benefits.
The assets of SWPP are invested in a portfolio of investments managed by
Mercury Asset Management Limited.
F-59
<PAGE> 115
CROSSCO (157) LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the element of SWPP in
which the Group has an interest:
<TABLE>
<CAPTION>
31 DECEMBER
1995
-----------
$'000
<S> <C>
Vested benefit obligations............................................... 25,466
------
Accumulated benefit obligations.......................................... 25,466
------
Projected benefit obligations............................................ 41,625
Fair value of plan assets................................................ 34,061
------
Funded status............................................................ (7,564)
Unrecognised transition asset............................................ (2,660)
Unrecognised net loss.................................................... 5,648
------
Accrued pension expense.................................................. (4,576)
======
Due less than one year................................................... 151
Due after more than one year............................................. 4,425
------
4,576
======
</TABLE>
The pension costs and related assumptions in respect of the period to 31
December 1995 are set out below:
<TABLE>
<CAPTION>
PERIOD ENDED
31 DECEMBER
1995
------------
%
<S> <C>
ASSUMPTIONS
Discount rate............................................................ 8
Return on plan assets.................................................... 9 1/2
Salary increases......................................................... 7
'$000
PENSION EXPENSE
Service cost............................................................. 740
Interest cost............................................................ 1,080
Return on plan assets.................................................... (1,014)
Amortisation of transition asset......................................... (130)
-----
Net periodic pension cost................................................ 676
Employer contribution.................................................... (754)
Translation adjustments.................................................. (105)
-----
Decrease in accrued pension expense...................................... 183
=====
</TABLE>
SOL enjoyed a pension contribution holiday from the establishment of the
SWPP until 31 December 1994. Normal contribution levels resumed on 1 January
1995.
In line with FAS 87 the cost of providing retirement pensions and related
benefits must be charged to the statement of operations over the periods
benefitting from the employees' service. The amount by which the charge to the
statement of operations has exceeded contributions paid is shown as a liability
in the balance sheet.
S FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions gave rise to gains of $11,000 in the period
to 31 December 1995.
F-60
<PAGE> 116
GLOSSARY
As used in this Prospectus, the following terms have the following
meanings:
<TABLE>
<S> <C>
achiral: A chemical that is not chiral.
active ingredient: The chemical responsible for a drug's therapeutic effect.
analgesic: A drug that relieves pain.
ANDA: Abbreviated New Drug Application; filed with the FDA to market
a drug after the expiration of the original
composition-of-matter patent.
asymmetric synthesis: A chemical reaction transforming an achiral intermediate into a
single-isomer chiral drug.
cGMP: Current Good Manufacturing Practice; defined standards for all
manufacturing operations established for the pharmaceutical
industry by the FDA.
CMO: A contract manufacturing organization which serves the
outsourcing needs of the pharmaceutical industry through
extensive manufacturing and process development capabilities
and proprietary technologies.
captive market: That segment of the fine chemical market that includes products
manufactured by pharmaceutical companies in their own
manufacturing facilities.
chiral: A chemical that cannot be superimposed on its mirror image;
derived from the Greek word for "hand".
ChiRex Technologies: A group of proprietary technologies licensed by the Company to
manufacture chiral chemicals.
clinical trials: The series of steps during the investigational use of a drug in
humans. Phase I tests the drug for safety; Phase II tests the
drug for efficacy and safety in a relatively small sample of
patients; and Phase III tests the drug for efficacy in a larger
sample of patients.
commercial scale: Manufacture and supply of metric tons (on an annualized basis)
of an active ingredient or chemical intermediate for
commercialized drugs.
cytotoxic drug: A drug that kills cells.
drug; pharmaceutical: The formulation of an active ingredient with inactive
ingredients in dosage form.
FDA: United States Food and Drug Administration.
fine chemicals: Chemicals manufactured to exacting specifications.
generic: Drug not covered by any composition-of-matter patent.
intermediates: The chemicals produced at each state of a multi-step synthesis.
ISO 9002: International Standards Organization accreditation for quality
in manufacturing.
isomers: Chemicals that are identical in chemical composition, but
differ in structural arrangement and, potentially, properties.
There are three types of isomers. Structural isomers have
different backbones defined primarily by the arrangement of the
carbon atoms. Geometrical isomers occur when the atoms or other
groups attached to the backbone are attached in different
places. Configurational isomers are neither structural nor
geometrical isomers but differ in the three-dimensional
arrangement of their atoms. As used in this Prospectus, the
term "isomers" refers to configurational isomers.
laboratory scale: Manufacture of less than one kilogram of an active ingredient
or intermediate for use in pre-clinical stages of development.
</TABLE>
G-1
<PAGE> 117
<TABLE>
<S> <C>
merchant market: That segment of the fine chemical market that is available to
third party suppliers.
NDA: New Drug Application filed with the FDA.
OTC: Over-The-Counter; refers to drugs that can be purchased without
a prescription.
pilot-plant scale: Manufacture of up to several hundred kilograms of an active
ingredient or intermediate for use in clinical trials.
preferred partner: A supplier of chemicals with an established relationship with a
customer such that it supplies several products and often
assists in the manufacture of new products under development
for such customer.
racemic, racemate: A 1:1 mixture of isomers. In a racemic mixture, the individual
isomers are generally referred to as the S-isomer and the
R-isomer.
resolution: A process for separating the isomers in a racemic mixture.
</TABLE>
G-2
<PAGE> 118
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 12
Recent Developments................... 12
Use of Proceeds....................... 13
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 14
Pro Forma Financial Data.............. 15
Selected Historical Financial Data.... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 22
Management............................ 32
Scientific Advisory Board............. 41
The Formation Transactions............ 42
Relationship with Sepracor............ 43
Principal and Selling Stockholders.... 44
Description of Capital Stock.......... 45
Certain U.S. Tax Consequences to Non-
U.S. Stockholders................... 48
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Additional Information................ 54
Index to Consolidated Financial
Statements.......................... F-1
Glossary.............................. G-1
</TABLE>
======================================================
======================================================
3,489,301 SHARES
LOGO
CHIREX INC.
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON
LEGG MASON WOOD WALKER
INCORPORATED
======================================================
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 13,376*
NASD Filing Fee........................................................... 4,914*
Blue Sky Fees and Expenses................................................ 20,000
Transfer Agent and Registrar Fees......................................... 3,000*
Accounting Fees and Expenses.............................................. 200,000
Legal Fees and Expenses................................................... 250,000
Printing, Engraving and Mailing Expenses.................................. 350,000*
Miscellaneous............................................................. 100,000*
--------
Total................................................................... $941,290
========
</TABLE>
- ---------------
* Obligation of Sepracor Inc.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of fiduciary
duty as a director, except to the extent that the Delaware General Corporation
Law prohibits the elimination or limitation of liability of directors for breach
of fiduciary duty.
Article NINTH of the Certificate of Incorporation provides that a director
or officer of the Registrant (a) shall be indemnified by the Registrant against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant brought against
him by virtue of his position as a director or officer of the Registrant if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless the Court of Chancery of
Delaware determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith. In the event the Registrant does
not assume the defense of an action in accordance with the Certificate of
Incorporation, expenses shall be advanced to a director or officer at his
request prior to the final disposition of the matter, provided that he
undertakes to repay the amount advanced if it is ultimately determined that he
is not entitled to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the
II-1
<PAGE> 120
Registrant fails to make an indemnification payment within 60 days after such
payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is entitled
to indemnification. As a condition precedent to the right of indemnification,
the director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article NINTH of the Certificate of Incorporation further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Pursuant to the Underwriting Agreement, the Underwriters are obligated,
under certain circumstances, to indemnify directors and officers of the
Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibits 1 hereto.
The Company has purchased a general liability insurance policy which covers
certain liabilities of directors and officers of the Company arising out of
claims based on acts or omissions in their capacities as directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of Common Stock issued, and the number of options granted, by the
Registrant since its formation in December 1995. Further included is the
consideration, if any, received by the Registrant for such shares and options,
and information relating to the section of the Securities Act of 1933, as
amended (the "Securities Act"), or rule of the Securities and Exchange
Commission under which exemption from registration was claimed.
In connection with its incorporation on December 19, 1995, the Registrant
issued an aggregate of 15 shares of Common Stock for a purchase price of $67.00
per share to the following investors:
<TABLE>
<S> <C>
Montagu Equity Limited Alan R. Clark
MSS Nominees Limited Account 758170 David F. Raynor
MSS Nominees Limited Account 757549 John E. Weir
MSS Nominees Limited Account 758979 J. Graham Thorpe
General Accident Executor and Trustee Hugh F. Ford
Company Limited Account H715 William Riddell
General Accident Executor and Trustee Geoff E. Loxham
Company Limited Account H716 C. Lyn Chapple
David A. Routledge
</TABLE>
On March 11, 1996, the Registrant completed the sale of 6,675,000 shares of
its Common Stock, par value $.01 per share, pursuant to an underwritten initial
public offering (the "IPO"). Concurrent with the IPO, SepraChem Inc.
(subsequently renamed ChiRex America Inc.) was contributed to the Registrant in
exchange for the issuance of 3,520,889 shares of Common Stock through a merger
of a newly formed and wholly-owned subsidiary of the Registrant with and into
ChiRex America Inc. In connection with the merger,
II-2
<PAGE> 121
options to purchase 458,821 shares of Common Stock were issued in exchange for
options to purchase shares of common stock of ChiRex America Inc.
Concurrent with the IPO, the equity share capital of ChiRex (Holdings)
Limited, a private company incorporated in England and the sole shareholder of
ChiRex Limited, was contributed to the Registrant. As part of this contribution,
the Registrant issued 3,739,206 shares of Common Stock. Certain shares of Common
Stock held by the original shareholders of ChiRex (Holdings) Limited were
redeemed by the Registrant concurrently with, and using the proceeds from, the
IPO.
No underwriters were engaged in connection with any of the foregoing sales
of securities. The shares of capital stock and securities issued in the above
transactions were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act or Regulation D,
Regulation S or Rule 701 promulgated under the Securities Act, relative to sales
by an issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
2.1* Agreement for the Sale and Purchase of the Entire Issued Share Capital of
Sterling Organics Limited by and among Sanofi Winthrop Limited, Crossco (157)
Limited and Sanofi, dated August 10, 1995.
2.2* Contribution Agreement by and among the Registrant, SepraChem Inc. and the
shareholders of Crossco (157) Limited listed on Schedule I attached thereto,
dated February 7, 1996.
2.3* Agreement and Plan of Merger by and among the Registrant, SepraChem Inc.,
Sepracor Inc., SepraChem Merger Corporation, Roger B. Pettman and Certain Trusts
Affiliated with Victor H. Woolley, dated as of February 6, 1996, as amended.
3.1* Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4* Specimen Certificate for Shares of Common Stock, $.01 par value, of the
Registrant.
5 Opinion of Cravath, Swaine & Moore with respect to the validity of the securities
being offered.
10.1* 1995 Employee Stock Purchase Plan.
10.2 1997 Stock Incentive Plan.
10.3 Amended and Restated 1995 Director Stock Option Plan.
10.4* Employment Agreement with Alan R. Clark.
10.5* Employment Agreement with David F. Raynor.
10.6 Employment Agreement with John Graham Thorpe.
10.7 Employment Agreement with John Edward Weir.
10.8 Settlement Agreement with Robert L. Bratzler.
10.9 Consulting Agreement with Robert L. Bratzler.
10.10 ChiRex Pension Scheme.
10.11+ Supply Agreement dated as of January 21, 1997 between ChiRex Inc. and Cell
Therapeutics, Inc.
10.12+ License Agreement dated as of January 28, 1997 between ChiRex Inc. and President
and Fellows of Harvard College.
10.13* Contract Research Agreement by and between SepraChem Inc. and Sepracor Inc.
10.14* Contract Manufacturing Agreement by and between SepraChem Inc. and Sepracor Inc.
10.15* Technology Transfer and License Agreement by and between SepraChem Inc. and
Sepracor Inc., dated as of January 1, 1995, as amended.
10.16* Corporate Services Agreement by and between SepraChem Inc. and Sepracor Inc.
10.17* Supply Agreement by and between SepraChem Inc. and Sepracor Inc., as amended.
10.18* Technology Development Agreement by and between SepraChem Inc. and Sandoz Pharma
Ltd., dated October 1, 1995.
</TABLE>
II-3
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------
<C> <S>
10.19* License Agreement by and between Sepracor Inc. and Massachusetts Institute of
Technology, dated May 5, 1989.
10.20* License Agreement by and between Sepracor Inc. and Massachusetts Institute of
Technology, dated June 21, 1991.
10.21* License Agreement by and between Sepracor Inc. and Research Corporation
Technologies, Inc., dated March 13, 1991.
10.22* License Agreement by and between Sepracor Inc. and Research Corporation
Technologies, Inc., dated September 10, 1992.
10.23* License Agreement by and between Sepracor Inc. and Tanabe Seiyaku Co., Ltd.,
dated October 30, 1990.
10.24* Toll Manufacturing Agreement by and between Sterling Organics Limited and Rohm
and Haas (UK) Limited, dated July 4, 1991.
10.25* Toll Manufacturing Agreement by and between Sterling Organics Limited and Rohm
and Haas (UK) Limited, dated August 27, 1987.
10.26* Supply Agreement by and between Sterling Organics Limited and Sanofi Winthrop
Limited and Sterling Winthrop, Inc. dated June 17, 1994.
10.27* Supply Agreement by and between Sterling Organics Limited and Sanofi S.A., dated
August 10, 1995.
10.28* Supply Agreement by and between Sterling Organics and Sanofi S.A., dated August
10, 1995.
10.29 Sterling/Currency LIBOR Revolving Credit Facility between Midland Bank plc and
ChiRex (Holdings) Limited, dated as of August 2, 1996.
10.30* Procedural Joint Union Agreement by and between Sterling Organics and AEEU, dated
July 7, 1975.
10.31* House Agreement by and between Sterling Organics Limited and AEEU, dated February
1976.
10.32* Procedural Agreement by and between Sterling Organics Limited and EESA, dated
November 3, 1979.
10.33* Agreement by and between Sterling Organics Limited and ACTS, dated July 19, 1978.
10.34* Escrow Agreement by and between Alan R. Clark, David F. Raynor, John E. Weir, J.
Graham Thorpe, Hugh F. Ford, William Riddell, Geoff B. Loxham, C. Lyn Chapple,
David A. Routledge and Broomes Secretarial Services Limited.
16** Letter re Change in Certifying Accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand.
27- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the corresponding exhibits in the Registration
Statement on Form S-1 previously filed by the Registrant (File no.
33-80831).
** Incorporated by reference to the Form 8-K previously filed by the Registrant
on September 11, 1996.
- Previously filed.
+ Confidential treatment requested as to certain portions.
(b) Financial Statement Schedules.
Report of Independent Accountants on Financial Statement Schedules
Schedule II -- ChiRex Inc. -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the consolidated financial
statements.
II-4
<PAGE> 123
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws of
the State of Delaware, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Wellesley, Commonwealth of Massachusetts, on this 19th day of March,
1997.
CHIREX INC.
By: *
------------------------------------
Alan R. Clark, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated below on the 19th day of March,
1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<C> <S>
* Chairman of the Board of Directors and Chief
- --------------------------------------------- Executive Officer (Principal Executive
Alan R. Clark Officer)
/s/ MICHAEL A. GRIFFITH Chief Financial Officer, Secretary and
- --------------------------------------------- Director (Principal Financial and Accounting
Michael A. Griffith Officer)
* Director
- ---------------------------------------------
Robert L. Bratzler
* Director
- ---------------------------------------------
Dirk Detert
* Director
- ---------------------------------------------
Elizabeth M. Greetham
* Director
- ---------------------------------------------
W. Dieter Zander
* Signed on behalf of each of the above mentioned individuals by their attoney-in-fact.
By: /s/ MICHAEL A. GRIFFITH
- ---------------------------------------------
Michael A. Griffith
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 125
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of ChiRex Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of ChiRex Inc. included in ChiRex Inc.'s
Form S-1 as of and for the year ended December 31, 1996 and have issued our
report thereon dated February 17, 1997. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. ChiRex Inc.'s Schedule of Valuation and Qualifying Accounts, included in
Schedule II on page S-3 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion
fairly states, in all material respects, the financial data required to be set
forth therein as of and for the year ended December 31, 1996 in relation to the
basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 17, 1997
S-1
<PAGE> 126
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the financial statements of ChiRex Inc.
(formerly SepraChem Inc.) as of December 31, 1995 and for each of the two years
in the period then ended, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule of ChiRex Inc.
(formerly SepraChem Inc.) listed in item 16(b) herein.
In our opinion, this financial statement schedule, where considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 9, 1996
S-2
<PAGE> 127
CHIREX INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996
<TABLE>
<CAPTION>
BALANCE OF CHARGED TO BALANCE AT
BEGINNING OF STATEMENTS OF END OF
PERIOD OPERATIONS DEDUCTIONS PERIOD
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
1994......................................... -- -- -- --
1995......................................... -- $ 70,000 -- $ 70,000
1996......................................... $ 70,000 $ 434,000 $204,000 $ 300,000
</TABLE>
S-3
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------- -------------
<C> <S> <C>
1 Form of Underwriting Agreement........................................
2.1* Agreement for the Sale and Purchase of the Entire Issued Share Capital
of Sterling Organics Limited by and among Sanofi Winthrop Limited,
Crossco (157) Limited and Sanofi, dated August 10, 1995...............
2.2* Contribution Agreement by and among the Registrant, SepraChem Inc. and
the shareholders of Crossco (157) Limited listed on Schedule I
attached thereto, dated February 7, 1996..............................
2.3* Agreement and Plan of Merger by and among the Registrant, SepraChem
Inc., Sepracor Inc., SepraChem Merger Corporation, Roger B. Pettman
and Certain Trusts Affiliated with Victor H. Woolley, dated as of
February 6, 1996, as amended..........................................
3.1* Certificate of Incorporation of the Registrant........................
3.2 Amended and Restated By-Laws of the Registrant........................
4* Specimen Certificate for Shares of Common Stock, $.01 par value, of
the Registrant........................................................
5 Opinion of Cravath, Swaine & Moore with respect to the validity of the
securities being offered..............................................
10.1* 1995 Employee Stock Purchase Plan.....................................
10.2 1997 Stock Incentive Plan.............................................
10.3 Amended and Restated 1995 Director Stock Option Plan..................
10.4* Employment Agreement with Alan R. Clark...............................
10.5* Employment Agreement with David F. Raynor.............................
10.6 Employment Agreement with John Graham Thorpe..........................
10.7 Employment Agreement with John Edward Weir............................
10.8 Settlement Agreement with Robert L. Bratzler..........................
10.9 Consulting Agreement with Robert L. Bratzler..........................
10.10 ChiRex Pension Scheme.................................................
10.11+ Supply Agreement dated as of January 21, 1997 between ChiRex Inc. and
Cell Therapeutics, Inc................................................
10.12+ License Agreement dated as of January 28, 1997 between ChiRex Inc. and
President and Fellows of Harvard College..............................
10.13* Contract Research Agreement by and between SepraChem Inc. and Sepracor
Inc...................................................................
10.14* Contract Manufacturing Agreement by and between SepraChem Inc. and
Sepracor Inc..........................................................
10.15* Technology Transfer and License Agreement by and between SepraChem
Inc. and Sepracor Inc., dated as of January 1, 1995, as amended.......
10.16* Corporate Services Agreement by and between SepraChem Inc. and
Sepracor Inc..........................................................
10.17* Supply Agreement by and between SepraChem Inc. and Sepracor Inc., as
amended...............................................................
10.18* Technology Development Agreement by and between SepraChem Inc. and
Sandoz Pharma Ltd., dated October 1, 1995.............................
10.19* License Agreement by and between Sepracor Inc. and Massachusetts
Institute of Technology, dated May 5, 1989............................
10.20* License Agreement by and between Sepracor Inc. and Massachusetts
Institute of Technology, dated June 21, 1991..........................
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------- -------------
<C> <S> <C>
10.21* License Agreement by and between Sepracor Inc. and Research
Corporation Technologies, Inc., dated March 13, 1991..................
10.22* License Agreement by and between Sepracor Inc. and Research
Corporation Technologies, Inc., dated September 10, 1992..............
10.23* License Agreement by and between Sepracor Inc. and Tanabe Seiyaku Co.,
Ltd., dated October 30, 1990..........................................
10.24* Toll Manufacturing Agreement by and between Sterling Organics Limited
and Rohm and Haas (UK) Limited, dated July 4, 1991....................
10.25* Toll Manufacturing Agreement by and between Sterling Organics Limited
and Rohm and Haas (UK) Limited, dated August 27, 1987.................
10.26* Supply Agreement by and between Sterling Organics Limited and Sanofi
Winthrop Limited and Sterling Winthrop, Inc. dated June 17, 1994......
10.27* Supply Agreement by and between Sterling Organics Limited and Sanofi
S.A., dated August 10, 1995...........................................
10.28* Supply Agreement by and between Sterling Organics and Sanofi S.A.,
dated August 10, 1995.................................................
10.29 Sterling/Currency LIBOR Revolving Credit Facility between Midland Bank
plc and ChiRex (Holdings) Limited, dated as of August 2, 1996.........
10.30* Procedural Joint Union Agreement by and between Sterling Organics and
AEEU, dated July 7, 1975..............................................
10.31* House Agreement by and between Sterling Organics Limited and AEEU,
dated February 1976...................................................
10.32* Procedural Agreement by and between Sterling Organics Limited and
EESA, dated November 3, 1979..........................................
10.33* Agreement by and between Sterling Organics Limited and ACTS, dated
July 19, 1978.........................................................
10.34* Escrow Agreement by and between Alan R. Clark, David F. Raynor, John
E. Weir, J. Graham Thorpe, Hugh F. Ford, William Riddell, Geoff B.
Loxham, C. Lyn Chapple, David A. Routledge and Broomes Secretarial
Services Limited......................................................
16** Letter re Change in Certifying Accountant. ...........................
21 Subsidiaries of the Registrant........................................
23.1 Consent of Arthur Andersen LLP........................................
23.2 Consent of Coopers & Lybrand L.L.P....................................
23.3 Consent of Coopers & Lybrand. ........................................
27- Financial Data Schedule. .............................................
</TABLE>
- ---------------
* Incorporated by reference to the corresponding exhibits in the Registration
Statement on Form S-1 previously filed by the Registrant (File no.
33-80831).
** Incorporated by reference to the Form 8-K previously filed by the Registrant
on September 11, 1996.
- Previously filed.
+ Confidential treatment requested as to certain portions.
<PAGE> 1
Draft of March 10, 1997
3,489,301 SHARES
CHIREX INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1997
SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Sepracor, Inc. (the "Selling Stockholder") proposes to sell to the several
Underwriters an aggregate of 3,489,301 shares of common stock, par value $.01
per share (the "Common Stock"), of ChiRex Inc. (the "Company"). The 3,489,301
shares of Common Stock to be sold to the Underwriters by the Selling Stockholder
are hereinafter referred to as the "Firm Shares." In addition, solely for the
purpose of covering over-allotments, the Company proposes to issue and sell to
the Underwriters, upon the terms and conditions set forth in Section 2 hereof,
up to an additional 523,395 shares (the "Additional Shares") of Common Stock.
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "Shares." The Company and the Selling Stockholder are hereinafter
sometimes referred to as the "Sellers."
The Company and the Selling Stockholder wish to confirm as follows their
agreements with you (the "Representatives") and the other several Underwriters
on whose behalf you are acting in connection with the several purchases of the
Shares by the Underwriters.
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (the "registration
statement"), including a prospectus subject to completion, relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits) as
amended at the time and date it becomes effective (the "Effective Date") or, if
the registration statement became effective prior to the execution of this
Agreement, as supplemented or
<PAGE> 2
amended prior to the execution of this Agreement. If it is contemplated, at the
time this Agreement is executed, that a post-effective amendment to the
registration statement will be filed and must be declared effective before the
offering of the Shares (the "Offering") may commence, the term "Registration
Statement" as used in this Agreement means the registration statement as amended
by said post-effective amendment. If an abbreviated registration statement
relating to the Offering is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement. The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. The Selling Stockholder hereby
agrees, subject to all the terms and conditions set forth herein, to sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholder herein contained and
subject to all the terms and conditions set forth herein, each Underwriter,
severally and not jointly, agrees to purchase from the Selling Stockholder, at a
purchase price of $ per share (the "purchase price per share"), the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule 1
hereto (or such number of Firm Shares increased as set forth in Section 12
hereof).
The Company agrees, subject to all the terms and conditions set forth
herein, to issue and sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholder herein contained and subject to all the terms and conditions set
forth herein, the Underwriters shall have the right to purchase from the
Company, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 p.m., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 523,395 Additional Shares from the Company.
Additional Shares may be purchased solely to cover over-allotments made in
connection with the offering of the Firm Shares. Upon any exercise of the
over-allotment option, each Underwriter, severally and not jointly, agrees to
purchase from the Company the number of Additional Shares (subject to such
adjustments as you may determine in order to avoid fractional shares) which
bears the same proportion to the number of Additional Shares to be purchased by
the Underwriters as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule 1 hereto (or such number of Firm Shares increased
as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares.
3. TERMS OF PUBLIC OFFERING. The Sellers have been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
2
<PAGE> 3
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on , 1997 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
among you, the Company and the Selling Stockholder.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the aforementioned office of
Smith Barney Inc. at such time on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the Option
Closing Date for such Shares may be varied by agreement between you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request by written notice, it being understood that a facsimile
transmission shall be deemed written notice, prior to 9:30 A.M., New York City
time, on the second business day preceding the Closing Date or any Option
Closing Date, as the case may be. Such certificates shall be made available to
you in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and any Additional Shares to be purchased hereunder shall be delivered to
you on the Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor in immediately available funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
or an Abbreviated Registration Statement to be declared or, in the case of an
Abbreviated Registration Statement, to become, effective before the Offering may
commence, the Company will endeavor to cause the Registration Statement or such
post-effective amendment or Abbreviated Registration Statement to become
effective as soon as possible and will advise you promptly and, if requested by
you, will confirm such advice in writing, when the registration statement or
such post-effective amendment or Abbreviated Registration Statement has become
effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the registration statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the
3
<PAGE> 4
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act to be stated therein or necessary in order to make the
statements therein not misleading in any material respect, or of the necessity
to amend or supplement the Prospectus (as then amended or supplemented) to
comply with the Act or any other law. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such order
at the earliest possible time.
(c) The Company will furnish to you, without charge, four signed
copies of the registration statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the registration statement and will also furnish to you, without charge, such
number of conformed copies of the registration statement as originally filed and
of each amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the registration
statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall object after being
so advised or (ii) so long as, in the opinion of counsel for the Underwriters, a
prospectus is required to be delivered in connection with sales by any
Underwriter or dealer, file any information, documents or reports pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), without
delivering a copy of such information, documents or reports to you, as
Representatives of the Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have requested or may hereafter request, copies of each form of the
Prepricing Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and the Exchange Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act or the Exchange
Act to be delivered by any Underwriter or dealer, the Company will expeditiously
deliver to each Underwriter and each dealer, without charge, as many copies of
the Prospectus (and of any amendment or supplement thereto) as you may request.
The Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Act and the
Exchange Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the Offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act or the Exchange Act to be delivered by any Underwriter or dealer. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Act or any other law,
the Company will forthwith prepare and, subject to the provisions of paragraph
(d) above, file with the Commission an appropriate supplement or amendment
thereto and will expeditiously furnish copies thereof to the Underwriters and
dealers in such quantities as you shall request. In the event that the Company
and you, as Representatives of the several Underwriters, agree that the
Prospectus should be amended or supplemented, the Company, if requested by you,
will promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
4
<PAGE> 5
(g) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(h) The Company will cooperate with you and your counsel in
connection with the qualification of the Shares for sale under the laws of such
jurisdictions in the United States as you designate and will continue such
qualifications in effect so long as required for the distribution of the Shares;
provided however, that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other than those
arising out of the Offering or sale of the Shares, in any jurisdiction where it
is not now so subject.
(i) During the period of five years hereafter, the Company will
furnish to you and, upon your request, to each of the other Underwriters, as
soon as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year, and the Company will furnish to you (i) as
soon as available, a copy of each report and any definitive proxy statement of
the Company filed with the Commission under the Exchange Act or mailed to
stockholders and (ii) from time to time, such other information concerning the
Company as you may reasonably request.
(j) For a period of 90 days after the date of the Offering (the
"Lock-up Period"), the Company will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Act relating to, any additional shares of its
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of its Common Stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposal or filing, without the prior written consent
of Smith Barney Inc., except for (i) the sale of the Shares to the Underwriters
pursuant to this Agreement, (ii) the issuance of shares of Common Stock upon
exercise of options or warrants disclosed to be outstanding in the Prospectus
and (iii) the grant pursuant to stock option plans described in the Prospectus
of stock options not exercisable during the Lock-up Period.
(k) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.
(l) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 or Section 13 hereof), or if this Agreement shall
be terminated by the Underwriters because of any failure or refusal on the part
of the Company or the Selling Stockholder to comply with the terms or fulfill
any of the conditions of this Agreement, the Company agrees to reimburse you for
all out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
(m) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(n) The Company will timely file with The Nasdaq Stock Market a
notification form for listing additional shares on The Nasdaq National Market
("NNM") with respect to the Shares.
5
<PAGE> 6
6. AGREEMENTS OF THE SELLING STOCKHOLDER. The Selling Stockholder
agrees with the several Underwriters as follows:
(a) The Selling Stockholder will not (and will not announce or
otherwise disclose any intention to) offer to sell, contract to sell, sell or
otherwise transfer or dispose of, or grant any option to purchase, any shares of
Common Stock (or any securities convertible or exercisable or exchangeable for
Common Stock), or exercise any registration rights with respect to the sale of
Common Stock, except for the sale of Shares to the Underwriters pursuant to this
Agreement, without the prior written consent of Smith Barney Inc. for a period
of 90 days after the date of the Prospectus.
(b) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982, as amended, with respect to the transactions herein contemplated,
the Selling Stockholder agrees to deliver to you prior to or on the Closing Date
a properly completed and executed United States Treasury Department Form W-9 if
required by Treasury Department regulations (or any other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
(c) The Selling Stockholder will pay all expenses incident to the
performance of the Selling Stockholder's obligations under this Agreement, and
all federal and other taxes, if any, on the transfer or sale of Firm Shares that
are sold by the Selling Stockholder to the Underwriters.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 424 under the Act, complied when so filed in all
material respects with the provisions of the Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) If the Effective Date of the Registration Statement is prior to
the execution and delivery of this Agreement: (i) on the Effective Date of the
Registration Statement, the Registration Statement conformed in all respects to
the requirements of the Act and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) on the
Effective Date of the Abbreviated Registration Statement (if any), the
Registration Statement conformed, or will conform, in all respects to the
requirements of the Act and did not include, or will not include, any untrue
statement of a material fact and did not omit, or will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) on the date of this Agreement, the Registration
Statement and, if the Effective Date of the Abbreviated Registration Statement
is prior to the execution and delivery of this Agreement, the Abbreviated
Registration Statement each conforms, and, at the time of filing of the
Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Abbreviated Registration Statement in which the Prospectus
is included, each Registration Statement and the related Prospectus will
conform, in all respects to the requirements of the Act and none of such
documents includes, or will include, any untrue statement of a material fact or
omits, or will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the Effective Date
of the Registration Statement is subsequent to the execution and delivery of
this Agreement, on the Effective Date the Registration Statement and the
Prospectus will conform in all respects to the requirements of the Act, neither
of such documents will include any untrue
6
<PAGE> 7
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading and
no Abbreviated Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from the
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through you specifically for use
therein, it being understood and agreed that the only such information is that
described in Section 14.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of Delaware, with power and
authority (corporate and other) to own and lease its properties and conduct its
business as described in the Registration Statement and the Prospectus, and the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of property
or the conduct of its business requires such qualification, except where the
failure so to qualify would not have a material adverse effect on the condition
(financial or otherwise), results of operations, business, properties or
prospects of the Company and the Subsidiaries (as defined below) taken as a
whole (a "Material Adverse Effect").
(d) All of the Company's subsidiaries (as defined in the Act) are
listed in an exhibit to the Registration Statement and are referred to herein
individually as a "Subsidiary" and collectively as the "Subsidiaries." Each
Subsidiary has been duly incorporated and is an existing corporation in good
standing under the laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and conduct its business
as described in the Registration Statement and the Prospectus; each Subsidiary
is duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the failure so
to qualify would not have a Material Adverse Effect; all the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued and is fully paid and nonassessable; and the capital stock of
each Subsidiary is owned by the Company, directly or through another Subsidiary,
free from liens, encumbrances and defects in title, except as disclosed in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto).
(e) There are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act.
(f) The Shares and all other outstanding shares of capital stock of
the Company have been duly authorized; all outstanding shares of capital stock
of the Company are, and, when the Additional Shares have been delivered and paid
for in accordance with this Agreement on the Option Closing Date, such Shares
will have been, validly issued, fully paid and nonassessable and will conform to
the description thereof contained in the Prospectus; and the stockholders of the
Company have no preemptive or similar rights with respect to the Shares.
(g) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a brokerage
commission, finder's fee or other like payment.
(h) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
7
<PAGE> 8
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Act.
(i) The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement. The execution and
delivery of, and the performance by the Company of its obligations under, this
Agreement have been duly and validly authorized by the Company. This Agreement
has been duly executed and delivered by the Company.
(j) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the Company to
consummate the Offering contemplated by this Agreement in connection with the
sale of the Shares, except such as have been obtained and made under the Act and
such as may be required under state securities laws.
(k) Neither the execution, delivery and performance of this Agreement
by the Company nor the consummation by the Company of the transactions
contemplated hereby will result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any statute, any rule,
regulation or order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of their
properties, (ii) any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or to
which any of the properties of the Company or any Subsidiary is subject or (iii)
the Certificate of Incorporation or By-laws of the Company or any Subsidiary,
except, in any such case, where such breach, violation or default would not have
a Material Adverse Effect. The Company has full power and authority to
authorize, issue and sell the Additional Shares as contemplated by this
Agreement.
(l) The Company and the Subsidiaries have good and marketable title
to all real properties and all other properties and assets owned by them, in
each case free from liens, encumbrances and defects that would have a Material
Adverse Effect, and the Company and the Subsidiaries hold any leased real or
personal property under valid and enforceable leases with no exceptions that
would have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company and the
Subsidiaries possess all material certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or the Subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(n) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent that might
have a Material Adverse Effect.
(o) The Company and the Subsidiaries own or possess adequate
trademarks, trade names and other rights to inventions, know-how, patents,
copyrights, confidential information and other intellectual property
(collectively, "intellectual property rights") necessary to conduct the business
now operated by them, or presently employed by them, and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights.
(p) Except as disclosed in the Prospectus, neither the Company nor
any of the Subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental
8
<PAGE> 9
agency or body or any court, domestic or foreign, relating to the use, disposal
or release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any environmental
laws, is liable for any off-site disposal or contamination pursuant to any
environmental laws or is subject to any claim relating to any environmental
laws, in each case that would have a Material Adverse Effect, and the Company is
not aware of any past or present actions, investigations, activities,
circumstances, events or incidents, including, without limitation, releases of
any material into the environment that could form the basis of such a claim and
that would have a Material Adverse Effect.
(q) Except as disclosed in the Prospectus and Registration Statement,
there are no pending or, to the knowledge of the Company, threatened legal or
governmental actions, suits or proceedings against or affecting the Company, the
Subsidiaries or any of their respective properties that, if determined adversely
to the Company or the Subsidiaries, would individually or in the aggregate have
a Material Adverse Effect, or would materially and adversely affect the ability
of the Company to perform its obligations under this Agreement, or which are
otherwise material in the context of the sale of the Shares.
(r) Arthur Anderson LLP and Coopers & Lybrand L.L.P., both of whom
have certified or shall certify certain financial statements filed or to be
filed as part of the Registration Statement or the Prospectus (or any amendment
or supplement thereto), are independent public accountants as required by the
Act.
(s) The financial statements with respect to the Company included in
the Registration Statement and the Prospectus comply in all material respects
with the requirements of the Act and present fairly the consolidated financial
position of the Company and the Subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and, except as
otherwise disclosed in the Prospectus, such financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States applied on a consistent basis, and the schedules included in the
Registration Statement present fairly the information required to be stated
therein. The pro forma financial information included in the Prospectus presents
fairly the information shown therein, has been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
information (including Article 11 of Regulation S-X) and has been properly
compiled on the pro forma bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(t) The financial statements with respect to ChiRex (Holdings)
Limited ("ChiRex Holdings Ltd.") and of ChiRex Limited ("ChiRex Ltd.") included
in the Registration Statement and the Prospectus present fairly the financial
position of ChiRex Holdings Ltd. and its consolidated subsidiaries and of ChiRex
Ltd. (on a combined basis as described therein) as of the dates shown and their
respective results of operations and cash flows for the periods shown, and,
except as otherwise disclosed in the Prospectus, such financial statements have
been prepared in conformity with generally accepted accounting principles in the
United States applied on a consistent basis and the schedules included in each
Registration Statement present fairly the information required to be stated
therein.
(u) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
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<PAGE> 10
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction that is
material to the Company or its Subsidiaries, taken as a whole, and there has not
been any material change in the capital stock, or material increase in the
consolidated short-term or long-term debt, of the Company and the Subsidiaries,
nor any development or event that would result in a prospective Material Adverse
Effect, and, except as disclosed in or contemplated by the Prospectus, there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Each of the Company and the Subsidiaries has filed all federal,
state, local and foreign tax returns and tax forms required to be filed, such
returns and forms are complete and correct in all material respects, and all
taxes shown by such returns or otherwise assessed that are due or payable have
been paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided. All payroll withholdings required to
be made by the Company or any of the Subsidiaries with respect to employees have
been made. The charges, accruals and reserves on the books of the Company and
the Subsidiaries in respect of any tax liability for any year not finally
determined are adequate to meet any assessments or reassessments for additional
taxes. There have been no tax deficiencies asserted and, to the best knowledge
of the Company, no tax deficiency might be reasonably asserted or threatened
against the Company or any of the Subsidiaries that could, individually or in
the aggregate, have a Material Adverse Effect.
(w) The Company and each Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as the Company believes are reasonable and (i) all policies of insurance
and fidelity or surety bonds insuring the Company or any of the Subsidiaries or
their respective businesses, assets, employees, officers and directors are in
full force and effect, (ii) the Company and the Subsidiaries are in compliance
with the terms of such policies and instruments in all material respects and
(iii) there are no claims by the Company or any of the Subsidiaries under any
such policy or instrument as to which any insurance company is denying liability
or defending under a reservation of rights clause.
(x) The Company is not and, after giving effect to the Offering, will
not be an "investment company" as defined in the Investment Company Act of 1940.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents and warrants to each Underwriter that:
(a) The Selling Stockholder has been duly incorporated and is an
existing corporation in good standing under the laws of the State of Delaware.
(b) The Selling Stockholder has, and on the Closing Date will have,
valid and unencumbered title to the Firm Shares to be delivered by the Selling
Stockholder on the Closing Date and has full right, power and authority to enter
into this Agreement and to sell, assign, transfer and deliver the Firm Shares to
be delivered by the Selling Stockholder on the Closing Date hereunder; and upon
the delivery of any payment for the Firm Shares on the Closing Date hereunder,
and assuming the several Underwriters take delivery of such Firm Shares in good
faith and without notice of any adverse claim within the meaning of the Uniform
Commercial Code (the "UCC"), the several Underwriters will acquire valid and
unencumbered title to the Firm Shares to be delivered by the Selling Stockholder
on the Closing Date.
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(c) The Selling Stockholder is familiar with the Registration
Statement and the Prospectus and, in relation to the Selling Stockholder
Information (as defined below) included in the Registration Statement or the
Prospectus (including, in each case, any amendment or supplement or supplement
thereto) has no knowledge of any untrue statement of a material fact in the
Selling Stockholder Information, and has no knowledge of any omission to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading. The parties acknowledge and agree that "Selling Stockholder
Information" consists solely of the information referred to in Exhibit A hereto.
(d) No consent, approval, authorization or order of, or filing with,
any governmental agency or body or any court is required to be obtained or made
by the Selling Stockholder for the consummation of the transactions contemplated
by this Agreement in connection with the sale of the Firm Shares by the Selling
Stockholder, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a breach
or violation of any of the terms and provisions of, or constitute a default
under, (A) any statute, rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Selling Stockholder or any of its
properties, (B) any agreement or instrument to which the Selling Stockholder is
a party or by which the Selling Stockholder is bound or to which any of the
properties of the Selling Stockholder is subject or (C) the Certificate of
Incorporation or by-laws of the Selling Stockholder except, in any such case,
where such breach, violation or default would not have a material adverse effect
on the consummation of the transactions contemplated under this Agreement.
(f) This Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Stockholder.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in connection
therewith, it being understood and agreed that the only information furnished by
any Underwriter consists of the information described as such in Section 14
hereof; provided, however, that the indemnification contained in this paragraph
(a) with respect to any Prepricing Prospectus shall not inure to the benefit of
any Underwriter (or to the benefit of any person controlling such Underwriter)
on account of any such loss, claim, damage, liability or expense arising from
the sale of Shares by such Underwriter to any person if (i) a copy of the
Prospectus shall not have been delivered or sent to such person within the time
required by the Act and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus and (ii) the Company delivered the
Prospectus to the several Underwriters in requisite
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<PAGE> 12
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses, (ii)
the Company has failed to assume the defense and employ counsel or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
Company and such Underwriter or such controlling person shall have been advised
by its counsel that representation of such indemnified party and the Company by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Company shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter
and any such controlling person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
(c) The Selling Stockholder agrees to indemnify and hold harmless
each of you and each other Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent that such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arise out of or
are based upon Selling Stockholder Information; provided, however, that the
indemnification contained in this paragraph (c) with respect to any Prepricing
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of Shares by such Underwriter
to any person if (i) a copy of the Prospectus shall not have been delivered or
sent to such person within the time required by the Act and the untrue statement
or alleged untrue statement or omission or alleged omission of a material fact
contained in such Prepricing Prospectus was corrected in the Prospectus and (ii)
the Company delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. In case any
action or claim shall be brought or asserted against any
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<PAGE> 13
Underwriter or any such controlling person in respect of which indemnity may be
sought against the Selling Stockholder pursuant to this paragraph (c), the
Selling Stockholder shall have the rights and duties given to the Company, and
each Underwriter and any such controlling person shall have the rights and
duties given to the Underwriters, under paragraph (b) above. The foregoing
indemnity agreement shall be in addition to any liability which the Selling
Stockholder may otherwise have.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, the Selling Stockholder and any person who controls the
Company or the Selling Stockholder within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to each Underwriter, but only with respect to information
relating to such Underwriter furnished in writing to the Company by or on behalf
of such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto, it being understood and agreed that the only information furnished by
any Underwriter consists of information described as such in Section 14 hereof.
If any action, suit or proceeding shall be brought against the Company, any of
its directors, any such officer, any such controlling person or the Selling
Stockholder based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(d), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company or the Selling Stockholder shall
have assumed the defense thereof, such Underwriter shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Company, its directors, any such officer, the
Selling Stockholder and any such controlling person shall have the rights and
duties given to the Underwriters by paragraph (b) above. The foregoing indemnity
agreement shall be in addition to any liability which the Underwriters may
otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (c) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other hand from the offering of the Shares, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholder on
the one hand and the Underwriters on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholder on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Selling Stockholder bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any determination of the relative benefits received by the Company,
the Selling Stockholder and the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company and the underwriting discounts and commissions received by the
Underwriters from the sale of such Additional Shares, in each case computed on
the basis of the respective amounts set forth in the notes to the table on the
cover page of the Prospectus. The relative fault of the Company and the Selling
Stockholder on
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<PAGE> 14
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Stockholder on the
one hand or by the Underwriters on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(f) The Company, the Selling Stockholder and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (e) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (e) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 12 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers,
the Selling Stockholder or any person controlling the Company or the Selling
Stockholder, (ii) acceptance of any Shares and payment therefor hereunder and
(iii) any termination of this Agreement. A successor to any Underwriter or any
person controlling any Underwriter, or to the Company, its directors or
officers, the Selling Stockholder or any person controlling the Company or the
Selling Stockholder, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 9.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
or an Abbreviated Registration Statement to be declared effective before the
Offering may commence, the Registration Statement or such
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<PAGE> 15
post-effective amendment or Abbreviated Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company or any of the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially, adversely affect
the market for the Shares or (ii) any event or development relating to or
involving the Company or any of the Subsidiaries, any officer or director of the
Company or any of the Subsidiaries or the Selling Stockholder, which makes any
statement of a material fact made in the Prospectus untrue or which, in the
opinion of the Company and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the Act or any other law to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, as Representatives of the several Underwriters, materially, adversely
affect the market for the Shares.
(c) Cravath, Swaine & Moore shall have furnished to the Underwriters
their written opinion, as counsel to the Company, addressed to you and dated the
Closing Date, in form and substance satisfactory to you, that:
(i) the Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business
as described in the Registration Statement and the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification;
(ii) ChiRex America has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus; and ChiRex America Inc.
is duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease property or the
conduct of its business requires such qualification;
(iii) the Shares delivered on the Closing Date and all other
outstanding shares of the Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable and conform to the description
thereof contained in the Prospectus; and the stockholders of the Company have
no preemptive or, to such counsel's knowledge, similar rights with respect to
the Shares;
(iv) the Company's authorized capital stock is as set forth in
the Prospectus, and the authorized capital stock of the Company conforms in
all material respects to the description thereof contained in the Prospectus;
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<PAGE> 16
(v) except as disclosed in the Prospectus, there are no
contracts, agreements or understandings known to such counsel between the
Company and any person granting such person the right to require the Company
to file a registration statement under the Act with respect to any securities
of the Company owned or to be owned by such person or to require the Company
to include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act;
(vi) no consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required on
behalf of the Company for the consummation of the transactions contemplated
hereby or in connection with the sale of the Shares, except (A) such as have
been obtained and made under the Act and (B) such as may be required under
state securities laws;
(vii) the execution, delivery and performance of this Agreement
by the Company and the issuance and sale of the Additional Shares will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (A) any statute, any rule, regulation or order of
any governmental agency or body or any court having jurisdiction over the
Company or any of its properties, (B) any agreement or instrument made an
exhibit to the Registration Statement or (C) the charter or By-laws of the
Company except, in any such case, where such breach, violation or default
would not have a Material Adverse Effect;
(viii) the Registration Statement was declared effective under
the Act as of the date and time specified in such opinion, the Abbreviated
Registration Statement (if any) was filed and became effective under the Act
as of the date and time (if determinable) specified in such opinion, the
Prospectus was filed with the Commission pursuant to the subparagraph of Rule
424(b) specified in such opinion on the date specified therein or was
included in the Registration Statement or the Abbreviated Registration
Statement (as the case may be), and, to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Act;
the Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates, complied
as to form in all material respects with the requirements of the Act.
Although counsel has not undertaken, except as otherwise indicated in their
opinion, to determine independently, and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements in the
Registration Statement or the Prospectus, such counsel has participated in
the preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof, and nothing has come to the
attention of such counsel that has caused them to believe that any part of
the Registration Statement or any amendment thereto, as of its effective date
or as of the Closing Date, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its issue date or as
of the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and such counsel do not know of any legal or governmental
proceedings required to be described in the Registration Statement or the
Prospectus which are not described as required or of any contracts or
documents of a character required to be described in a Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement
which are not described and filed as required; it being
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<PAGE> 17
understood that such counsel need express no opinion as to the financial
statements and the notes thereto and the schedules and other financial data
contained in the Registration Statement or the Prospectus;
(ix) this Agreement has been duly authorized, executed and
delivered by the Company; and
(x) the descriptions in the Registration Statement and the
Prospectus of statutes, legal or governmental actions, suits, proceedings and
contracts and other legal documents constitute accurate summaries thereof and
fairly present the information required to be shown in all material respects.
In rendering such opinion, such counsel may rely as to the matters
governed by the laws of any jurisdiction other than the State of New York, the
corporate law of the State of Delaware or the United States of America on local
counsel in such jurisdictions provided that such counsel shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel.
(d) Hale and Dorr shall have furnished to the Underwriters their
written opinion, as counsel to the Selling Stockholder, addressed to you and
dated such Closing Date, in form and substance reasonably satisfactory to you,
to the effect that:
(i) the Selling Stockholder has been duly incorporated and is
an existing corporation in good standing under the laws of Delaware;
(ii) the Selling Stockholder has, to such counsel's knowledge,
valid and unencumbered title to the Firm Shares delivered by the Selling
Stockholder on the Closing Date and has full right, power and authority to
sell, assign, transfer and deliver the Firm Shares on such Closing Date;
(iii) the Selling Stockholder has the corporate power to sell,
assign, transfer and deliver the Firm Shares on the Closing Date, and
assuming the several Underwriters take delivery of the Firm Shares in good
faith and without notice of any adverse claim within the meaning of the
UCC, the several Underwriters will acquire good and marketable title to the
Firm Shares, free and clear of any adverse claim;
(iv) the execution, delivery and performance of this Agreement,
the transactions contemplated herein and the sale of the Firm Shares by the
Selling Stockholder will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under the charter or
By-laws of the Selling Stockholder;
(v) this Agreement has been duly authorized, executed and
delivered by the Selling Stockholder;
(vi) the execution, delivery and performance of this Agreement
and the transactions contemplated herein and the sale of the Firm Shares by
the Selling Stockholder will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, (A) any
statute, any rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Selling
Stockholder or any subsidiary of the Selling Stockholder or any of their
properties or (B) any agreement or instrument filed by the Selling
Stockholder pursuant to the Act or the Exchange Act; and
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(vii) no consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required on behalf of
the Selling Stockholder for the consummation of the transactions
contemplated hereby or in connection with the sale of the Shares, except
(A) such as have been obtained and made under the Act, and (B) such as may
be required under state securities laws.
In rendering such opinion such counsel may rely as to the matters
governed by the laws of any jurisdiction other than the Commonwealth of
Massachusetts, the State of Delaware or the United States of America on local
counsel in such jurisdictions provided that such counsel shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel.
(e) Dibb Lupton Broomhead shall have furnished the Underwriters their
written opinion, as counsel to ChiRex Holdings Ltd. and ChiRex Ltd., addressed
to the Underwriters and dated such Closing Date, in form and substance
reasonably satisfactory to the Underwriters, to the effect that:
(i) ChiRex Holdings Ltd. is a private company duly
incorporated with limited liability under the laws of England and Wales and
is, at the date of this opinion, a validly existing corporation under the
laws of the jurisdiction of its incorporation; ChiRex Holdings Ltd. has
full corporate power and authority under its memorandum of association to
own property and to conduct its business as described in the Prospectus;
and ChiRex Holdings Ltd. is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification;
(ii) the outstanding shares of capital stock of ChiRex Holdings
Ltd. have been duly authorized and are validly issued and fully paid and no
calls for additional capital can be made on the holders of those shares in
respect of those shares, and the Company is the owner of such shares;
(iii) ChiRex Ltd. is a private company duly incorporated with
limited liability under the laws of England and Wales and is, at the date
of this opinion, a validly existing corporation under the laws of the
jurisdiction of its incorporation; ChiRex Ltd. has full corporate power and
authority under its memorandum of association to own property and to
conduct its business as described in the Prospectus; and ChiRex Ltd. is
duly qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification;
(iv) the entire issued share capital of ChiRex Ltd. has been
duly authorized and validly issued, fully paid and no calls for additional
capital can be made on the holders of those shares in respect of those
shares, and ChiRex Holdings Ltd. is the owner of such shares; and
(v) to the best of such counsel's actual knowledge and belief,
the outstanding shares of capital stock of ChiRex Holdings Ltd. and the
outstanding shares of capital stock of ChiRex Ltd. are free of any lien,
encumbrance or defect.
In rendering such opinion such counsel may rely as to the matters
governed by the laws of any jurisdiction other than the United Kingdom on local
counsel in such jurisdictions provided that such counsel shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel.
18
<PAGE> 19
(f) You shall have received from Dewey Ballantine, counsel for the
Underwriters, such opinion or opinions, dated such Closing Date, with respect to
the validity of the Shares delivered on such Closing Date, the Registration
Statement, the Prospectus and other related matters as you may require, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(g) You shall have received letters addressed to you and dated the
date hereof from Arthur Andersen LLP and Coopers & Lybrand L.L.P., independent
certified public accountants and shall have received a letter addressed to you
and dated the Closing Date from Arthur Andersen LLP, independent certified
public accountants, in each case substantially in the forms heretofore approved
by you.
(h) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company or any
Underwriter, contemplated by the Commission at or prior to the Closing Date, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to your satisfaction; (ii) there shall not have been any material change in
the capital stock of the Company nor any material increase in the short-term or
long-term debt of the Company and the Subsidiaries, taken as a whole, from that
set forth or contemplated in the Registration Statement or the Prospectus (or
any amendment or supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole; (iv) neither
the Company nor any of the Subsidiaries shall have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in or contemplated by the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of the
date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), as to the matters set
forth in this Section 10(h) and in Section 10(i) hereof.
(i) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(j) All the representations and warranties of the Selling Stockholder
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by or on behalf of the Selling Stockholder set forth in this Section
10(j) and in Section 10(k) hereof.
(k) The Selling Stockholder shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by them hereunder at or
prior to the Closing Date.
19
<PAGE> 20
(l) The "lock-up" agreements between you and certain stockholders
(including certain officers and directors of the Company) relating to sales of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, previously delivered to you, shall be in full force and effect
on the Closing Date.
(m) The Company has timely filed with the Nasdaq Stock Market a
notification form for listing additional shares on the NNM with respect to the
Shares.
(n) The Company and the Selling Stockholder shall have furnished or
caused to be furnished to you such further certificates and documents as you
shall have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and counsel for the Underwriters.
Any certificate or document signed by any officer of the Company or by
or on behalf of the Selling Stockholder and delivered to you, as Representatives
of the several Underwriters, or to counsel for the Underwriters, shall be deemed
a representation and warranty by the Company or the Selling Stockholder, as the
case may be, to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c), (e) through (h) and (n) shall be dated
the Option Closing Date in question, the opinions called for by paragraphs (c)
and (f) shall be revised to reflect the sale of Additional Shares and the
opinion called for by paragraph (d) and the certificate called for by paragraph
(j) need not be delivered.
The Company will furnish you with such conformed copies of such
opinions, certificates, letters and documents as you reasonably request. Smith
Barney Inc. may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Option Closing Date or otherwise.
11. EXPENSES. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and filing
with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the Offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the Offering; (iv) the printing (or reproduction) and
delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda
and all other agreements or documents printed (or reproduced) and delivered in
connection with the Offering; (v) the registration of the Common Stock under the
Exchange Act; (vi) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of the several states as provided in
Section 5(h) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such
20
<PAGE> 21
registration and qualification); (vii) the filing fees and the reasonable fees
and expenses of counsel for the Underwriters in connection with any filings
required to be made with the National Association of Securities Dealers, Inc. in
connection with the Offering; (viii) the transportation and other expenses
incurred by or on behalf of representatives of the Company in connection with
presentations to prospective purchasers of the Shares; (ix) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company and the Selling
Stockholder.
12. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto or an Abbreviated
Registration Statement to be declared or become effective before the Offering
may commence, when notification of the effectiveness of the registration
statement or such post-effective amendment has been released by the Commission
or such Abbreviated Registration Statement has, pursuant to the provisions of
Rule 462 under the Act, become effective. Until such time as this Agreement
shall have become effective, it may be terminated by the Company by notifying
you, or by you, as Representatives of the several Underwriters, by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date, each non-defaulting Underwriter shall be obligated, severally,
in the proportion which the number of Firm Shares set forth opposite its name in
Schedule I hereto bears to the aggregate number of Firm Shares set forth
opposite the names of all non-defaulting Underwriters or in such other
proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Smith Barney, Harris Upham & Co. Incorporated
(predecessor of Smith Barney Inc.), to purchase the Shares which such defaulting
Underwriter or Underwriters agreed, but failed or refused, to purchase. If any
Underwriter or Underwriters shall fail or refuse to purchase Shares which it or
they are obligated to purchase on the Closing Date and the aggregate number of
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter agreed, but failed or refused,
to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Sellers, by notice to the
21
<PAGE> 22
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the case
may be, (i) trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the Offering at the
offering price to the public set forth on the cover page of the Prospectus or to
enforce contracts for the resale of the Shares by the Underwriters. Notice of
such termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
14. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth
in the last paragraph on the cover page, the Regulation M legend on the inside
front cover page and the statements in the first; third, seventh and eighth
paragraphs under the caption "Underwriting" in any Prepricing Prospectus and in
the Prospectus constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 7(b) and
9 hereof.
15. MISCELLANEOUS. Except as otherwise provided in Sections 5, 12, and
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 65 William Street, Suite 330, Wellesley, Massachusetts 02181,
Attention: Michael A. Griffith, with a copy to Cravath, Swaine & Moore, 825
Eighth Avenue, New York, New York 10019, Attention: Kris F. Heinzelman, Esq.;
(ii) if to the Selling Stockholder, at the office of the Selling Stockholder at
33 Locke Drive, Marlborough, Massachusetts 01752, Attention: Timothy J.
Barberich, President and Chief Executive Officer, with a copy to Hale and Dorr,
60 State Street, Boston, Massachusetts 02109, Attention Philip P. Rossetti,
Esq., or (iii) if to you, as Representatives of the several Underwriters, care
of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention:
Manager, Investment Banking Division, with a copy to Dewey Ballantine, 1301
Avenue of the Americas, New York, New York 10019, Attention: Frederick W.
Kanner, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors, its officers who sign the
Registration Statement, the Selling Stockholder and the controlling persons
referred to in Section 9 hereof and, to the extent provided herein, their
respective successors and assigns and no other person shall acquire or have any
right under or by virtue of this Agreement. Neither the term "successor" nor the
term "successors and assigns" as used in this Agreement shall include a
purchaser from any Underwriter of any of the Shares in his status as such
purchaser.
16. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
22
<PAGE> 23
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
CHIREX INC.
By: _____________________________________
Alan R. Clark
Chairman of the Board
and Chief Executive Officer
SEPRACOR INC.
By: _____________________________
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
LEGG MASON WOOD WALKER, INCORPORATED
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By: ___________________________________________
Managing Director
23
<PAGE> 24
SCHEDULE I
CHIREX INC.
Number of
Underwriter Firm Shares
- ----------- -----------
Smith Barney Inc.............................
Credit Suisse First Boston...................
Legg Mason Wood Walker.......................
.............................................
----------
Total
.............................................
.............................................
<PAGE> 1
AMENDED AND RESTATED
BY-LAWS
OF
CHIREX INC.
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
Page
----
ARTICLE 1 - Stockholders..................................... 1
Section 1.1 Place of Meetings....................... 1
Section 1.2 Annual Meeting.......................... 1
Section 1.3 Purposes of Annual Meetings............. 1
Section 1.4 Special Meetings........................ 1
Section 1.5 Notice of Meetings...................... 1
Section 1.6 Voting List............................. 2
Section 1.7 Quorum.................................. 2
Section 1.8 Adjournments............................ 2
Section 1.9 Voting and Proxies...................... 2
Section 1.10 Action at Meeting....................... 3
Section 1.11 Action without Meeting.................. 3
Section 1.12 Organization............................ 3
ARTICLE 2 - Directors........................................ 4
Section 2.1 General Powers.......................... 4
Section 2.2 Number; Election and Qualification...... 4
Section 2.3 Classes of Directors.................... 4
Section 2.4 Terms of Office......................... 4
Section 2.5 Allocation of Directors Among Classes
in the Event of Increases or
Decreases in the Number of Directors.. 5
Section 2.6 Vacancies............................... 5
Section 2.7 Resignation............................. 5
Section 2.8 Regular Meetings........................ 5
Section 2.9 Special Meetings........................ 6
Section 2.10 Notice of Special Meetings.............. 6
Section 2.11 Meetings by Telephone Conference
Calls................................. 6
Section 2.12 Quorum.................................. 6
Section 2.13 Action at Meeting....................... 6
Section 2.14 Action by Consent....................... 6
Section 2.15 Removal................................. 7
Section 2.16 Committees.............................. 7
Section 2.17 Compensation of Directors............... 7
ARTICLE 3 - Officers......................................... 8
Section 3.1 Enumeration............................. 8
Section 3.2 Election................................ 8
Section 3.3 Qualification........................... 8
-i-
<PAGE> 3
Page
----
Section 3.4 Tenure....................................... 8
Section 3.5 Resignation and Removal...................... 8
Section 3.6 Vacancies.................................... 8
Section 3.7 Chairman of the Board and Vice
Chairman of the Board..................... 9
Section 3.8 President.................................... 9
Section 3.9 Vice Presidents.............................. 9
Section 3.10 Secretary and Assistant Secretaries.......... 9
Section 3.11 Treasurer and Assistant Treasurers........... 10
Section 3.12 Salaries..................................... 10
ARTICLE 4 - Capital Stock......................................... 11
Section 4.1 Issuance of Stock............................ 11
Section 4.2 Certificates of Stock........................ 11
Section 4.3 Transfers.................................... 11
Section 4.4 Lost, Stolen or Destroyed
Certificates.............................. 12
Section 4.5 Record Date.................................. 12
ARTICLE 5 - General Provisions.................................... 12
Section 5.1 Fiscal Year.................................. 12
Section 5.2 Corporate Seal............................... 13
Section 5.3 Waiver of Notice............................. 13
Section 5.4 Voting of Securities......................... 13
Section 5.5 Evidence of Authority........................ 13
Section 5.6 Certificate of Incorporation................. 13
Section 5.7 Transactions with Interested Parties......... 13
Section 5.8 Severability................................. 14
Section 5.9 Pronouns..................................... 14
ARTICLE 6 - Amendments............................................ 14
Section 6.1 By the Board of Directors.................... 14
Section 6.2 By the Stockholders.......................... 14
Section 6.3 Certain Provisions........................... 15
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<PAGE> 4
AMENDED AND RESTATED
BY-LAWS
OF
CHIREX INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders shall be held
within six months after the end of each fiscal year of the corporation on a date
to be fixed by the Board of Directors or the President (which date shall not be
a legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors or the President and stated in the
notice of the meeting. If no annual meeting is held in accordance with the
foregoing provisions, the Board of Directors shall cause the meeting to be held
as soon thereafter as convenient. If no annual meeting is held in accordance
with the foregoing provisions, a special meeting may be held in lieu of the
annual meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these By-Laws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting.
1.3 Purposes of Annual Meetings. (a) At each annual meeting, the
stockholders shall elect the members of the Board for the succeeding year. At
any such annual meeting any business properly brought before the meeting may be
transacted.
(b) To be properly brought before an annual meeting, business must be (i)
specified in the notice of the meeting (or any supplement thereto) given by or
at the direction of the Board, (ii) otherwise properly brought before the
meeting by or at the direction of the Board or (iii) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
written notice thereof, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation (the "Secretary") at the
principal executive offices of the Corporation, not less than 70 days nor more
than 90 days prior to the anniversary date of the immediately preceding annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the stockholder must be so delivered or received not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the 70th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of such
meeting is first made. Any such notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholders; (iv) any material interest of the
stockholder in such business; and (v) if the stockholder intends to solicit
proxies in support of such stockholder's proposal, a representation to that
effect. The foregoing notice requirements shall be deemed satisfied by a
stockholder if the stockholder has notified the Corporation of his or her
intention to present a proposal at an annual meeting and such stockholder's
proposal has been included in a proxy statement that has been prepared by
management of the Corporation to solicit proxies for such annual meeting;
provided, however, that if such stockholder does not appear or send a qualified
representative to present such proposal at such annual meeting, the Corporation
need not present such proposal for a vote at such meeting, notwithstanding
that proxies in respect of such vote may have been received by
the Corporation. No business shall be conducted at an annual meeting of
stockholders except in accordance with this Section 1.3(b), and the presiding
officer of any annual meeting of stockholders may refuse to permit any business
to be brought before an annual meeting without compliance with the foregoing
procedures or if the stockholder solicits proxies in support of such
stockholder's proposal without such stockholder having made the representation
required by clause (v) of the preceding sentence;
1.4 Special Meetings. Special meetings of stockholders may be called at
any time by the Chairman of the Board of Directors, the Chief Executive Officer,
the President or the Board of Directors. Business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting.
1.5 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or
-1-
<PAGE> 5
purposes for which the meeting is called. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.6 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.7 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.8 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.9 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may vote or express such consent or dissent in person
or
-2-
<PAGE> 6
may authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.10 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.11 Action without Meeting. Until the closing of a firm commitment
underwritten public offering of the corporation's common stock (the "Public
Offering"), any action required or permitted to be taken at any annual or
special meeting of stockholders of the corporation may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on such action were present and voted. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing. Effective upon the
Public offering, stockholders may not take any action by written consent in lieu
of a meeting.
1.12 Organization. The Chairman of the Board, or in his absence the Vice
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; provided, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
-3-
<PAGE> 7
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number, Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
2.4 Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the first annual meeting of stockholders
held following calendar year 1996; each initial director in Class II shall serve
for a term ending on the date of the first annual meeting of stockholders held
following calendar year 1997; and each initial director in Class III shall serve
for a term ending on the date of the first annual meeting of stockholders held
following calendar year 1998; and provided further, that the term
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of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.6 Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
2.7 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
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2.9 Special Meetings. Special meetings of the Board of
Directors may be held at any time and place, within or without the State of
Delaware, designated in a call by the Chairman of the Board, President, two or
more directors, or by one director in the event that there is only a single
director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purposes of the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee of the
Board of Directors may be taken without a
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meeting, if all members of the Board or committee, as the case may be, consent
to the action in writing, and the written consents are filed with the minutes of
proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for cause
by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
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ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave
unfilled for such period as it may determine any offices
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<PAGE> 12
other than those of President, Treasurer and Secretary. Each such successor
shall hold office for the unexpired term of his predecessor and until his
successor is elected and qualified, or until his earlier death, resignation or
removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing,shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a
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stock ledger and prepare lists of stockholders and their addresses as required,
to be custodian of corporate records and the corporate seal and to affix and
attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or
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<PAGE> 15
other disposition of such stock until the shares have been transferred on the
books of the corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
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5.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver,
or the appearance of such person or persons at such meeting in person or by
proxy, shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract
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or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be
less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
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<PAGE> 18
6.3 Certain Provisions. Notwithstanding any other provision of law, the
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with Section 1.3,
Section 1.10, Section 1.11, Article 2 or Article 6 of these By-Laws.
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<PAGE> 1
Exhibit 5
[Letterhead of]
CRAVATH, SWAINE & MOORE
March 19, 1997
ChiRex Inc.
-----------
4,012,696 Shares of
-------------------
Common Stock, Par Value $.01 Per Share,
---------------------------------------
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to ChiRex Inc., a Delaware corporation (the
"Company"), in connection with the preparation of the registration statement on
Form S-1 (File No. 333-22401) (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), for the registration under the Act of 3,489,301 shares of Common
Stock, $.01 par value per share, of the Company which are held by Sepracor Inc.
(the "Selling Stockholder Shares") and 523,395 shares of Common Stock, $.01 par
value per share, of the Company which the Underwriters have the option to
purchase from the Company pursuant to the Underwriting Agreement to cover
over-allotments, if any (the "Company Shares"). Capitalized terms used but not
defined in this letter shall have the meanings assigned thereto in the
Registration Statement.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including the following: (a) the Certificate of Incorporation of the
Company, (b) the Amended and Restated By-laws of the Company, and (c)
resolutions adopted by the Board of Directors of the Company on December 20,
1995, March 1, 1996, and February 20, 1997.
<PAGE> 2
2
Based on the foregoing, we are of opinion that, of the 4,012,696 shares of
Common Stock to be covered by the Registration Statement, (i) the Selling
Stockholder Shares were legally issued and are fully paid and nonassessable and
(ii) the Company Shares will be, if the over-allotment is exercised in
accordance with the terms of the Underwriting Agreement, legally issued and
fully paid and nonassessable.
We know that we are referred to under the heading "Legal Matters" in the
Prospectus forming a part of the Registration Statement, and we hereby consent
to such use of our name in such Prospectus and to the use of this opinion for
filing as Exhibit 5 to the Registration Statement.
Very truly yours,
/S/ CRAVATH, SWAINE & MOORE
Cravath, Swaine & Moore
ChiRex Inc.
65 William Street
Suite 330
Wellesley, MA 02181
<PAGE> 1
EXHBIT 10.2
CHIREX INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE
The purpose of this 1997 Stock Incentive Plan (the "Plan") is to advance
the interests of ChiRex Inc. by enhancing its ability to attract and retain key
employees, consultants and others who are in a position to contribute to the
Company's future growth and success.
SECTION 2. DEFINITIONS
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock or Unrestricted Stock awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, provided that if and when the
Common Stock is registered under Section 12 of the Securities Exchange Act of
1934, each member of the Committee shall be a "non-employee director" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934 ("Rule 16b-3")
and qualify as an "outside director" pursuant to Code Section 162(m) of the Code
and the regulations issued thereunder.
"Common Stock" or "Stock" means the Common Stock, $.01 par value per share,
of ChiRex Inc.
"Company" means ChiRex Inc. and, except where the context otherwise
requires, all present and future subsidiaries of the Company as defined in
Sections 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, Designated Beneficiary
shall mean the Participant's estate.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Board in
good faith or in the manner established by the Board from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
<PAGE> 2
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time selected by the Committee
during which shares subject to a Restricted Stock Award may be repurchased by or
forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a Participant
under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
Fair Market Value of shares of Common Stock over the exercise price awarded to a
Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a Participant
under Section 9(c).
SECTION 3. ADMINISTRATION
The Plan will be administered by the Committee. The Committee shall have
authority to make Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable
from time to time, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. No member of the Committee shall be liable
for any action or determination relating to the Plan made in good faith. All
decisions by the Committee pursuant to the Plan shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award.
SECTION 4. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors who are expected to contribute to the Company's future growth and
success, other than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. The maximum number of shares of Common
Stock which may be the subject of Awards made to any one employee under the Plan
during any calendar year shall be 350,000 shares of Common Stock. For this
purpose, the grant of new Awards in substitution for outstanding Awards shall be
deemed to constitute a new grant of additional Awards separate from the original
grant of Awards that are to be canceled. Incentive Stock Options may be awarded
only to persons eligible to receive Incentive Stock Options under the Code.
SECTION 5. STOCK AVAILABLE FOR AWARDS
(a) Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 2,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan,
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
(b) In the event that the Committee, in its sole discretion, determines
that any stock dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination or other
similar transaction affects the Common Stock such that an adjustment is required
in order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee, subject, in the case of Incentive
Stock Options, to any limitation required under the Code, shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Committee
may make
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provision for a cash payment with respect to an outstanding Award, provided that
the number of shares subject to any Award shall always be a whole number.
(c) The Committee may grant Awards under the Plan in substitution for stock
and stock based awards held by employees of another corporation who concurrently
become employees of the Company as a result of a merger or consolidation of the
employing corporation with the Company or a Subsidiary or the acquisition by the
Company or a subsidiary of property or stock of the employing corporation. The
substitute Awards shall be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 6. STOCK OPTIONS
(a) General.
(i) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares to be covered by each option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
(ii) The Committee shall establish the exercise price of each Option at the
time such Option is awarded. In the case of Incentive Stock Options, such price
shall not be less than 100% of the Fair Market Value of the Common Stock on the
date of award.
(iii) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment of the
exercise price by delivery of cash or check in an amount equal to the exercise
price of such Options or, to the extent permitted by the Committee at or after
the award of the Option, by (A) delivery of shares of Common Stock owned by the
optionee, valued at their Fair Market Value on the date of such option exercise,
(B) delivery of a promissory note of the optionee to the Company on terms
determined by the Committee, (C) delivery of an irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price or delivery of irrevocable instructions to a broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise price, (D) payment of
such other lawful consideration as the Committee may determine, or (E) any
combination of the foregoing.
(v) In the event an optionee pays some or all of the exercise price of an
Option by delivery of shares of Common Stock pursuant to clause 6(a)(iv)(A)
above, the Committee may provide for the automatic award of an option for up to
the number of shares so delivered.
(vi) Each Option granted under the Plan by its terms shall not be
transferable by the optionee otherwise than by will, or by the laws of descent
and distribution, and shall be exercised during the lifetime of the optionee
only by him. No Option or interest therein may be transferred, assigned, pledged
or hypothecated by the optionee during his lifetime, whether by operation of law
or otherwise, or be made subject to execution, attachment or similar process.
(vii) The Committee may at any time accelerate the time at which all or any
part of an Option may be exercised.
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(b) Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the
time of grant, be specifically designated as such in the option agreement
covering such Incentive Stock Options. The Option exercise period shall not
exceed seven years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be
granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (after taking into account the
attribution of stock ownership rule of Section 424(d) of the Code), then
the following special provisions shall be applicable to the Incentive Stock
Option granted to such individual:
(x) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant; and
(y) The Option exercise period shall not exceed five years from the
date of grant.
(iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate Fair Market Value (determined
as of the respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at the time of
such exercise, the Participant is, and has been continuously since the date
of grant of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised (to the extent
exercisable on the date the Participant ceased to be an employee of the
Company) within the period of three months after the date the
Participant ceases to be an employee of the Company (or within such
lesser period as may be specified in the applicable option agreement),
provided, that the agreement with respect to such Option may designate a
longer exercise period and that the exercise after such three-month
period shall be treated as the exercise of a Nonstatutory Stock Option
under the Plan;
(y) if the Participant dies while in the employ of the Company, or
within three months after the Participant ceases to be such an employee,
the Incentive Stock Option (to the extent otherwise exercisable on the
date of death) may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or
within such lesser period as may be specified in the applicable Option
agreement); and
(z) if the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised (to the extent otherwise exercisable on the date of death)
within the period of one year after the date of such disability (or
within such lesser period as may be specified in the Option agreement).
In the event of the Participant's death during this one-year period, the
Incentive Stock Option may be exercised by the Participant's Designated
Beneficiary within the period of one year from the date the Participant
became disabled or within such lesser period as may be specified in the
applicable Option agreement.
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For all purposes of the Plan and any Option granted hereunder, (i) "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations) and (ii) any option may
provide that if such Option shall be assumed or a new Option substituted
therefor in a transaction to which Section 424(a) of the Code applies,
employment by such assuming or substituting corporation (hereinafter called the
"Successor Corporation") shall be considered for all purposes of such Option to
be employment by the Company. Notwithstanding the foregoing provisions, no
Incentive Stock Option may be exercised after its expiration date.
SECTION 7. STOCK APPRECIATION RIGHTS
(a) The Committee may grant Stock Appreciation Rights entitling recipients
on exercise of the SAR to receive an amount, in cash or Stock or a combination
thereof (such form to be determined by the Committee), determined in whole or in
part by reference to appreciation in the Fair Market Value of the Stock between
the date of the Award and the exercise of the Award. A Stock Appreciation Right
shall entitle the Participant to receive, with respect to each share of Stock as
to which the SAR is exercised, the excess of the share's Fair Market Value on
the date of exercise over its Fair Market Value on the date the SAR was granted.
The Committee may also grant Stock Appreciation Rights that provide that,
following a change in control of the Company (as defined by the Board or the
Committee at the time of the Award), the holder of such SAR will be entitled to
receive, with respect to each share of Stock subject to the SAR, an amount equal
to the excess of a specified value (which may include an average of values) for
a share of Stock during a period preceding such change in control over the Fair
Market Value of a share of Stock on the date the SAR was granted.
(b) Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan. A Stock Appreciation Right
granted in tandem with an option which is not an Incentive Stock Option may be
granted either at or after the time the Option is granted. A Stock Appreciation
Right granted in tandem with an Incentive Stock Option may be granted only at
the time the Option is granted.
(c) When Stock Appreciation Rights are granted in tandem with Options, the
following provisions will apply:
(i) The Stock Appreciation Right will be exercisable only at such time
or times, and to the extent, that the related Option is exercisable and
will be exercisable in accordance with the procedure required for exercise
of the related Option.
(ii) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except
that a Stock Appreciation Right granted with respect to less than the full
number of shares covered by an Option will not be reduced until the number
of shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock
Appreciation Right.
(iii) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(iv) A Stock Appreciation Right granted in tandem with an Incentive
Stock Option may be exercised only when the market price of the Stock
subject to the Option exceeds the exercise price of such Option.
(d) A Stock Appreciation Right not granted in tandem with an Option will
become exercisable at such time or times, and on such conditions, as the
Committee may specify.
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(e) The Committee may at any time accelerate the time at which all or any
part of the SAR may be exercised.
SECTION 8. PERFORMANCE SHARES
(a) The Committee may make Performance Share Awards entitling recipients to
acquire shares of Stock upon the attainment of specified performance goals. The
Committee may make Performance Share Awards independent of or in connection with
the granting of any other Award under the Plan. The Committee in its sole
discretion shall determine the performance goals applicable under each such
Award, the periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance Shares;
provided, however, that the Committee may rely on the performance goals and
other standards applicable to other performance plans of the Company in setting
the standards for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall have the rights
of a stockholder only as to shares actually received by the Participant under
the Plan and not with respect to shares subject to an Award but not actually
received by the Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Share Award only upon satisfaction of all conditions specified in the agreement
evidencing the Performance Share Award.
(d) The Committee may at any time accelerate or waive any or all of the
goals, restrictions or conditions imposed under any Performance Share Award.
SECTION 9. RESTRICTED AND UNRESTRICTED STOCK
(a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Stock, subject to the right of the Company to repurchase all
or part of such shares at their purchase price (or to require forfeiture of such
shares if purchased at no cost) from the recipient in the event that conditions
specified by the Committee in the applicable Award are not satisfied prior to
the end of the applicable Restricted Period or Restricted Periods established by
the Committee for such Award. Conditions for repurchase (or forfeiture) may be
based on continuing employment or service or achievement of pre-established
performance or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the applicable Restricted Period. Shares of Restricted Stock shall be evidenced
in such manner as the Board may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and, unless otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Company (or its
designee). At the expiration of the Restricted Period, the Company (or such
designee) shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.
(c) The Committee may, in its sole discretion, grant (or sell at a purchase
price determined by the Board, which shall not be lower than 85% of Fair Market
Value on the date of sale) to Participants shares of Stock free of any
restrictions under the Plan ("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Committee and may not be less than the par
value of the Common Stock. Such purchase price may be paid in the form of past
services or such other lawful consideration as is determined by the Board.
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(e) The Committee may at any time accelerate the expiration of the
Restricted Period applicable to all, or any particular, outstanding shares of
Restricted Stock.
SECTION 10. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) Applicability of Rule 16b-3. Those provisions of the Plan which make
an express reference to Rule 16b-3 shall apply to the Company only at such time
as the Company's Common Stock is registered under the Securities Exchange Act of
1934, or any successor provision, and then only to Reporting Persons.
(b) Documentation. Each Award under the Plan shall be evidenced by an
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable. Such
instruments may be in the form of agreements to be executed by both the Company
and the Participant, or certificates, letters or similar documents, acceptance
of which will evidence agreement to the terms thereof and of this Plan.
(c) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(d) Termination of Status. Subject to the provisions of Section 6(b)(iv),
the Committee shall determine the effect on an Award of the disability, death,
retirement, authorized leave of absence or other termination of employment or
other status of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(e) Mergers, Etc. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity (an "Acquisition"), or in the event of a
liquidation of the Company, the Board or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to outstanding Awards: (i)
provide that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof) on such terms as the Board determines to be appropriate, (ii)
upon written notice to Participants, provide that all unexercised options or
SARs will terminate immediately prior to the consummation of such transaction
unless exercised by the Participant within a specified period following the date
of such notice, (iii) in the event of an Acquisition under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to Participants equal
to the difference between (A) the Acquisition Price times the number of shares
of Common Stock subject to outstanding Options or SARs (to the extent then
exercisable at prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding Options or SARs in exchange for
the termination of such Options and SARS, and (iv) provide that all or any
outstanding Awards shall become exercisable or realizable in full prior to the
effective date of such Acquisition. Notwithstanding the foregoing, in the event
of an Acquisition, then all of the outstanding Options granted hereunder shall
become exercisable immediately prior to such Acquisition.
(f) Withholding. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, and subject
to such conditions as the Committee may establish, such tax obligations may be
paid in whole or in part in shares of
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Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Participant.
(g) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or comply with applicable laws.
(h) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(i) Cancellation and New Grant of Options. The Board of Directors shall
have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the cancelled Options or (ii) the
amendment of the terms of any and all outstanding Options under the Plan to
provide an option exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
(j) Conditions on Delivery of Common Stock. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan (i) until
all conditions of the Award have been satisfied or removed, (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with, (iii) if the outstanding Common Stock is at
the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
notice of issuance, and (iv) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Common Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of the Award, such representations or agreements as the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Common Stock bear an appropriate legend restricting
transfer.
SECTION 11. MISCELLANEOUS
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or service
for the Company. The Company expressly reserves the right at any time to dismiss
a Participant free from any liability or claim under the Plan, except as
expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the record holder thereof.
(c) Exclusion from Benefit Computations. No amounts payable upon exercise
of Awards granted under the Plan shall be considered salary, wages or
compensation to Participants for purposes of determining the amount or nature of
benefits that Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
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(d) Effective Date and Term.
(i) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the
Plan shall become exercisable unless and until the Plan shall have been
approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve months after the date of the Board's adoption of the
Plan, no Options previously granted under the Plan shall be deemed to be
Incentive Stock Options and no Incentive Stock Options shall be granted
thereafter. Amendments to the Plan not requiring stockholder approval shall
become effective when adopted by the Board of Directors; amendments
requiring stockholder approval shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted after the date of
such amendment shall become exercisable (to the extent that such amendment
to the Plan was required to enable the Company to grant such Incentive
Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months of the Board's adoption of
such amendment, any Incentive Stock Options granted on or after the date of
such amendment shall terminate to the extent that such amendment to the
Plan was required to enable the Company to grant such Option to a
particular optionee. Subject to the limitations set forth in this Section
11(d), Awards may be made under the Plan at any time after the effective
date and before the date fixed for termination of the Plan.
(ii) Termination. The Plan shall terminate upon the earlier of (i)
the close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date on
which all shares available for issuance under the Plan shall have been
issued pursuant to Awards under the Plan. Awards outstanding on such date
shall continue to have force and effect in accordance with the provisions
of the instruments evidencing such Awards.
(e) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement. Prior to any such approval, Awards may
be made under the Plan expressly subject to such approval.
(f) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
Adopted by the Board of
Directors on February 20, 1997
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EXHBIT 10.3
CHIREX INC.
AMENDED AND RESTATED 1995 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1995 Director Stock Option Plan (the "Plan") of ChiRex
Inc. (the "Company") is to encourage ownership in the Company by outside
directors of the Company whose continued services are considered essential to
the Company's future progress and to provide them with a further incentive to
remain as directors of the Company.
2. ADMINISTRATION
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors, and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the Plan shall
be 100,000 shares of the Company's Common Stock, par value $.01 per share
("Common Stock"), subject to adjustment as provided in Section 9 of the Plan.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended to date and as it may be amended from time to time (the
"Code").
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grants. Each eligible Director will be granted an option
to purchase 3,000 shares of Common Stock on the date of his or her initial
election to the Board (the "Initial Option"). Annual options to purchase
3,000 shares of Common Stock will be granted upon the close of business on
the date of each annual meeting of the stockholders to each eligible
Director then in office (the "Annual Option").
<PAGE> 2
(b) Option Exercise Price. The option exercise price per share for
each option granted under the Plan shall equal (i) the last reported sales
price per share of the Company's Common Stock on The Nasdaq National Market
(or, if the Company is traded on another nationally recognized securities
exchange on the date of grant, the reported closing sales price per share
of the Company's Common Stock by such exchange) on the date of grant (or if
no such price is reported on such date such price as reported on the
nearest preceding day) or (ii) if the Common Stock is not traded on the
Nasdaq National Market or an exchange, the fair market value per share on
the date of grant as most recently determined by the Board of Directors.
(c) Options Nontransferable. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will,
or by the laws of descent and distribution, and shall be exercised during
the lifetime of the optionee only by him. No option or interest therein may
be transferred, assigned, pledged or hypothecated by the optionee during
his lifetime, whether by operation of law or otherwise, or be made subject
to execution, attachment or similar process.
(d) Exercise Period. Each Initial Option and Annual Option shall
become exercisable on a cumulative basis as to one-fifth of the shares
subject to the option on each of the first, second, third, fourth and fifth
anniversaries of the date of grant of such option. Notwithstanding the
foregoing, and subject to the provisions of Section 5(e), no option may be
exercised more than 90 days after the optionee ceases to serve as a
director of the Company. No option shall be exercisable after the
expiration of seven years from the date of grant.
(e) Exercise Period upon Disability or Death. Notwithstanding the
provisions of Section 5(d), an option granted under the Plan may be
exercised, to the extent then exercisable, by an optionee who became
disabled (within the meaning of Section 22(e)(3) of the Code or any
successor provision thereto) while acting as a director of the Company, or
may be exercised, to the extent then exercisable, upon the death of such
optionee while a director of the Company by the person to whom it is
transferred by will, by the laws of descent and distribution, or by written
notice filed pursuant to Section 5(f), in each case within the period of
one year after the date the optionee ceases to be such a director by reason
of such disability or death; provided that no option shall be exercisable
after the expiration of seven years from the date of grant.
(f) Exercise by Representative Following Death of Director. A
director, by written notice to the Company, may designate one or more
persons (and from time to time change such designation) including his or
her legal representative, who, by reason of the director's death, shall
acquire the right to exercise all or a portion of an option granted under
the Plan. If the person or persons so designated wish to exercise any
portion of an option, they must do so within the term of the option as
provided herein. Any exercise by a representative shall be subject to the
provisions of the Plan.
(g) Exercise Procedure. Options may be exercised only by written
notice to the Company at its principal office accompanied by (i) payment in
cash of the full consideration for the shares as to which they are
exercised or (ii) an irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price or
delivery of irrevocable instructions to a broker to deliver promptly to the
Company cash or a check sufficient to pay the exercise price.
6. ASSIGNMENTS
The rights and benefits of participants under the Plan may not be assigned,
whether voluntarily or by operation of law, except as provided in Section 5(c).
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7. EFFECTIVE DATE; TERMINATION
The Plan became effective immediately upon its adoption by the Board of
Directors, but all grants of options shall be conditional upon the approval of
the Plan by the stockholders of the Company within 12 months after adoption of
the Plan by the Board of Directors. All options for shares subject to the Plan
shall be granted, if at all, not later than six years after the approval of the
Plan by the Company's stockholders.
8. LIMITATION OF RIGHTS
(a) No Right To Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
as a stockholder with respect to the shares covered by his options until the
date of the issuance to him of a stock certificate therefor, and no adjustment
will be made for dividends or other rights (except as provided in Section 9) for
which the record date is prior to the date such certificate is issued.
9. CHANGES IN COMMON STOCK
(a) If the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment will be
made in (i) the maximum number and kind of shares reserved for issuance under
the Plan, (ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
(b) In the event that the Company is merged or consolidated into or with
another corporation (in which consolidation or merger the stockholders of the
Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization or liquidation unless exercised by the optionee
within a specified number of days following the date of such notice.
10. AMENDMENT OF THE PLAN
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company no revision or amendment shall change the number
of shares subject to the Plan (except as provided in Section 9), change the
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan.
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11. NOTICE
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when received.
12. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Adopted by the Board of Directors
on February 20, 1997
4
<PAGE> 1
Dated 11 March 1996
- ------------------------------------------------------------------------
(1) CROSSCO (157) LIMITED
- and -
(2) JOHN GRAHAM THORPE
SERVICE AGREEMENT
DIBB LUPTON
BROOMHEAD
---------SOLICITORS--------
<PAGE> 2
THIS AGREEMENT is made the 11th day of March 1996
B E T W E E N :
(1) CROSSCO (157) LIMITED (Company No. 3080257) whose registered office is
at Cross House, Westgate Road, Newcastle-upon-Tyne NE99 1SB (the
"COMPANY");
AND
(2) JOHN GRAHAM THORPE of 22 Park Drive, Melton Park, Gosforth NE3 5QB
(the "EXECUTIVE").
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this agreement and the Schedule to this agreement where it
is appropriate in context singular words shall include the
plural and vice versa. Words defined below shall have the
following respective meanings:
"Appointment" means the employment of the Executive under the
terms of this agreement and the Schedule;
"Board" means the board of directors of the Company from
time to time;
"Business" means the business of the manufacture, sale, supply
or provision of chemicals, fine
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chemicals or pharmaceutical products or research
and development of the same carried on by the
Company and any company in the Group from time
to time;
"ChiRex" means ChiRex Inc., a Delaware corporation with
its principal office at 33 Locke Drive,
Marlborough MA 01752, the Company's holding
company for the time being;
"ChiRex Board" means the board of directors of ChiRex from
time to time;
"Group" or means the Company and all companies which are
"Group for the time being either a holding company of
Companies" the Company or a subsidiary or associated
company of either the Company or any such
holding company;
"Managing means the managing director of the Company
Director" from time to time;
"associated in relation to a company means any company in
company" which that company or any holding company of
it is directly or indirectly
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beneficially interested in ten per cent. or more
of the relevant company's issued ordinary share
capital; and
"subsidiary have the meanings ascribed to them by Section 736
company" and of the Companies Act 1985 or any statutory
"holding modification or re-enactment thereof.
company"
1.2 This agreement shall be read and construed without reference to
its Clause headings which are included for convenience only.
1.3 This agreement shall be construed and governed by English Law and
the parties submit to the non-exclusive jurisdiction of the
English Courts.
1.4 References to any legislation shall be construed as references to
legislation as from time to time amended re-enacted or
consolidated.
1.5 References to Clauses, the parties and the Schedule are
respectively to Clauses of and the parties and the Schedule to
this agreement.
1.6 Save as otherwise defined words and expressions shall be construed
in accordance with the Interpretation Act 1978.
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2. APPOINTMENT AND TERM
2.1 The Company shall employ the Executive and the Executive shall be
employed by the Company as Business Development Director of
Sterling Organics Limited.
2.2 The Appointment shall commence on the date hereof (subject to any
period of continuous employment provided in the Schedule) and
subject to the provisions of Clause 12.1 of this agreement shall
continue until terminated by at least 12 months written notice given
by either party to the other.
2.3 The Executive shall report to such person as is nominated by the
Managing Director.
3. DUTIES
3.1 The Executive shall during the Appointment:-
3.1.1 be responsible directly to the Board and carry out all
such powers and duties and observe all such directions
as the Board may from time to time reasonably assign to
him;
3.1.2 devote the whole of his time and attention and use his
best endeavours to promote the interests of the Company
and the Group and shall not engage in any activity which
may be or become harmful to or contrary to the interests
of the Company or any Group Company;
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3.1.3 in the discharge of his duties and in the exercise of
his powers observe and comply with all reasonable
resolutions, regulations and directions from time to
time made or given by the Board;
3.1.4 travel and work within and outside the United Kingdom as
may reasonably be required by the Board from time to
time and conform to such hours of work as the Board may
reasonably require PROVIDED that the parties shall
negotiate appropriate additional remuneration if the
Executive is required to travel and work outside the
United Kingdom for more than 16 weeks in any calendar
year; and
3.1.5 accept (if offered) appointment as a director of any
member of the Group and from time to time as requested
by the Board (but not otherwise) resign any such
appointment without claim.
3.2 During the Appointment the Executive shall not, without the prior
consent of the ChiRex Board, have any interest in any trade,
business or occupation which is similar to the Business whether or
not such trade, business or occupation is conducted for his profit
or personal gain or that of any member of his family or household or
any relative by marriage (save as a shareholder of not more than
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<PAGE> 7
three per cent. of any public company whose shares
are quoted on any recognised Stock Exchange).
3.3 The Executive shall not make copies of any documents, memoranda or
correspondence, computer disks, video tapes or any similar matter
other than in the performance of his duties under this agreement or
remove any such items from the premises of the Company or any Group
Company except in the proper performance of his duties.
3.4 The Executive shall not make any public statement to the media or
otherwise relating to the affairs of the Company or any Company
Group without the prior written consent of the Board.
4. SALARY AND BONUS
4.1 During the Appointment the Company shall pay to the Executive a
salary at the rate of(pound)55,650 per annum such salary to accrue
from day to day and to be inclusive of all or any sums receivable by
the Executive as director's fees from any company in the Group. The
salary shall be payable by equal monthly instalments in arrears on
the 27th of each month.
4.2 The Executive shall be entitled to participate each year during the
term of this Agreement in a profit related bonus scheme to be
finalised by the board on the basis that the Executive shall receive
in relation to each calendar year he participates in
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the scheme (the first such payment being in relation to the whole of
the calendar year 1996):
4.2.1 a sum equal to one per cent. of the salary payable
under Clause 4.1 as varied from time to time for
every one per cent. by which the level of earnings
before interest charges and tax ("EBIT") of ChiRex
exceeds the projected level of EBIT of ChiREx set out
in the business plan of ChiRex approved the ChiRex
Board and after expiry of the term of that business
plan, any annual business plan of ChiRex, up to a
maximum of 25 per cent.; and
4.2.2 such additional amount as the ChiRex Board in its
absolute discretion deems fit where the maximum amount
is payable pursuant to Clause 4.2.1.
4.2 The Executive's salary shall be subject to review on each
anniversary of the first day of the month in which this agreement is
signed.
5. OTHER BENEFITS AND EXPENSES
5.1 The Executive shall be reimbursed, subject to the production of
appropriate receipts or vouchers, all reasonable travelling, hotel
and other out of pocket expenses wholly, necessarily and exclusively
incurred by him in the discharge of his duties.
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5.2 Whilst the Executive is legally entitled to drive the Company shall
provide the Executive with a motor car of the type specified on List
A and otherwise in accordance with the car policy annexed as Annex 1
or an equivalent motor car. The Executive shall also be permitted to
use the motor car for his own private purposes, including use on
holiday (and use by other drivers who are not employees of the
Company who are notified in writing to the Company with a copy of
the current driving license of such person and are licensed to drive
and insured for that purpose).
5.3 The Company will pay all petrol and all other running costs incurred
by the Executive on Company business and such costs incurred in
relation to private mileage an allowance of(pound)1,200 to cover
using the motor car referred to in Clause 5.2. The Executive shall
at all times conform with all regulations which may from time to
time be imposed by the Company with regard to motor cars provided by
the Company for use by its officers or employees and shall return
the car to the Company as directed on the termination of the
Appointment.
5.4 During the Appointment the Executive shall be entitled to be a
member of the Company's pension scheme subject to and in accordance
with its terms and conditions as amended from time to time and with
such additional benefits as may be agreed with the Company from time
to time.
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<PAGE> 10
5.5 The Executive shall be entitled to benefits under the private health
care scheme currently operated by the Company (a guide to membership
of which is attached as Annex 2) or to a scheme offering broadly
equivalent benefits to the Executive as the Company shall determine.
5.6 The Executive shall be entitled to an annual private medical
examination at the cost of the Company.
5.7 The Executive shall, if the Managing Director so determines, be
entitled to a mobile phone including payment of the coast of all
charges relating to the rental or use thereof.
6. HOLIDAYS
6.1 The Executive shall be entitled to 28 working days holiday (and any
public/bank holidays) in each holiday year such holidays to be taken
at such time or times as the Board shall agree. The Company's
holiday year runs from 1 January. The Executive may not carry any
unused part of his holiday entitlement to a subsequent holiday year
or claim pay in lieu thereof without the prior consent of the
Managing Director
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<PAGE> 11
6.2 In the holiday year during which the Executive's Appointment
terminates the Executive shall be entitled to a rateable proportion
of his annual holiday entitlement. Save in the case of dismissal on
one or more of the grounds set out in Clause 12.1 or 12.3 of this
agreement (in which case the Executive will have no holiday
entitlement) upon the termination of the Executive's Appointment the
Executive shall be entitled to salary in lieu of any outstanding
holiday entitlement. If the Executive has taken more than his
rateable holiday entitlement he will be required to repay ( including
by way of deduction from any moneys which would otherwise be payable
to the Executive upon the termination of the Appointment) to the
Company any salary received in respect of the excess.
7. ILLNESS
If the Executive shall at any time be prevented by illness (including
mental disorder) or accident from performing his duties and provided that he
shall if required furnish the Company with evidence satisfactory to it of such
incapacity and its cause, he shall receive his full remuneration for the period
of such incapacity up to a maximum of six months (either continuous or
comprising a number of broken periods) in any period of twelve months but
thereafter shall not, unless otherwise agreed by the Board, be entitled to
remuneration for as long as such incapacity shall continue. Payments will be
inclusive of statutory benefits and the Company shall be entitled to deduct
the amount of any other State Benefit to which the Executive may be entitled
whether or not a claim is made.
8. CONFIDENTIAL INFORMATION
The Executive shall not either during his employment with the Company or
any other Group Company (otherwise than in the performance of his duties) or
afterwards use for his own or any other persons benefit or divulge or
communicate to any other
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<PAGE> 12
person any trade or business secret or other information of the Company or
any Group Companies (or its or their customers) without the written
consent of the Company or the relevant Group Companies as appropriate or
as required by law PROVIDED that the Executive may disclose any such
information in the ordinary course of business if it is in the best
interests of the Company to do so. Such information includes without
limitation:
8.1 business methods and information of the Company and/or any Group
Companies including prices charged, discounts given to customers or
obtained from suppliers, transport rates, marketing and advertising
programmes, costings, budgets, turnover, sales targets or other
unpublished financial information;
8.2 lists and particulars of the Company's and/or any Group Companies'
suppliers and customers and the individual contacts at such
suppliers and customers;
8.3 manufacturing or production processes and knowhow employed by the
Company and/or any Group Companies or its or their suppliers; and
8.4 details as to the design of the Company's and/or any Group
Companies' or its or their suppliers products and inventions or
developments relating to future products.
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<PAGE> 13
Upon termination of the Executive's employment he will forthwith return
all documents or other carriers of information in his possession, custody
or control which contain records of such information and all property in
the Executive's possession, custody or control belonging to the Company
and/or any Group Companies or its or their customers or suppliers.
This restriction shall apply without limit in point of time but shall
cease to apply to information or knowledge which shall come (otherwise
than by breach of this Clause) into the public domain.
9. RESTRICTIVE COVENANTS
9.1 Except with the prior written consent of the Company the Executive
shall not for a period of 9 months after the termination of the
Executive's employment within the United Kingdom directly or
indirectly set up, carry on, be employed in, provide services to, be
associated with or be engaged or interested in, whether as director,
employee, principal, promoter, investor, agent, consultant or
otherwise (except as the holder for investment of securities dealt
in on a recognised Stock Exchange representing not more than three
per cent. of each class of any shares so quoted in respect of any
company) any business which at the date of termination of the
Executive's employment, is engaged, interested or involved in the
manufacture, sale, supply or provision of chemicals, fine chemicals
or pharmaceuticals or any other goods or services sold or supplied
by the
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<PAGE> 14
Company and/or any Group Companies at the time of the termination of
the Executive's employment (the "RESTRICTED GOODS/SERVICES")
PROVIDED always that nothing in this sub-Clause 9.1 shall prevent
the Executive from being engaged interested or involved in the sale
supply or provision of the Restricted Goods/Services or any of them
directly to members of the general public unless at the time of
termination of the Executive's employment the Company and/or any of
the Group Companies are engaged interested or involved in the sale
supply or provision of the Restricted Goods/Services or any of them
directly to members of the general public for their own use.
9.2 Except with the prior written consent of the Company the Executive
shall not for a period of two years after the termination of the
Executive's employment in relation to the Restricted Goods/Services
or any of them directly or indirectly on his own behalf or on behalf
of any other person
9.2.1 solicit or canvass the custom of or as a separate
obligation
9.2.2 deal with any person who at any time during the period
of 12 months prior to the termination of the Executive's
employment was a customer of the Company and/or any
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<PAGE> 15
Group Companies or a potential customer with whom the Company and/or
any Group Companies had dealings with a view to obtaining business.
9.3 Except with the prior written consent of the Company the Executive
shall not for a period of 12 months after the termination of the
Executive's employment directly or indirectly on his own behalf or
on behalf of any person employ, solicit or entice away or endeavour
to employ, solicit or entice away any person who is at the date of
termination or was at any time during the period of 12 months prior
to the termination of the Executive's employment a director of the
Company and/or any Group Companies or employed by the Company and/or
any Group Companies in a technical, managerial or sales position.
9.4 Except with the prior written consent of the Company, the Executive
shall not in respect of the manufacture, sale, supply or provision
of the Restricted Goods/Services or any of them use the name or
words "Sterling Organics", "SepraChem" or "ChiRex" or any other name
or words confusingly similar in any country in which
9.4.1 at the time of the termination of the Executive's
employment the Company and/or any Group Companies has
registered or applied to register such name or names or
any symbol associated therewith as a trade or service
mark; or
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<PAGE> 16
9.4.2 at any time during the period of 5 years prior to such
termination the Company and/or any Group Companies has
sold the Restricted Goods/Services or any of them or has
otherwise used the trade/service mark "Sterling
Organics", "SepraChem" or "ChiRex".
Without prejudice to any statutory, common law or other rights this
restriction shall cease to apply in each relevant country after 5
years from the date upon which the Company and/or any Group
Companies has ceased to have a valid registration for or ceased to
use the relevant trade/service mark (whichever is the later) in that
country other than as a result of its sale or assignment.
9.5 Each covenant and undertaking contained in this Clause 9 shall be
read and construed independently of the other covenants and
undertakings and if one or more shall be held to be invalid as an
unreasonable restraint of trade or for any other reason the
remaining covenants and undertakings shall be valid to the extent
that they are not held to be so invalid.
9.6 Whilst the covenants and undertakings in this clause 9 are
considered by the parties to be fair and reasonable in all the
circumstances and required for the protection of the Company's
business and commercial interests if one or more should be held
invalid as an unreasonable restraint
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of trade or for any other reason but would have been valid if part
of the wording had been deleted the said covenants and undertakings
shall apply with such deletions as may be necessary to make them
valid and effective.
10. GARDEN LEAVE
Upon notice to terminate the employment being given by the Company or the
Executive then if requested by the Company the Executive shall:-
10.1 forthwith return all documentation, articles or property in his
possession, custody or control of the Company and/or any Group
Companies;
10.2 forthwith return all documentation or articles which contain records
of confidential information concerning the business of the Company
and/or any Group Companies;
10.3 not during the notice period enter onto the premises of the Company
and/or any Group Companies without the prior written consent of the
Company and/or the relevant Group Companies;
10.4 not during the notice period contact or deal with the Company's
and/or any Group Companies' customers suppliers or employees; and
10.5 not during the notice period set up, carry on, be employed in,
provide services to, be associated with, or be engaged or interested
in whether as
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director, employee, principal, agent or otherwise howsoever (save as
a shareholder of not more than three per cent. of any public company
whose shares are quoted on any recognised Stock Exchange) any other
business which is or is intended or about to be engaged concerned or
involved in the manufacture sale supply or provision of the
Restricted Goods/Services or any of them.
PROVIDED that during the notice period the Executive's salary and other
contractual financial benefits are continued to be paid by or on behalf of
the Company.
For the avoidance of doubt it is agreed that:-
(1) the Executive's other duties and obligations whether contractual or
otherwise and which are not inconsistent with the terms of this
Clause shall continue in full force and effect during the notice
period; and
(2) the Company has no duty to provide the Executive with work during
the period of his employment and in particular but not by way of
limitation during the notice period.
11. DESIGNS AND INVENTIONS
11.1 All designs, inventions, programs discoveries or improvements
("Designs and Inventions") conceived apprehended or learned by the
Executive during the course of or arising out of the Appointment
(whether alone or together with any other person or
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persons) and which concern or are applicable to products or articles
manufactured or sold by or to services provided by the Company
and/or any company in the Group shall be the exclusive property of
the Company.
11.2 Any such Designs and Inventions shall be disclosed to the Company
whether conceived apprehended or learned by the Executive during the
course of or after the termination of the Appointment.
11.3 The Executive shall at all times whether during the course of or
after the termination of the Appointment:-
11.3.1 not without the prior written consent of the Company
apply for any patent or design registration as the case
may be either in the United Kingdom or in any other part
of the world for any such Design or Invention so
conceived or made by him;
11.3.2 if and whenever required by the Company
to do so (and in such manner as the
Company shall in its sole discretion
decide) apply as a nominee of or jointly
with the Company for patent or design
registration in the United Kingdom and as
the Company may require any other part of
the world for any such Design or
Invention so conceived or made by him and
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shall sign all such documents and do all such things as
may be necessary effectively to vest all applications at
any time and from time to time pending and all resulting
patents and design registration when granted and all
right title and interest to and in the same in the
Company absolutely as sole beneficial owner or as the
Company may require; and
11.3.3 upon demand by the Company sign all such documents
execute all such deeds and do all such things as may
be necessary for the purpose of obtaining patent or
design registration for any such Designs or
Inventions in any country in the world and for
effectively vesting all and any such patents and
design registration in the Company as sole beneficial
owner or as the Company may require.
11.4 The Executive irrevocably appoints and authorises the Company to act
as his attorney and agent for the purposes of executing and/or
signing all or any such documents as may be required to give the
Company (and/or its nominee and/or assignee) the full benefit of the
provisions of this Clause.
11.5 The Company shall pay all expenses in connection with any
application for patent or design registration made by the Executive
as nominee for
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or jointly with the Company pursuant to this Clause.
11.6 The Company shall indemnify the Executive against all liabilities to
third parties in connection with or arising out of all and any
applications and all and any resulting patents and design
registrations which may be granted if and to the extent that any
such liabilities arise from the act or default of the Company.
11.7 It shall be presumed (but subject to proof to the contrary) that the
subject matter of any application for a patent or design
registration filed by the Executive or any assignee or agent of the
Executive within 12 months after the termination of the Appointment
and relating to goods or services of a kind with which the Executive
was concerned in the course of his duties is a Design or Invention
made by the Executive during the currency of the Appointment.
12. TERMINATION
12.1 The Executive's Appointment may be terminated immediately by the
Company by notice in writing if at any time:-
12.1.1 the Executive remains in breach of any of the provisions
of this agreement fourteen days after receiving notice
from the Company to rectify such breach;
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12.1.2 the Executive is guilty of any serious misconduct or
wilful neglect in the discharge of his duties under the
Appointment;
12.1.3 the Executive is adjudicated bankrupt or makes any
arrangement or composition with his creditors;
12.1.4 the Executive is convicted of any criminal offence
(other than minor offences under the Road Traffic Acts)
which in the reasonable opinion of the Board materially
and/or adversely affects his ability to continue in
office as an employee or officer of the Company
(including bringing himself or the Company into
disrepute);
12.1.5 the Executive refuses or fails to agree to accept
employment on the terms and in the circumstances
specified in clauses 12.5 or 12.6 of this agreement;
12.1.6 the Executive ceases to be a director of any Group
Company or becomes prohibited by law from being a
director of any Group Company; or
12.2 Upon termination under Clause 12.1, the Company shall not be obliged
to make any further payment to
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the Executive beyond the amount of any remuneration
actually due to the date of such termination.
12.3 Upon the termination of the Appointment for whatever reason:-
12.3.1 the Executive shall upon the request of the Company
resign from all (if any) offices held by him in the
Company or any company in the Group and all (if any)
trusteeships and/or directorships of trustee companies
held by him of any pension scheme or other trust
established or subscribed to/by the Company and any
company in the Group and in the event of his failure to
do so the Company is hereby irrevocably authorised to
appoint some person in his name and on his behalf to
execute any documents and do all things necessary to
constitute and give effect to such resignations;
12.3.2 the Executive shall deliver up to the Company all
correspondence, documents and other papers (including
copies) and all other property belonging to the Company
or any company in the Group (including the car specified
in Clause 5) which may be in the Executive's possession
or under his control;
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12.3.3 the Executive shall if so requested send to the Company
Secretary a signed statement confirming that he has
complied with sub-Clause 12.3.2 above.
12.4 The Executive shall not at any time after the termination of the
Appointment represent himself as being in any way connected with or
interested in the Business of the Company or any company in the
Group.
12.5 If the Company is wound up for the purposes of reconstruction or
amalgamation the Executive shall not as a result or by reason of any
termination of the Appointment or the redefinition of his duties
within the Company or the Group arising or resulting or from any
reorganisation of the Group have any claim against the Company for
damages for termination of the Appointment or otherwise so long as
he shall be offered employment with any concern or undertaking
resulting from such reconstruction or amalgamation on terms and
conditions no less favourable to the Executive than the terms
contained in this agreement.
12.6 If the Executive shall at any time have been offered but shall have
unreasonably refused or failed to agree to the transfer of this
agreement by way of novation to a company which has acquired or
agreed to acquire the whole or substantially the whole of the
undertaking and assets or not less than fifty per cent. of the
equity share capital of
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the Company the Executive shall have no claim against the Company by
reason of the termination of the Appointment by the Company on three
months' notice to the Executive given within one month of such
offer.
12.7 If the Company or the Executive terminates the Appointment the
Company may in its absolute discretion make payment in lieu of
salary and other benefits to which the Executive is entitled under
this agreement for all or part of any period of notice required to
be given by either party.
12.8 The Company shall have the right to suspend the Executive from his
duties and not to require the Executive to attend work or be
provided with work during any period of notice whether given by the
Company or the Executive. The Company shall not be required to give
any reason for exercising its rights under this Clause but shall be
required to provide the salary and other benefits to the Executive
during the relevant period.
13. GENERAL
13.1 Notices may be given by either party by letter or telefacsimile
message addressed to the other party at (in the case of the Company)
its registered office for the time being and (in the case of the
Executive) his last known address and any such notice given by
letter shall be deemed to have been given at the time at which the
letter would be delivered by first class post.
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13.2 Subject to the continuous period of employment of the Executive
specified in the Schedule, this agreement is in substitution for all
previous contracts of service between the Company and/or any company
in the Group and the Executive (if any) and any such agreements
shall be deemed to have been terminated by mutual consent as from
the date on which the Appointment commenced.
14. ENTIRE AGREEMENT
This agreement sets out the entire agreement and understanding of the
parties in relation to the Executive's employment and supersedes any prior
agreements or understandings in relation to other Executive's employment
by the Company or any member of the Group.
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SCHEDULE 1
Written Statement of Main Terms and Conditions of Employment as required by
Section 1 of the Employment Protection (Consolidation) Act 1978
1. Parties
The names and addresses of the Company and Executive are set out on page 1
of this agreement.
2. Commencement of continuity of employment
the executive's continuous period commenced on 4 April 1972. The
previous employment of the Executive with previous employers counts as
part of the Executive's employment.
3. Job Title
The job title of the Executive is Director of Sterling Organics
Limited with responsibility for business development including
identification and commercial development of trade business opportunities.
4. Place of work
The Executive will be based at the Company's offices at Dudley, Near
Cramlington, Tyne & Wear but will be required to work at such other
offices of the Company or any company in the Group as the Board shall
decide from time to time.
5. Remuneration
See Clause 4 of this agreement.
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6. Hours of work
The hours of work shall be such hours as may be required for the proper
performance of the Executive's duties under this agreement.
7. Holidays
See Clause 6 of this agreement.
8. Notice Period
See Clause 2.2 of this agreement.
9. Sick Pay
There are no terms and conditions relating to incapacity for work save as
set out in Clause 7 of this agreement.
10. Retirement
The normal age of retirement is 65.
11. Pensions
See Clause 5 of this agreement. A contracting out certificate is in force
in respect of the employment.
12. Grievance Procedure
The Executive should refer any grievance he may have about his employment
or about any disciplinary decision relating to him to the Chairman of the
Board in writing. The reference will be dealt with by a majority present
at a Board meeting whose decision shall be final.
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<PAGE> 29
13. Disciplinary Rules
There are no disciplinary rules relating to the Appointment other than
those set out in paragraph 12 of this Schedule.
14. Miscellaneous
There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
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<PAGE> 30
IN WITNESS of which the parties have executed this DEED as follows:
EXECUTED as a DEED by )
CROSSCO (157) LIMITED by these )
signatures and DELIVERED )
Director /s/ Alan R. Clark
Director/Secretary /s/ David F. Raynor
EXECUTED as a DEED and )
DELIVERED BY JOHN GRAHAM THORPE ) /s/ J. G. Thorpe
in the presence of: )
/s/ J. E. Weir Signature of witness
J. E. Weir Name of witness
7 St. Johns Court Address of witness
Backworth Village
Newcastle Upon Tyne
Financial Director Occupation of witness
29
<PAGE> 1
Dated 11 March 1996
- ------------------------------------------------------------------------
(1) CROSSCO (157) LIMITED
- and -
(2) JOHN EDWARD WEIR
SERVICE AGREEMENT
DIBB LUPTON
BROOMHEAD
---------SOLICITORS--------
<PAGE> 2
THIS AGREEMENT is made the 11th day of March 1996
B E T W E E N :
(1) CROSSCO (157) LIMITED (Company No. 3080257) whose registered office is
at Cross House, Westgate Road, Newcastle-upon-Tyne NE99 1SB (the
"COMPANY");
AND
(2) JOHN EDWARD WEIR of 7 St. John's Court, Backworth, Newcastle-upon-Tyne
NE27 0HB (the "EXECUTIVE").
IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this agreement and the Schedule to this agreement where it
is appropriate in context singular words shall include the
plural and vice versa. Words defined below shall have the
following respective meanings:
"Appointment" means the employment of the Executive under the
terms of this agreement and the Schedule;
"Board" means the board of directors of the Company from
time to time;
"Business" means the business of the manufacture, sale, supply
or provision of chemicals, fine
1
<PAGE> 3
chemicals or pharmaceutical products or research
and development of the same carried on by the
Company and any company in the Group from time
to time;
"ChiRex" means ChiRex Inc., a Delaware corporation with
its principal office at 33 Locke Drive,
Marlborough MA 01752, the Company's holding
company for the time being;
"ChiRex Board" means the board of directors of ChiRex from
time to time;
"Group" or means the Company and all companies which are
"Group for the time being either a holding company of
Companies" the Company or a subsidiary or associated
company of either the Company or any such
holding company;
"Managing means the managing director of the Company
Director" from time to time;
"associated in relation to a company means any company in
company" which that company or any holding company of
it is directly or indirectly
2
<PAGE> 4
beneficially interested in ten per cent. or more
of the relevant company's issued ordinary share
capital; and
"subsidiary have the meanings ascribed to them by Section 736
company" and of the Companies Act 1985 or any statutory
"holding modification or re-enactment thereof.
company"
1.2 This agreement shall be read and construed without reference to
its Clause headings which are included for convenience only.
1.3 This agreement shall be construed and governed by English Law and
the parties submit to the non-exclusive jurisdiction of the
English Courts.
1.4 References to any legislation shall be construed as references to
legislation as from time to time amended re-enacted or
consolidated.
1.5 References to Clauses, the parties and the Schedule are
respectively to Clauses of and the parties and the Schedule to
this agreement.
1.6 Save as otherwise defined words and expressions shall be construed
in accordance with the Interpretation Act 1978.
3
<PAGE> 5
2. APPOINTMENT AND TERM
2.1 The Company shall employ the Executive and the Executive shall be
employed by the Company as Finance Director of Sterling Organics
Limited.
2.2 The Appointment shall commence on the date hereof (subject to any
period of continuous employment provided in the Schedule) and
subject to the provisions of Clause 12.1 of this agreement shall
continue until terminated by at least 12 months written notice given
by either party to the other.
2.3 The Executive shall report to such person as is nominated by the
Managing Director.
3. DUTIES
3.1 The Executive shall during the Appointment:-
3.1.1 be responsible directly to the Board and carry out all
such powers and duties and observe all such directions
as the Board may from time to time reasonably assign to
him;
3.1.2 devote the whole of his time and attention and use his
best endeavours to promote the interests of the Company
and the Group and shall not engage in any activity which
may be or become harmful to or contrary to the interests
of the Company or any Group Company;
4
<PAGE> 6
3.1.3 in the discharge of his duties and in the exercise of
his powers observe and comply with all reasonable
resolutions, regulations and directions from time to
time made or given by the Board;
3.1.4 travel and work within and outside the United Kingdom as
may reasonably be required by the Board from time to
time and conform to such hours of work as the Board may
reasonably require PROVIDED that the parties shall
negotiate appropriate additional remuneration if the
Executive is required to travel and work outside the
United Kingdom for more than 16 weeks in any calendar
year; and
3.1.5 accept (if offered) appointment as a director of any
member of the Group and from time to time as requested
by the Board (but not otherwise) resign any such
appointment without claim.
3.2 During the Appointment the Executive shall not, without the prior
consent of the ChiRex Board, have any interest in any trade,
business or occupation which is similar to the Business whether or
not such trade, business or occupation is conducted for his profit
or personal gain or that of any member of his family or household or
any relative by marriage (save as a shareholder of not more than
5
<PAGE> 7
three per cent. of any public company whose shares
are quoted on any recognised Stock Exchange).
3.3 The Executive shall not make copies of any documents, memoranda or
correspondence, computer disks, video tapes or any similar matter
other than in the performance of his duties under this agreement or
remove any such items from the premises of the Company or any Group
Company except in the proper performance of his duties.
3.4 The Executive shall not make any public statement to the media or
otherwise relating to the affairs of the Company or any Company
Group without the prior written consent of the Board.
4. SALARY AND BONUS
4.1 During the Appointment the Company shall pay to the Executive a
salary at the rate of(pound)55,650 per annum such salary to accrue
from day to day and to be inclusive of all or any sums receivable by
the Executive as director's fees from any company in the Group. The
salary shall be payable by equal monthly instalments in arrears on
the 27th of each month.
4.2 The Executive shall be entitled to participate each year during the
term of this Agreement in a profit related bonus scheme to be
finalised by the board on the basis that the Executive shall receive
in relation to each calendar year he participates in
6
<PAGE> 8
the scheme (the first such payment being in relation to the whole of
the calendar year 1996):
4.2.1 a sum equal to one per cent. of the salary payable
under Clause 4.1 as varied from time to time for
every one per cent. by which the level of earnings
before interest charges and tax ("EBIT") of ChiRex
exceeds the projected level of EBIT of ChiREx set out
in the business plan of ChiRex approved the ChiRex
Board and after expiry of the term of that business
plan, any annual business plan of ChiRex, up to a
maximum of 25 per cent.; and
4.2.2 such additional amount as the ChiRex Board in its
absolute discretion deems fit where the maximum amount
is payable pursuant to Clause 4.2.1.
4.2 The Executive's salary shall be subject to review on each
anniversary of the first day of the month in which this agreement is
signed.
5. OTHER BENEFITS AND EXPENSES
5.1 The Executive shall be reimbursed, subject to the production of
appropriate receipts or vouchers, all reasonable travelling, hotel
and other out of pocket expenses wholly, necessarily and exclusively
incurred by him in the discharge of his duties.
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<PAGE> 9
5.2 Whilst the Executive is legally entitled to drive the Company shall
provide the Executive with a motor car of the type specified on List
A and otherwise in accordance with the car policy annexed as Annex 1
or an equivalent motor car. The Executive shall also be permitted to
use the motor car for his own private purposes, including use on
holiday (and use by other drivers who are not employees of the
Company who are notified in writing to the Company with a copy of
the current driving license of such person and are licensed to drive
and insured for that purpose).
5.3 The Company will pay all petrol and all other running costs incurred
by the Executive on Company business and such costs incurred in
relation to private mileage an allowance of(pound)1,200 to cover
using the motor car referred to in Clause 5.2. The Executive shall
at all times conform with all regulations which may from time to
time be imposed by the Company with regard to motor cars provided by
the Company for use by its officers or employees and shall return
the car to the Company as directed on the termination of the
Appointment.
5.4 During the Appointment the Executive shall be entitled to be a
member of the Company's pension scheme subject to and in accordance
with its terms and conditions as amended from time to time and with
such additional benefits as may be agreed with the Company from time
to time.
8
<PAGE> 10
5.5 The Executive shall be entitled to benefits under the private health
care scheme currently operated by the Company (a guide to membership
of which is attached as Annex 2) or to a scheme offering broadly
equivalent benefits to the Executive as the Company shall determine.
5.6 The Executive shall be entitled to an annual private medical
examination at the cost of the Company.
5.7 The Executive shall, if the Managing Director so determines, be
entitled to a mobile phone including payment of the coast of all
charges relating to the rental or use thereof.
6. HOLIDAYS
6.1 The Executive shall be entitled to 28 working days holiday (and any
public/bank holidays) in each holiday year such holidays to be taken
at such time or times as the Board shall agree. The Company's
holiday year runs from 1 January. The Executive may not carry any
unused part of his holiday entitlement to a subsequent holiday year
or claim pay in lieu thereof without the prior consent of the
Managing Director
9
<PAGE> 11
6.2 In the holiday year during which the Executive's Appointment
terminates the Executive shall be entitled to a rateable proportion
of his annual holiday entitlement. Save in the case of dismissal on
one or more of the grounds set out in Clause 12.1 or 12.3 of this
agreement (in which case the Executive will have no holiday
entitlement) upon the termination of the Executive's Appointment the
Executive shall be entitled to salary in lieu of any outstanding
holiday entitlement. If the Executive has taken more than his
rateable holiday entitlement he will be required to repay ( including
by way of deduction from any moneys which would otherwise be payable
to the Executive upon the termination of the Appointment) to the
Company any salary received in respect of the excess.
7. ILLNESS
If the Executive shall at any time be prevented by illness (including
mental disorder) or accident from performing his duties and provided that he
shall if required furnish the Company with evidence satisfactory to it of such
incapacity and its cause, he shall receive his full remuneration for the period
of such incapacity up to a maximum of six months (either continuous or
comprising a number of broken periods) in any period of twelve months but
thereafter shall not, unless otherwise agreed by the Board, be entitled to
remuneration for as long as such incapacity shall continue. Payments will be
inclusive of statutory benefits and the Company shall be entitled to deduct
the amount of any other State Benefit to which the Executive may be entitled
whether or not a claim is made.
8. CONFIDENTIAL INFORMATION
The Executive shall not either during his employment with the Company or
any other Group Company (otherwise than in the performance of his duties) or
afterwards use for his own or any other persons benefit or divulge or
communicate to any other
10
<PAGE> 12
person any trade or business secret or other information of the Company or
any Group Companies (or its or their customers) without the written
consent of the Company or the relevant Group Companies as appropriate or
as required by law PROVIDED that the Executive may disclose any such
information in the ordinary course of business if it is in the best
interests of the Company to do so. Such information includes without
limitation:
8.1 business methods and information of the Company and/or any Group
Companies including prices charged, discounts given to customers or
obtained from suppliers, transport rates, marketing and advertising
programmes, costings, budgets, turnover, sales targets or other
unpublished financial information;
8.2 lists and particulars of the Company's and/or any Group Companies'
suppliers and customers and the individual contacts at such
suppliers and customers;
8.3 manufacturing or production processes and knowhow employed by the
Company and/or any Group Companies or its or their suppliers; and
8.4 details as to the design of the Company's and/or any Group
Companies' or its or their suppliers products and inventions or
developments relating to future products.
11
<PAGE> 13
Upon termination of the Executive's employment he will forthwith return
all documents or other carriers of information in his possession, custody
or control which contain records of such information and all property in
the Executive's possession, custody or control belonging to the Company
and/or any Group Companies or its or their customers or suppliers.
This restriction shall apply without limit in point of time but shall
cease to apply to information or knowledge which shall come (otherwise
than by breach of this Clause) into the public domain.
9. RESTRICTIVE COVENANTS
9.1 Except with the prior written consent of the Company the Executive
shall not for a period of 9 months after the termination of the
Executive's employment within the United Kingdom directly or
indirectly set up, carry on, be employed in, provide services to, be
associated with or be engaged or interested in, whether as director,
employee, principal, promoter, investor, agent, consultant or
otherwise (except as the holder for investment of securities dealt
in on a recognised Stock Exchange representing not more than three
per cent. of each class of any shares so quoted in respect of any
company) any business which at the date of termination of the
Executive's employment, is engaged, interested or involved in the
manufacture, sale, supply or provision of chemicals, fine chemicals
or pharmaceuticals or any other goods or services sold or supplied
by the
12
<PAGE> 14
Company and/or any Group Companies at the time of the termination of
the Executive's employment (the "RESTRICTED GOODS/SERVICES")
PROVIDED always that nothing in this sub-Clause 9.1 shall prevent
the Executive from being engaged interested or involved in the sale
supply or provision of the Restricted Goods/Services or any of them
directly to members of the general public unless at the time of
termination of the Executive's employment the Company and/or any of
the Group Companies are engaged interested or involved in the sale
supply or provision of the Restricted Goods/Services or any of them
directly to members of the general public for their own use.
9.2 Except with the prior written consent of the Company the Executive
shall not for a period of two years after the termination of the
Executive's employment in relation to the Restricted Goods/Services
or any of them directly or indirectly on his own behalf or on behalf
of any other person
9.2.1 solicit or canvass the custom of or as a separate
obligation
9.2.2 deal with any person who at any time during the period
of 12 months prior to the termination of the Executive's
employment was a customer of the Company and/or any
13
<PAGE> 15
Group Companies or a potential customer with whom the Company and/or
any Group Companies had dealings with a view to obtaining business.
9.3 Except with the prior written consent of the Company the Executive
shall not for a period of 12 months after the termination of the
Executive's employment directly or indirectly on his own behalf or
on behalf of any person employ, solicit or entice away or endeavour
to employ, solicit or entice away any person who is at the date of
termination or was at any time during the period of 12 months prior
to the termination of the Executive's employment a director of the
Company and/or any Group Companies or employed by the Company and/or
any Group Companies in a technical, managerial or sales position.
9.4 Except with the prior written consent of the Company, the Executive
shall not in respect of the manufacture, sale, supply or provision
of the Restricted Goods/Services or any of them use the name or
words "Sterling Organics", "SepraChem" or "ChiRex" or any other name
or words confusingly similar in any country in which
9.4.1 at the time of the termination of the Executive's
employment the Company and/or any Group Companies has
registered or applied to register such name or names or
any symbol associated therewith as a trade or service
mark; or
14
<PAGE> 16
9.4.2 at any time during the period of 5 years prior to such
termination the Company and/or any Group Companies has
sold the Restricted Goods/Services or any of them or has
otherwise used the trade/service mark "Sterling
Organics", "SepraChem" or "ChiRex".
Without prejudice to any statutory, common law or other rights this
restriction shall cease to apply in each relevant country after 5
years from the date upon which the Company and/or any Group
Companies has ceased to have a valid registration for or ceased to
use the relevant trade/service mark (whichever is the later) in that
country other than as a result of its sale or assignment.
9.5 Each covenant and undertaking contained in this Clause 9 shall be
read and construed independently of the other covenants and
undertakings and if one or more shall be held to be invalid as an
unreasonable restraint of trade or for any other reason the
remaining covenants and undertakings shall be valid to the extent
that they are not held to be so invalid.
9.6 Whilst the covenants and undertakings in this clause 9 are
considered by the parties to be fair and reasonable in all the
circumstances and required for the protection of the Company's
business and commercial interests if one or more should be held
invalid as an unreasonable restraint
15
<PAGE> 17
of trade or for any other reason but would have been valid if part
of the wording had been deleted the said covenants and undertakings
shall apply with such deletions as may be necessary to make them
valid and effective.
10. GARDEN LEAVE
Upon notice to terminate the employment being given by the Company or the
Executive then if requested by the Company the Executive shall:-
10.1 forthwith return all documentation, articles or property in his
possession, custody or control of the Company and/or any Group
Companies;
10.2 forthwith return all documentation or articles which contain records
of confidential information concerning the business of the Company
and/or any Group Companies;
10.3 not during the notice period enter onto the premises of the Company
and/or any Group Companies without the prior written consent of the
Company and/or the relevant Group Companies;
10.4 not during the notice period contact or deal with the Company's
and/or any Group Companies' customers suppliers or employees; and
10.5 not during the notice period set up, carry on, be employed in,
provide services to, be associated with, or be engaged or interested
in whether as
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<PAGE> 18
director, employee, principal, agent or otherwise howsoever (save as
a shareholder of not more than three per cent. of any public company
whose shares are quoted on any recognised Stock Exchange) any other
business which is or is intended or about to be engaged concerned or
involved in the manufacture sale supply or provision of the
Restricted Goods/Services or any of them.
PROVIDED that during the notice period the Executive's salary and other
contractual financial benefits are continued to be paid by or on behalf of
the Company.
For the avoidance of doubt it is agreed that:-
(1) the Executive's other duties and obligations whether contractual or
otherwise and which are not inconsistent with the terms of this
Clause shall continue in full force and effect during the notice
period; and
(2) the Company has no duty to provide the Executive with work during
the period of his employment and in particular but not by way of
limitation during the notice period.
11. DESIGNS AND INVENTIONS
11.1 All designs, inventions, programs discoveries or improvements
("Designs and Inventions") conceived apprehended or learned by the
Executive during the course of or arising out of the Appointment
(whether alone or together with any other person or
17
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persons) and which concern or are applicable to products or articles
manufactured or sold by or to services provided by the Company
and/or any company in the Group shall be the exclusive property of
the Company.
11.2 Any such Designs and Inventions shall be disclosed to the Company
whether conceived apprehended or learned by the Executive during the
course of or after the termination of the Appointment.
11.3 The Executive shall at all times whether during the course of or
after the termination of the Appointment:-
11.3.1 not without the prior written consent of the Company
apply for any patent or design registration as the case
may be either in the United Kingdom or in any other part
of the world for any such Design or Invention so
conceived or made by him;
11.3.2 if and whenever required by the Company
to do so (and in such manner as the
Company shall in its sole discretion
decide) apply as a nominee of or jointly
with the Company for patent or design
registration in the United Kingdom and as
the Company may require any other part of
the world for any such Design or
Invention so conceived or made by him and
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<PAGE> 20
shall sign all such documents and do all such things as
may be necessary effectively to vest all applications at
any time and from time to time pending and all resulting
patents and design registration when granted and all
right title and interest to and in the same in the
Company absolutely as sole beneficial owner or as the
Company may require; and
11.3.3 upon demand by the Company sign all such documents
execute all such deeds and do all such things as may
be necessary for the purpose of obtaining patent or
design registration for any such Designs or
Inventions in any country in the world and for
effectively vesting all and any such patents and
design registration in the Company as sole beneficial
owner or as the Company may require.
11.4 The Executive irrevocably appoints and authorises the Company to act
as his attorney and agent for the purposes of executing and/or
signing all or any such documents as may be required to give the
Company (and/or its nominee and/or assignee) the full benefit of the
provisions of this Clause.
11.5 The Company shall pay all expenses in connection with any
application for patent or design registration made by the Executive
as nominee for
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or jointly with the Company pursuant to this Clause.
11.6 The Company shall indemnify the Executive against all liabilities to
third parties in connection with or arising out of all and any
applications and all and any resulting patents and design
registrations which may be granted if and to the extent that any
such liabilities arise from the act or default of the Company.
11.7 It shall be presumed (but subject to proof to the contrary) that the
subject matter of any application for a patent or design
registration filed by the Executive or any assignee or agent of the
Executive within 12 months after the termination of the Appointment
and relating to goods or services of a kind with which the Executive
was concerned in the course of his duties is a Design or Invention
made by the Executive during the currency of the Appointment.
12. TERMINATION
12.1 The Executive's Appointment may be terminated immediately by the
Company by notice in writing if at any time:-
12.1.1 the Executive remains in breach of any of the provisions
of this agreement fourteen days after receiving notice
from the Company to rectify such breach;
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<PAGE> 22
12.1.2 the Executive is guilty of any serious misconduct or
wilful neglect in the discharge of his duties under the
Appointment;
12.1.3 the Executive is adjudicated bankrupt or makes any
arrangement or composition with his creditors;
12.1.4 the Executive is convicted of any criminal offence
(other than minor offences under the Road Traffic Acts)
which in the reasonable opinion of the Board materially
and/or adversely affects his ability to continue in
office as an employee or officer of the Company
(including bringing himself or the Company into
disrepute);
12.1.5 the Executive refuses or fails to agree to accept
employment on the terms and in the circumstances
specified in clauses 12.5 or 12.6 of this agreement;
12.1.6 the Executive ceases to be a director of any Group
Company or becomes prohibited by law from being a
director of any Group Company; or
12.2 Upon termination under Clause 12.1, the Company shall not be obliged
to make any further payment to
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the Executive beyond the amount of any remuneration
actually due to the date of such termination.
12.3 Upon the termination of the Appointment for whatever reason:-
12.3.1 the Executive shall upon the request of the Company
resign from all (if any) offices held by him in the
Company or any company in the Group and all (if any)
trusteeships and/or directorships of trustee companies
held by him of any pension scheme or other trust
established or subscribed to/by the Company and any
company in the Group and in the event of his failure to
do so the Company is hereby irrevocably authorised to
appoint some person in his name and on his behalf to
execute any documents and do all things necessary to
constitute and give effect to such resignations;
12.3.2 the Executive shall deliver up to the Company all
correspondence, documents and other papers (including
copies) and all other property belonging to the Company
or any company in the Group (including the car specified
in Clause 5) which may be in the Executive's possession
or under his control;
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<PAGE> 24
12.3.3 the Executive shall if so requested send to the Company
Secretary a signed statement confirming that he has
complied with sub-Clause 12.3.2 above.
12.4 The Executive shall not at any time after the termination of the
Appointment represent himself as being in any way connected with or
interested in the Business of the Company or any company in the
Group.
12.5 If the Company is wound up for the purposes of reconstruction or
amalgamation the Executive shall not as a result or by reason of any
termination of the Appointment or the redefinition of his duties
within the Company or the Group arising or resulting or from any
reorganisation of the Group have any claim against the Company for
damages for termination of the Appointment or otherwise so long as
he shall be offered employment with any concern or undertaking
resulting from such reconstruction or amalgamation on terms and
conditions no less favourable to the Executive than the terms
contained in this agreement.
12.6 If the Executive shall at any time have been offered but shall have
unreasonably refused or failed to agree to the transfer of this
agreement by way of novation to a company which has acquired or
agreed to acquire the whole or substantially the whole of the
undertaking and assets or not less than fifty per cent. of the
equity share capital of
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the Company the Executive shall have no claim against the Company by
reason of the termination of the Appointment by the Company on three
months' notice to the Executive given within one month of such
offer.
12.7 If the Company or the Executive terminates the Appointment the
Company may in its absolute discretion make payment in lieu of
salary and other benefits to which the Executive is entitled under
this agreement for all or part of any period of notice required to
be given by either party.
12.8 The Company shall have the right to suspend the Executive from his
duties and not to require the Executive to attend work or be
provided with work during any period of notice whether given by the
Company or the Executive. The Company shall not be required to give
any reason for exercising its rights under this Clause but shall be
required to provide the salary and other benefits to the Executive
during the relevant period.
13. GENERAL
13.1 Notices may be given by either party by letter or telefacsimile
message addressed to the other party at (in the case of the Company)
its registered office for the time being and (in the case of the
Executive) his last known address and any such notice given by
letter shall be deemed to have been given at the time at which the
letter would be delivered by first class post.
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13.2 Subject to the continuous period of employment of the Executive
specified in the Schedule, this agreement is in substitution for all
previous contracts of service between the Company and/or any company
in the Group and the Executive (if any) and any such agreements
shall be deemed to have been terminated by mutual consent as from
the date on which the Appointment commenced.
14. ENTIRE AGREEMENT
This agreement sets out the entire agreement and understanding of the
parties in relation to the Executive's employment and supersedes any prior
agreements or understandings in relation to other Executive's employment
by the Company or any member of the Group.
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SCHEDULE 1
Written Statement of Main Terms and Conditions of Employment as required by
Section 1 of the Employment Protection (Consolidation) Act 1978
1. Parties
The names and addresses of the Company and Executive are set out on page 1
of this agreement.
2. Commencement of continuity of employment
The Executive's continuous period commenced on 11 January 1971. The
previous employment of the Executive with previous employers counts as
part of the Executive's employment.
3. Job Title
The job title of the Executive is Finance Director of Sterling Organics
Limited.
4. Place of work
The Executive will be based at the Company's offices at Dudley, Near
Cramlington, Tyne & Wear but will be required to work at such other
offices of the Company or any company in the Group as the Board shall
decide from time to time.
5. Remuneration
See Clause 4 of this agreement.
26
<PAGE> 28
6. Hours of work
The hours of work shall be such hours as may be required for the proper
performance of the Executive's duties under this agreement.
7. Holidays
See Clause 6 of this agreement.
8. Notice Period
See Clause 2.2 of this agreement.
9. Sick Pay
There are no terms and conditions relating to incapacity for work save as
set out in Clause 7 of this agreement.
10. Retirement
The normal age of retirement is 65.
11. Pensions
See Clause 5 of this agreement. A contracting out certificate is in force
in respect of the employment.
12. Grievance Procedure
The Executive should refer any grievance he may have about his employment
or about any disciplinary decision relating to him to the Chairman of the
Board in writing. The reference will be dealt with by a majority present
at a Board meeting whose decision shall be final.
27
<PAGE> 29
13. Disciplinary Rules
There are no disciplinary rules relating to the Appointment other than
those set out in paragraph 12 of this Schedule.
14. Miscellaneous
There are no collective agreements in force which affect the terms and
conditions of the Executive's employment.
28
<PAGE> 30
IN WITNESS of which the parties have executed this DEED as follows:
EXECUTED as a DEED by )
CROSSCO (157) LIMITED by these )
signatures and DELIVERED )
Director /s/ Alan R. Clark
Director/Secretary /s/ David F. Raynor
EXECUTED as a DEED and )
DELIVERED by JOHN EDWARD WEIR ) /s/ John E. Weir
in the presence of: )
/s/ Robert Holmes Signature of witness
Robert Holmes Name of witness
117 The Meadow Address of witness
Leeds LS1 5JX
Solicitor Occupation of witness
29
<PAGE> 1
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is entered into
this 17th day of October, 1996 (the "Effective Date"), by and between Robert L.
Bratzler (the "Executive") and ChiRex Inc., a Delaware corporation (the
"Company").
WHEREAS the Executive has been employed by the Company since
1995 and currently serves as its Chairman of the Board of Directors and Chief
Executive Officer; and
WHEREAS the Executive and the Company have now determined that
it is in their mutual interests to terminate their employment relationship; and
WHEREAS the Executive and the Company have negotiated and
agreed to a final settlement of their respective rights, obligations and
liabilities; and
WHEREAS the Executive has tendered his resignation as an
active employee and as Chairman of the Board of Directors and Chief Executive
Officer (including any and all positions he holds with respect to subsidiaries
of the Company including InNova), effective on the Effective Date, which
resignation has been accepted by the Company.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Executive and the
Company hereby agree as follows:
<PAGE> 2
2
1. Severance Payment. In consideration of the Executive's
relinquishment of his positions of Chairman of the Board and Chief Executive
Officer, the Company shall pay the Executive a severance payment of $91,180,
which payment will be made promptly following the Revocation Period (as defined
in paragraph 14). The Executive acknowledges that such severance amount
represents the gross amount before all applicable federal, state and local
withholding taxes that are required to be deducted by the Company. This
severance payment represents the final and complete payment of all amounts owed
to the Executive by the Company for services rendered as an employee, except for
reimbursement of travel and other expenses.
2. Stock Options. The Company agrees that all stock options
currently held by the Executive, which permit him to acquire the Company's stock
at US $1.48 (the "Options"), shall be fully vested and immediately exercisable
notwithstanding any provision to the contrary contained in such Options.
Additionally, the Escrow Agreement dated March 11, 1996, among the Company, the
Executive and Broomco Secretarial Services Limited is hereby terminated. The
Company confirms that, so long as the Executive is a director of or consultant
to the Company, the
<PAGE> 3
3
90-day period during which options may be exercised or lost shall not apply to
the Options.
3. Office Space; Not an Employee. The Company shall provide
the Executive, at the Company's sole expense (other than any income tax
consequences that may result therefrom to the Executive), with suitable office
space and secretarial services selected by the Executive; provided, however,
that the aggregate cost of such office space and services shall not exceed
$1,000 per month. The Company shall provide this office space and services until
April 17, 1998 (the period from the Effective Date to April 17, 1998, being
herein called the "Applicable Period"), but shall cease providing such office
space and services if, and at such time as, the Executive becomes employed on a
full-time basis by another employer. Thereafter, the Company will be under no
legal or contractual obligation to continue to provide office space and services
to, or to enter into a lease with, the Executive. The Executive will be
permitted to use this office space for any purpose desired; provided, however,
that such purpose is lawful and does not violate the provisions contained within
this Agreement. The Executive agrees that he will not be employed by the Company
following the Effective Date and, while using the office
<PAGE> 4
4
space or otherwise, he shall not hold himself out to any person or entity as an
employee of the Company.
4. Benefits Continuation. During the Applicable Period, the
Company shall provide the Executive with medical, dental, disability and life
insurance benefits to the same extent and on the same terms and conditions as
those which the Executive was receiving immediately prior to the Effective Date,
or the Company will provide comparable benefits if the Executive is unable to
continue to participate in the Company's medical, dental, disability and life
insurance benefit plans. The Company's obligation to provide medical, dental,
disability and life insurance to the Executive shall terminate if the Executive
becomes employed on a full-time basis by another employer. If the Company's
obligation does not so terminate, April 17, 1998, shall be treated as the
"qualifying event" date under the Consolidated Omnibus Budget Reconstruction Act
of 1985. Except as provided herein, the Executive shall not participate in any
other Company benefit plan on or after the Effective Date.
5. Legal Costs. The Company agrees to reimburse the Executive
for his out-of-pocket costs for legal fees and expenses incurred in connection
with the review and negotiation of this Agreement and the Consulting Agreement
<PAGE> 5
5
(as defined below); provided, however, such costs shall not exceed $5,000 in the
aggregate.
6. Publicity. Except as may be required by applicable law,
including, without limitation, the federal securities laws, the parties hereto
will not, and will cause their controlled affiliates not to, make any public
statement about the claims settled herein, the subject matter thereof or the
transactions contemplated hereby without the prior written consent of the other
party hereto, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, the Company shall be permitted to respond to direct questions
from its stockholders, and to respond to direct questions of analysts and
reporters, the Executive shall be entitled to discuss and disclose the subject
matter of this Agreement with prospective employers, his spouse and his
professional advisors, and both parties shall be permitted to respond to
questions in connection with any arbitration, litigation or other legal
proceedings. However, the parties hereto covenant that they (and in the case of
the Company, the Company's officers, directors and controlled affiliates) shall
not make statements to third parties, the public, the press or the media that
would portray the other party in an adverse light, or cause injury to the other
party's business
<PAGE> 6
6
and/or professional reputation. Any statements that the Executive or the Company
makes to third parties, the public, the press or the media shall be of a
non-hostile manner and of a neutral tone.
7. Confidentiality. The Executive shall not use for his own or
any other person's benefit, or disclose, divulge or communicate to any other
person, any trade or business secret or other information disclosed to or known
by him as a consequence of or through his employment with the Company (including
information conceived, originated or developed by the Executive), which is of a
confidential or proprietary nature and not generally known to the public, about
the Company's business, prospects, patents or other intellectual property,
personnel, shareholders, operations, processes, budgets, plans and development
programs (collectively the "Confidential Information") without the prior written
consent of the Company, except (a) in connection with (i) the implementation or
enforcement of this Agreement, (ii) any claim for indemnification as a director,
officer, employee or agent of the Company or (iii) the Executive's defense of
any civil or criminal action or proceeding, or (b) as appropriate for the
performance of the Executive's obligations under this Agreement or the
Consulting Agreement, or (c) if such use or disclosure is
<PAGE> 7
7
required by law. Such Confidential Information includes, but is not limited to,
(a) business methods and information of the Company, including prices charged,
discounts given to customers or obtained from suppliers, transport rates,
marketing and advertising programs, costings, budgets, turnover, sales targets
or other unpublished financial information; and (b) lists and particulars of the
Company's suppliers, customers and potential customers and the individual
contacts or negotiations with such suppliers and customers; and (c)
manufacturing or production processes and know how developed or employed by the
Company or its suppliers; and (d) details as to the design or specifications of
the Company's or their suppliers' products and inventions or developments
relating to future products. The Executive will, upon termination of his
employment, return all documents or other carriers of information in his
possession, custody or control which contain records of such information and all
property in the Executive's possession, custody or control belonging to the
Company or its customers or suppliers or relating to the Company's business and
business relationships. This restriction shall apply without limit in point of
time but shall cease to apply to information or knowledge which shall come
(otherwise than by breach of this clause) into the public domain or which is
<PAGE> 8
8
generally disclosed to third parties by the Company without restriction on such
third parties or which is disclosed to the Executive by a third party not in
breach of any obligation of confidentiality to the Company.
8. Release by the Company. The Company, on its own behalf and
on behalf of its predecessors, successors and assigns, hereby releases, remises
and forever discharges the Executive for himself, his heirs, executors,
administrators, legal representatives, successors and assigns, from and against
any and all claims, crossclaims, third party claims, counterclaims, contribution
claims, indemnity claims, debts, demands, actions, promises, judgments,
trespasses, extents, executions, causes of action, suits, accounts, covenants,
sums of money, dues, reckonings, bonds, bills, liens, attachments, trustee
process, specialties, contracts, controversies, agreements, promises, damages,
and all other claims of every kind and nature in law, equity, arbitration, or
other forum which Company now has or ever has had up to and including the date
of this Agreement, whether absolute or contingent, direct or indirect, known or
unknown. Notwithstanding the foregoing, nothing herein shall be deemed to
release, remise or discharge the Executive from any claims arising out of,
relating to or asserted under this Agreement.
<PAGE> 9
9
9. Release by the Executive. In consideration of the
fulfillment of the payments and benefits described above, some of which the
Company is not required to make either by statute or contract, the Executive
releases, remises and forever discharges the Company, its legal representatives,
successors and assigns, past, present and future directors, officers, employees,
trustees, shareholders and affiliates from and against any and all claims,
cross-claims, third-party claims, counterclaims, contribution claims, debts,
demands, actions, promises, judgments, trespasses, extents, executions, causes
of action, suits, accounts, covenants, sums of money, dues, reckonings, bonds,
bills, liens, attachments, trustee process, specialties, contracts,
controversies, agreements, promises, damages, and all other claims of every kind
and nature in law, equity, arbitration, or other forum which the Executive now
has or ever had up to and including the date of this Agreement, whether absolute
or contingent, direct or indirect, known or unknown. Additionally, the Executive
hereby waives and releases the Company from any and all claims which he has, his
successors or assigns have or may have against the Company for, upon or by
reason of any matter, cause or thing whatsoever, including, but not limited to
(a) those that might arise in his capacity as a
<PAGE> 10
10
shareholder of the Company (both individually and derivatively), or (b) in any
way related to his employment or termination of his employment by the Company,
whether or not he knows them to exist at the present time, including, but not
limited to, rights under federal, state or local laws prohibiting age or other
forms of discrimination, including Title VII of the Civil Rights Act of 1964, as
amended; Section 1981 through 1988 of Title 42 of the United States Code; the
Age Discrimination in Employment Act of 1967, as amended; the Employee
Retirement Income Security Act of 1974, as amended; the Fair Labor Standards
Act, the Americans with Disabilities Act, as amended; the Family and Medical
Leave Act; the National Labor Relations Act, as amended; the Immigration Reform
Control Act, as amended; the Occupational Safety and Health Act, as amended; any
public policy, contract or common law; and any alleged entitlement to costs,
fees or expenses, including attorneys' fees, claims for compensation or benefits
earned by his past service, claims involving willful misconduct, and claims
arising after the date of this Agreement. Notwithstanding the foregoing, nothing
herein shall be deemed to release, remise or discharge the Company from any
claims arising out of, relating to or asserted (a) under this Agreement or the
Consulting Agreement, (b) under any existing employee
<PAGE> 11
11
benefit or benefit plan provided to the Executive (including, without
limitation, stock options) or with respect to reimbursement of travel and other
expenses previously incurred by the Executive or (c) with respect to any right
of indemnification as a director, officer or employee of the Company, whether
arising under the Company's charter or by-laws, by operation of law, or
otherwise.
10. Consulting Agreement. Contemporaneously with the execution
of this Agreement, the Company and the Executive have entered into a Consulting
Agreement (the "Consulting Agreement"), pursuant to which the Executive has
agreed to provide consulting services to the Company during the Applicable
Period. The duration of the consulting services shall have no bearing on the
Executive's obligations under Sections 11 and 12.
11. Non-Competition. During the two-year period following the
Effective Date and so long as the Company is not in default under this Agreement
or the Consulting Agreement, the Executive will not, directly or indirectly,
own, manage, operate, control or participate in the ownership, management,
operation or control of, or be connected as an officer, employee, partner,
director or otherwise with, or have any financial interest in, or aid or assist
anyone else in the conduct of any biological,
<PAGE> 12
12
chemical, fine chemical, medical, pharmaceutical or similar company or business
organization that sells products or services presently sold or offered for sale
by the Company or presently under development by the Company. Ownership of not
more than one percent (1%) of the voting stock or other securities of any
publicly held corporation shall not constitute a violation of this provision. An
employment or other relationship with an entity engaged both in activities
directly competitive as aforesaid and in other activities shall not be deemed in
breach of this Agreement if such employment or other relationship is not related
to the directly competitive activities.
12. Non-Solicitation. Except with the prior written consent of
the Company, the Executive shall not, during the Applicable Period, (a) solicit
or canvas, or as a separate obligation deal with, any person who at any time
during the period of twelve (12) months prior to the date of this Agreement was
a customer of the Company and/or any potential customers with whom the Company
had had dealings with a view to diverting business from the Company, or (b)
solicit or entice away or endeavor to employ, solicit or entice away any person
who is at the date of this Agreement or was at any time during the period of
twelve (12) months prior to the date of this Agreement an employee of the
<PAGE> 13
13
Company; provided, however, that this restriction shall not apply to a general
solicitation of employment not specifically directed to employees of the Company
or to any applications for employment, or employment, resulting therefrom.
13. Designs and Inventions. All designs, inventions, programs,
discoveries or improvements conceived, apprehended or learned by the Executive
during the course of or arising out of his employment with the Company and which
concern or are applicable to products or articles manufactured or sold by or to
services provided by the Company shall be the exclusive property of the Company.
14. Revocation. The Executive acknowledges that he has had at
least twenty-one (21) days to consider the meaning of this Agreement and that he
should seek advice from an attorney. Furthermore, once the Executive has signed
this Agreement, he may revoke this Agreement during the period of seven (7)
business days immediately following his signing of the Agreement (the
"Revocation Period"). This Agreement will not be effective or enforceable until
the Revocation Period has expired without any revocation from the Executive. Any
revocation within this period must be submitted in writing to the Company and
signed by the Executive.
<PAGE> 14
14
15. Attorney Consultation. The Executive agrees that he has
entered into this Agreement after having had the opportunity to consult the
advisor of his choice, including an attorney, with such consultation as he
deemed appropriate and has a full understanding of his rights and of the effect
of executing this Agreement, namely, that he waives any and all non-excluded
claims or causes of action against the Company regarding his employment or
termination of employment, including the waiver of claims set forth above. The
Executive further acknowledges that his execution of the Agreement is made
voluntarily and with full understanding of its consequences and has not been
coerced in any way.
16. Full Integration. This Agreement and the Consulting
Agreement constitute the entire understanding between the Executive and the
Company with respect to the subject matter hereof. There are no representations,
understandings or agreements of any nature or kind whatsoever, oral or written,
regarding the subject matter hereof which is not included herein or in the
Consulting Agreement.
17. Modification and Waiver. No supplement, modification,
change or waiver of this Agreement or any provision hereof shall be binding
unless executed in writing by the Executive and the Company evidencing their
intent to
<PAGE> 15
15
be bound thereby. No waiver of any of the provisions of this Agreement shall
constitute a waiver of any other provision (whether or not similar), nor shall
such waiver constitute a continuing waiver unless otherwise expressly provided.
18. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
19. Massachusetts Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the Commonwealth of Massachusetts,
without regard to its principles of conflicts of laws. Any litigation arising
out of this Agreement shall be conducted in a forum located within the
Commonwealth of Massachusetts.
20. Notice. For the purposes of this Agreement, notices and
all other communications provided in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Dr. Robert L. Bratzler
13 Blueberry Lane
Concord, Massachusetts 01742
If to the Company: ChiRex Inc.
<PAGE> 16
16
66 William Street
Wellesley, Massachusetts 02181
Attention: Secretary
or to such other address as any of the parties hereto may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
21. Validity. Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
22. Captions. The section captions herein are for convenience
or reference only, do not constitute part of the Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
23. Further Assurances. Each of the parties hereto shall
execute such documents and other papers and take such further actions as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby.
24. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be
<PAGE> 17
17
an original but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal personally or through their duly authorized representative
on the dates written by each of their signatures.
ROBERT L. BRATZLER
Signed before me /s/ Robert L. Bratzler
this 17th day of ------------------------------
October, 1996
/s/ Robert Chomat Date: 17 Oct. '96
- ---------------------------- -------------------------
Notary Public
ROBERT CHOMAT
Notary Public State of New York
No. 01 CH5044886
Qualified in New York County
Commission Expires June 5, 1997
CHIREX INC.
Signed before me /s/ Alan R. Clark
this 17th day of ------------------------------
October, 1996
/s/ Robert Chomat Title: Chief Executive Officer
- ---------------------------- ------------------------
Notary Public
Date: 17 Oct '96
------------------------
ROBERT CHOMAT
Notary Public State of New York
No. 01 CH5044886
Qualified in New York County
Commission Expires June 5, 1997
<PAGE> 1
CHIREX INC.
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement"), made as of this 17th day of
October, 1996, is entered into by CHIREX INC., a Delaware corporation with its
principal offices at 65 William Street, Wellesley, MA 02181 (the "Company") and
Dr. Robert L. Bratzler, with an address at 13 Blueberry Lane, Concord,
Massachusetts 01742 (the "Consultant").
INTRODUCTION
------------
The Company desires to retain the services of the Consultant as a
consultant to the Company and the Consultant desires to serve as a consultant to
the Company. Accordingly, the parties agree as follows:
1. SERVICES. The Consultant agrees to use reasonable efforts to perform
such consulting, advisory and related services (collectively, the "Services")
for the Company as may be reasonably requested from time to time by the Company,
including primarily Services pertaining to (i) the Company's patents and
intellectual property rights and the Company's relationship with Sepracor Inc.,
(ii) the activities of the Company's Scientific Advisory Board ("SAB") and the
Company's relationship with the members of the SAB and (iii) the Company's
paclitaxel business and its relationship with Dabur; PROVIDED, HOWEVER, that the
Consultant shall not be required to provide Services which, in his good faith
judgment, would unduly interfere with any full-time employment situation he may
obtain. If the Consultant has a conflict of interest, or potential conflict of
interest, with respect to any matter presented to him in his consulting
capacity, he shall excuse himself from the consultation of such matter and in so
doing shall not be deemed in default hereunder. The delivery by the Consultant
of the Services hereunder shall be at such times and at such locations as the
Consultant and the Company may agree from time to time.
2. TERM. This Agreement shall be effective as of the date first above
written and shall continue until April 17, 1998, unless extended by mutual
written consent or sooner terminated as provided below (the "Consultation
Period"). This Agreement shall terminate, and the Company's
<PAGE> 2
2
obligations hereunder shall cease as of such time and the Company shall be under
no further obligation to make any additional payments under this Agreement to
the Consultant, if (i) the Consultant exercises his power to terminate the
Consultation Period upon 60 days' prior to written notice to the Company, or
(ii) the Consultant fails to perform the Services pursuant to Section 1 hereof
for any reason other than his death or disability; PROVIDED, HOWEVER, that the
terms of Sections 4 and 7 shall not terminate but shall remain in full force and
effect. In the event of such termination, the Consultant shall be entitled to
payment for services performed and expenses paid or incurred prior to the
effective date of termination. In the event that the Consultant should die or
become disabled prior to the end of the Consultation Period, the Company's
obligations hereunder shall not cease, and shall remain in full force and effect
(with all remaining payments continuing to be made to the legal representative
of the Consultant's estate) until the end of the Consultation Period regardless
of the fact that no further services will be rendered hereunder.
3. COMPENSATION. The Company shall pay the Consultant a monthly retainer of
$19,583.33, payable on the 17th day of each month commencing November 17, 1996.
The Company shall reimburse the Consultant for all reasonable and necessary
expenses incurred or paid by the Consultant, after having obtained the prior
approval of the Company, in connection with, or related to, the performance of
Services hereunder within 30 days after receipt of an itemization and
documentation of such expenses.
4. Proprietary Information; Inventions.
-----------------------------------
4.1 PROPRIETARY INFORMATION. The Consultant acknowledges that his
relationship with the Company is one of high trust and confidence and that in
the course of his service to the Company he will have access to and contact with
Proprietary Information (as defined in this Section 4.1). The Consultant agrees
that he will not, at any time, disclose to others, or use for his benefit or the
benefit of others, any Proprietary Information or Inventions (as defined in
Section 4.2 below). For purposes of this Agreement, Proprietary Information
shall mean all information (whether or not patentable and whether or not
copyrightable) owned, possessed or used by the Company or any third party,
including, without limitation, any Invention, formula, trade secret, process,
research, report, technical data, know-how, technology and marketing or
<PAGE> 3
3
business plan, that is communicated to, learned of, developed or otherwise
acquired by the Consultant in the course of his performing consulting services
to the Company hereunder. The Consultant's obligations under this Section 4.1
shall not apply to any information that (i) is or becomes known to the general
public under circumstances involving no breach by the Consultant of the terms of
this Section 4.1, (ii) is generally disclosed to third parties by the Company
without restriction on such third parties, (iii) is in the Consultant's
possession at the time of disclosure otherwise than as a result of a prior
disclosure by the Company to the Consultant or (iv) is disclosed to the
Consultant by a third party not under an obligation of confidentiality to the
Company with respect thereto. The Consultant represents that his retention as a
consultant with the Company and his performance under this Agreement does not,
and shall not, breach any agreement that obligates him to keep in confidence any
trade secrets or confidential or proprietary information of his or of any other
party or to refrain from competing, directly or indirectly, with the business of
any other party. The Consultant shall not disclose to the Company any trade
secrets or confidential or proprietary information of any other party.
4.2 INVENTIONS. All inventions, discoveries, technology, designs,
innovations and improvements related to the business of the Company which are
made, conceived or reduced to practice by the Consultant, solely or jointly with
others, during the Consultation Period which arise directly from information and
discussions presented to the Consultant or which are provided to the Company or
while providing consulting services to the Company (collectively, the
"Inventions") shall be the sole property of the Company. The Consultant hereby
assigns to the Company all Inventions and any and all related patents,
copyrights, trademarks, trade names and other industrial and intellectual
property rights and applications therefor, in the United States and elsewhere
and appoints any officer of the Company as his duly authorized attorney to
execute, file, prosecute and protect the same before any government agency,
court or authority. Upon the request of the Company and at the Company's
expense, the Consultant shall execute such further assignments, documents and
other instruments as may be necessary or desirable to fully and completely
assign all Inventions to the Company and to assist the Company in applying for,
obtaining and enforcing patents or copyrights or other rights in the United
States and in any foreign country with respect to any Invention.
<PAGE> 4
4
5. INDEPENDENT CONTRACTOR STATUS. The Consultant shall perform all services
under this Agreement as an "independent contractor" and not as an employee or
agent of the Company. The Consultant is not authorized to assume or create any
obligation or responsibility, express or implied, on behalf of, or in the name
of, the Company or to bind the Company in any manner and shall not hold himself
out to any party as an employee of the Company. The Consultant shall bear full
responsibility for all taxes owing on the compensation payable hereunder, and
the Consultant acknowledges that the Company shall not withhold any taxes on
such compensation unless otherwise required by law.
6. CONSENT TO USE OF NAME. The Consultant hereby consents to the use of his
name by the Company, as required, in connection with any previous, current or
future offering and ongoing registration of securities of the Company,
including, but not limited to, any registration statement, prospectus or other
document filed with the Securities and Exchange Commission, any state securities
commission, the National Association of Securities Dealers, Inc. and the Nasdaq
Stock Market.
7. MISCELLANEOUS. This Agreement and Settlement Agreement of even date
herewith constitute the entire agreement between the parties and supersede all
prior agreements and understandings, whether written or oral, relating to the
subject matter hereof and thereof. This Agreement may be amended or modified
only by a written instrument executed by both the Company and the Consultant.
This Agreement shall be construed, interpreted and enforced in accordance with
the laws of the Commonwealth of Massachusetts. The Consultant agrees that a
breach of any of the restrictions set forth in this Agreement would cause the
Company irreparable injury and damage, and that, in the event of any breach or
threatened breach, the Company, in addition to all other rights and remedies at
law or in equity, shall have the right to enforce the specific performance of
such restrictions and to apply for injunctive relief against their violation.
The invalidity or unenforceability of any provision hereof (or portion thereof)
shall not affect the validity or enforceability of any other provision hereof,
and if any such provision (or portion thereof) is so broad as to be
unenforceable, it shall be interpreted to be only as broad as is enforceable.
This Agreement shall be binding upon, and inure to the benefit of, both parties
and their respective successors and
<PAGE> 5
5
assigns, including any corporation with which, or into which, the Company may be
merged or which may succeed to its assets of business; PROVIDED, HOWEVER, that
the obligations of the Consultant are personal and shall not be assigned by him.
Any notice or other communication hereunder to either party shall be in writing
and shall be deemed to have been duly given when delivered personally or mailed
by registered mail, return receipt requested, postage prepaid, addressed to the
party as its respective address appears in this Agreement. This Agreement may be
executed in counterparts, each of which will be deemed to be an original, but
each of which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
CHIREX INC. DR. ROBERT L. BRATZLER
By: /s/ Alan R. Clark /s/ Robert L.Bratzler
---------------------------- ----------------------------
Name:
Title: C.E.O.
<PAGE> 1
CHIREX
PENSION SCHEME
[LOGO[
<PAGE> 2
This booklet is about the future, in particular how to make it financially sound
and more secure for you and your dependants. At present your livelihood and
security depend on what you are earning - but what happens when your earnings
cease if you retire or die prematurely?
The ChiRex pension scheme has been set up to protect you and your dependants in
these circumstances, and has been designed to provide a valuable range of
benefits, at small cost to you. How the scheme provides security for both you
and your dependants is outlined in this booklet.
Your Personnel Department can supply you with additional information or help to
answer any questions still in your mind after reading this booklet.
To ensure that you are properly informed, the trustees will provide you with an
annual report on the scheme and its performance, the benefits to members and
details of the membership itself.
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CONTENTS
Page
SCHEME MEMBERSHIP Eligibility 3
Cost of Scheme 4
Additional Voluntary
Contributions 5
RETIREMENT BENEFITS Normal Retirement 6
Pension Increases 7
Tax Free Cash Sum 8
Early Retirement 9
Late Retirement 11
DEATH BENEFITS Death in Service 12
Death after Retirement 14
LEAVING PENSIONABLE
SERVICE Preserved Benefits 15
Refund of Contributions 16
Transfer Value 17
ABSENCE FROM WORK 18
YOUR STATE BENEFITS 19
LEGAL NOTES 20
SUPPLEMENTARY INFORMATION 21
GUIDE TO TERMS 23
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SCHEME MEMBERSHIP
ELIGIBILITY
All permanent full and part-time employees over age 16 and under age 65 are
automatically enrolled as members of the scheme on the day they join the
company.
Temporary employees are not eligible for membership.
---------
If you decide not to join or opt-out later you should complete a form, available
from your Personnel Department. You will have one opportunity at any time before
you reach age 40 to join or rejoin the scheme.
Employees who decide to opt-out:
* Receive life assurance cover on death in service of only 2 x basic earnings
at date of death in service.
* Do not receive cover for spouse's or other dependants pensions.
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COST OF SCHEME
From a low individual contribution rate the Scheme provides you with benefits to
help you protect your dependants financially and to provide an income for you
when you retire.
The cost of providing the scheme benefits is calculated by the scheme actuary,
taking into account the salaries and ages of the members. The company bears most
of the cost of the scheme, although as a member you are currently required to
contribute 3% of your pensionable earnings.
Your contributions commence when you join the scheme and cease on the attainment
of your normal retirement date. They are deducted from your salary and qualify
for full tax relief as an expense deducted from your income before tax is
calculated. This is taken care of automatically under the PAYE system.
The trustees have the discretion to accept transfer values from previous pension
arrangements. These will secure benefits in the scheme in the form of additional
years of service. Details are available on request.
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ADDITIONAL VOLUNTARY CONTRIBUTIONS
You may pay additional voluntary contributions (AVCs) to secure additional
pension benefits. There is currently the facility under the scheme to pay AVCs
either to Equitable life Assurance Society or Nationwide Building Society. These
contributions qualify for full tax relief in the same way as your normal pension
scheme contributions. The maximum amount of contributions you may pay in any one
tax year is 15% of your PAYE earnings, including your normal pension scheme
contributions. Further details are available from your Personnel Department.
On retirement the benefits provided by your AVC will be aggregated with your
main Scheme benefits.
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RETIREMENT BENEFITS
NORMAL RETIREMENT
The pension you will receive at normal retirement date will depend on your
pensionable service and your final earnings.
Your pension is calculated as:
1/120 x pensionable service x state basic pension
PLUS
1/60 x pensionable service x final average basic earnings in excess of state
basic pension
PLUS THE GREATER OF
1/60 x pensionable service from l.4.78 x final average additional earnings
OR
1/60 x total additional earnings from 1.4.78.
Your pension will be paid monthly throughout your lifetime and will be subject
to PAYE tax. The first installment will usually be paid on the first day of the
month after your normal retirement date and a proportional payment will be made
to cover this period.
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PENSION INCREASES
Provision is included in the scheme for pensions in excess of the Guaranteed
Minimum Pension (including spouse's and dependant's pensions) to be increased
each year on 1 January. The increases will be 5% a year compound or the increase
in the Retail Price Index (RPI) if less. On 1 January following the start of a
pension payment, a proportional increase will apply.
These increases will only apply to pensions actually being paid from the scheme;
if you choose to surrender part of your pension for a tax free cash sum or to
increase your spouse's or dependant's pension, no increase will be paid in
respect of the surrendered pension.
The trustees may, at their discretion, provide a higher rate of escalation if
they feel that this is appropriate.
However, that part of your pension and your spouse's and dependant's pension,
which represents the guaranteed minimum pension will be fully inflation-proofed;
the scheme will pay increases up to 3%, any increases in excess of 3% will be
provided by the State scheme.
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TAX FREE CASH SUM
On retirement you can choose to surrender part of your pension to provide a
tax free cash sum.
Your tax free cash sum is calculated as:
3/80 x final average basic earnings x period of employment with
the Company.
If you choose to take a lump sum your annual pension will be reduced. The actual
reduction in your case will be advised to you when you retire, but as a guide,
for every (pound)10.20 of cash taken at age 65, your annual pension will be
reduced by (pound)1.
With the agreement of the Trustees your tax free cash sum can be increased to
the maximum permitted by the Inland Revenue.
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EARLY RETIREMENT
Early retirement pensions are available:
a) By Choice
At any time after age 50, provided at least 5 years pensionable service has
been completed and subject to company consent.
Your pension will be calculated as for normal retirement date but based on
your pensionable service completed to your actual retirement date and will
then be reduced to take account of the longer period of payment because you
are retiring early.
The amount of the reduction will be:
Ages 60-65 Nil
- --------------------------------------------------------------
Ages 57-60 2% for each year before age 60
- --------------------------------------------------------------
Ages 50-57 4% for each year before age 57
PLUS
2% for each year age 57-60
Your early retirement option may be restricted by the scheme's obligation to
pay your GMP at State Pension Age. You may retire early and postpone payment
of your pension, in this event the reduction applied will relate to your age
when the pension starts to be paid.
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b) Due to ill-health
ill-health pensions are payable from any age subject to the consent of the
company, and supporting satisfactory medical evidence. They are payable at
the sole descretion of the scheme trustees.
Your pension will be calculated either
i) as for early retirement, or
ii) if you are unable to work again your ill-health pension will include
the pensionable service you could have completed to normal retirement
date.
ill-health pensions are reviewed from time to time by the trustees to allow
for the possibility of your return to employment. Your ill-health pension
may be adjusted accordingly.
Life assurance cover will continue at the same level of salary applicable at
your date of ill-health retirement until age 65 whilst you are receiving an
ill-health pension.
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LATE RETIREMENT
Subject to the consent of the company, you may continue working beyond normal
retirement date. Your contributions will cease at normal retirement date, and
you will cease to accumulate pensionable service.
You may choose:
- - To take pension benefits at normal retirement date,*
OR
- - To postpone payment of your benefits until you retire, in which case, your
pension will be increased by an amount calculated by the actuary to account
for the shorter period of payment because you are retiring late.
In the event of your death between normal retirement date and your actual
retirement, your dependants will receive benefits calculated as if you had
died in retirement (see page 14).
* This option is not available for members whose pensionable service commenced
after 1 June 1989.
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DEATH BENEFITS
DEATH IN SERVICE
If you die in service before your normal retirement date your dependants will
receive a lump sum equal to 3 times your basic earnings at date of death.
Under present legislation, the benefits paid to your dependants will be free
from inheritance tax because the trust provides for distribution on a
discretionary basis. A nomination form is enclosed at the back of this booklet
on which the trustees of the scheme the person or persons whom you wish to
consider to receive these benefits. It is important that your nomination form is
kept up to date, especially if your family circumstances change.
Your spouse or dependant will receive a pension payable for life of:
- - 50% of prospective pension had you survived until normal retirement date
based on basic earnings at date of death.
PLUS
- - 50% of prospective pension had you survived until normal retirement date
based on state basic pension at date of death.
PLUS
- - 50% of accrued pension based on completed service and average additional
earnings at date of death.
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Children's pensions are payable to dependant children up to age 18, or age 25
if in full time education.
If there is one dependant child the amount of pension payable is 30% of your
pension as calculated for the spouse above. For each additional child (up to a
maximum of five children in total) an extra 5% of your pension as above would be
payable, the total amount being shared equally among them.
If no spouse's or dependant's pension is payable the above percentage would be
increased.
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DEATH AFTER RETIREMENT
If you die in retirement before the first 5 years of pension payments have been
made to you, and no spouse's or dependant's pension is payable, the cash
balance of the remaining instalments of your pension payable within the 5 year
period will be paid as a single payment.
If you leave a spouse or dependant, he or she will receive a pension of 60% of
the pension you were receiving at your date of death.
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LEAVING PENSIONABLE SERVICE
PRESERVED BENEFITS
If you leave the scheme and you have completed 2 years pensionable service
(including service in respect of any transfer value which has been received from
a previous scheme) you will be entitled to a pension payable at normal
retirement date. The pension will be calculated in the same way as for
retirement at normal retirement date but will be based on your period of
completed pensionable service and your final earnings at your date of leaving.
This pension will be revalued up to retirement as follows:
i) Your guaranteed minimum pension will increase each year by a fixed rate
(currently 7%)
ii) The amount of your pension in excess of the guaranteed minimum pension, will
increase to normal retirement aqe by 5% per annum compound or the increase
in the RPI if less.
If you die before your normal retirement date your spouse or dependant will
receive a pension of half of your deferred pension revalued as above up to your
date of death. If no spouse's or dependant's pension is payable then your own
contributions to the scheme plus interest will be paid as a lump sum.
Your preserved benefits will be payable on the same terms and conditions, and
will carry the same options as other benefits from the scheme.
In addition to the scheme benefits described above, any benefits transferred
from a previous scheme will also be preserved in full as will any benefits
secured by additional voluntary contributions you have made.
If you leave the scheme and then subsequently apply for an early retirement
pension, the early retirement factor would be significantly greater than that
shown on page 9.
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REFUND OF CONTRIBUTIONS
If you have not completed 2 years pensionable service when you leave, your
contributions will be refunded to you with interest, subject to deductions for
your share of the cost of reinstating you with benefits in the State Earnings
Related Pension Scheme for the period of contracted-out service, and tax which
is currently at the reduced rate of 20%.
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TRANSFER VALUE
A cash sum equal to the value of your benefits may be transferred to your new
employer's scheme, a personal pension or into an insurance contract according to
your wishes. The trustees have decided that transfer values will not be
increased to take account of any discretionary pension increases.
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ABSENCE FROM WORK
If you are absent from work and you continue to receive salary, your membership
of the scheme will continue and you will continue to pay contributions.
If you are not being paid by the company whilst absent your contributions may
be suspended for the duration of such absence where absence is due to illness or
injury or for 3 years where absence is due to any other cause. On return to work
you will have the option of making up lost contributions; if you choose not to
pay arrears of contributions your pensionable service will reduce by the length
of your absence.
You will continue to be covered for the scheme death in service benefits, for up
to 2 1/2 years where absence is due to illness or injury, or 1 year for any
other reason.
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YOUR STATE BENEFITS
Everyone in employment contributes to the State Pension Scheme through National
insurance contributions. On retirement, those who have paid sufficient
contributions receive the basic state pension.
There is a second Government pension called the State Earnings Related Pension
Scheme or SERPS. This provides an income related benefit on top of the basic
state pension.
Like most occupational pension schemes, the ChiRex Pension Scheme is
contracted-out of SERPS. This means that you will not receive a pension from
SERPS, but instead receive a pension from the company scheme. It also means that
you pay lower National insurance contributions.
By law the scheme must provide a guaranteed minimum pension broadly equal to the
amount that would have been provided by SERPS. This protects the level of income
that you receive on retirement.
Basic ChiRex Retirement
State + Scheme = Income
Pension Pension
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LEGAL NOTES
The scheme is legally constituted by deed of trust and is governed by rules. As
a member you may inspect these, if you wish.
The scheme is approved by the Inland Revenue as an exempt approved scheme under
provisions of Chapter 1 Part XIV of the Income and Corporation Taxes Act
1988. This allows it to take advantage of the valuable tax concessions available
to such schemes but also means that all scheme benefits and contributions are
subject to the limitations laid down by the Act.
The contributions paid by the company and the members are invested as decided by
the trustee. The trustees closely monitor the performance of the investments to
ensure that a good rate of return is achieved as the company cannot guarantee to
pay the benefits if the scheme's resources are insufficient to do so.
However, the lump sum benefit payable in the event of death in service are
secured by way of an insurance policy taken out by the trustees in the name of
the scheme to cover all members.
The company reserves the right to amend the scheme at any time, but this will
have no effect on pensions already earned.
We have taken great care in the preparation of this booklet and believe it gives
an accurate summary of the provisions of your pension scheme. However, in the
event of any discrepancy between this booklet and the Trust Deed, the latter
will prevail.
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SUPPLEMENTARY INFORMATION
REGISTRAR OF PENSION SCHEMES
Information about our scheme has been supplied to the Registrar of Occupational
and Personal Pension Schemes. This information includes an address at which the
trustees can be contacted. The Registrar has set up an arrangement to assist
individuals in tracing preserved pensions held in former occupational schemes.
The Registrar's address is:
Sandyford House
PO Box 1NN
Newcastle-upon-Tyne NE99 1NN
PENSION OMBUDSMAN
A Pensions Ombudsman has been appointed to investigate complaints against
trustees of occupational pension schemes. The complaints can be of injustice as
a consequence of maladministration, or may relate to a dispute of fact or law.
The Pensions Ombudsman's address is:
11 Belgrave Road
London
SW1V 1RB
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OCCUPATIONAL PENSIONS ADVISORY SERVICE (OPAS)
The Occupational Pensions Advisory Service is available to assist pension
scheme members with difficulties which they have been unable to resolve with the
trustees. OPAS is staffed by volunteers who have specialised pensions knowledge.
OPAS, situated at:
11 Belgrave Road
London SW1V 1RB
will answer questions raised by pension scheme members and will make
investigations on their behalf.
All occupational pension schemes are required to pay an annual levy to cover the
cost of the Registrar, the Ombudsman and OPAS.
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GUIDE TO TERMS
The Company ChiRex Limited
- --------------------------------------------------------------------------------
The Scheme ChiRex Pension Scheme
- --------------------------------------------------------------------------------
Normal Retirement Date Age 65
- --------------------------------------------------------------------------------
Pensionable Service Complete years and months of membership of the
scheme as a contributing member.
- --------------------------------------------------------------------------------
Additional Earnings Earnings for PAYE purposes which exceed basic
earnings, ie overtime.
- --------------------------------------------------------------------------------
Basic Earnings Basic annual salary or other rate of pay as
notified in contract of employment.
- --------------------------------------------------------------------------------
PAYE Earnings Basic earnings and all other additional earnings
including the taxable value of any benefits in kind.
- --------------------------------------------------------------------------------
Final Average The annual average of the best 3 consecutive years
Additional Earnings additional earnings in the last 10 years before normal
or early retirement, or as many years as a member if
less.
- --------------------------------------------------------------------------------
Final Average Basic The highest basic earnings in any period of 12 months
Earnings in the last sixty months before normal or early
retirement, or as many months as a member if less.
- --------------------------------------------------------------------------------
Pensionable Earnings All earnings in excess of an amount equal to the State
Basic Pension.
- --------------------------------------------------------------------------------
Final Pensionable Final average basic earnings plus Final average
Earnings additional earnings.
- --------------------------------------------------------------------------------
State Basic Pension State basic pension for a single person
averaged over 12 months before retirement or leaving
service.
- --------------------------------------------------------------------------------
Total Additional Accumulation of additional earnings from 1.4.78.
Earnings
- --------------------------------------------------------------------------------
Guaranteed Minimum A pension broadly equivalent to the amount that would
Pension (GMP) have been provided under the State Earnings Related
Pension Scheme (SERPS).
- --------------------------------------------------------------------------------
Dependant Any individual who, in the opinion of the trustees, is
wholly or mainly dependent upon a member.
- --------------------------------------------------------------------------------
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NOMINATION FORM
(for Death Benefits)
To the Trustees of the ChiRex Pension Scheme.
Please take note that, if I die and a lump sum benefit becomes payable under the
scheme, I would like you to consider making payment to the following person(s)
in the stated proportions.
1.
Name
Address
Relationship Proportion
2.
Name
Address
Relationship Proportion
I understand that this is only an expression of wish which is not binding on the
trustees and that it may be revoked or revised in a further letter from me.
Signature of member Date
<PAGE> 1
EXHIBIT 10.11
Portions of this Exhibit
have been omitted pursuant to
a request for confidential
treatment. The omitted
portions are marked ***** and
have been filed separately
with the Commission.
SUPPLY AGREEMENT
This Agreement is made the 21st day of January, 1997 between CELL THERAPEUTICS,
INC., whose registered office is at 201 Elliott Avenue West, Suite 400, Seattle,
Washington, 98119, USA ("Company"), and CHIREX, LTD., of Dudley, Cramlington,
Northumberland, NE23 7QG, ENGLAND ("Supplier").
RECITALS
WHEREAS, Company has developed a proprietary therapeutic agent, lisofylline, and
will require certain quantities of the Compound and other intermediates used in
manufacturing the Compound;
Company has developed a proprietary, commercial synthetic process for preparing
the Compound and other intermediates;
Supplier has certain technical expertise in and physical facilities for
commercial manufacturing of organic compounds;
Company desires that Supplier manufacture for Company, on an exclusive basis
during the initial term of the contract, the Compound (and corresponding
intermediates) in sufficient quantities to meet at least Company's needs for
pilot and validation lots, and commercial product launch and market supplies for
production years subsequent to New Drug Application ("NDA") approval; and
Supplier is willing to provide manufacturing services to Company for the
Compound and intermediates.
AGREEMENTS
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties agree as follows:
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
1. Definitions
-----------
COMPOUND is Company's proprietary compound, lisofylline, having a
chemical name, *****
CCA is the key intermediate *****, having a chemical name, *****.
Page 1 of 21
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cGMP are current Good Manufacturing Practices, specifically as defined in United
States Code of Federal Regulations, Title 21, (S) 210 and 211, related FDA
guidelines, and as interpreted by Company.
EFFECTIVE TERMINATION DATE is the date written notice of termination is provided
to the other party.
EXPIRATION DATE is December 31, 2001, unless earlier terminated in accordance
with the terms and conditions as set forth in Paragraph 3, Term and Termination.
INTELLECTUAL PROPERTY (IP) includes, but is not limited to, patentable
inventions, trade secrets and know how.
OFFICIAL COPY is an exact duplicate, having an appropriate certifying mark (and
signature), of original documents that are generated and held in Supplier's
permanent files.
PROJECT PLAN FOR PILOT LOTS (PROJECT PLAN) will be independently agreed to by
the parties. The Project Plan defines the detailed scope of work and is a
comprehensive compilation of the technical specifications and compliance
requirements that govern the manufacturing, testing, packaging and labeling of
pilot lots of Compound and/or intermediates prepared by Supplier for Company.
VALIDATION LOT PLAN will be independently agreed to by the parties. The
Validation Lot Plan defines the detailed scope of work and is a comprehensive
compilation of the technical specifications and compliance requirements that
govern the manufacturing, testing, packaging and labeling of validation lots of
Compound and/or intermediates prepared by Supplier for Company.
COMMERCIAL OPERATION PLAN will be independently agreed to by the parties. The
Commercial Operation Plan defines the detailed scope of work and is a
comprehensive compilation of the technical specifications and compliance
requirements that govern the manufacturing, testing, packaging and labeling of
commercial lots of Compound and or intermediates prepared by Supplier for
Company.
WORK-IN-PROGRESS is work commenced by Supplier for Company that Supplier has not
yet completed, and may comprise, without limitation, engineering costs, raw
materials, intermediate products, or manufacturing services for preparing
Compound and/or intermediates.
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<PAGE> 3
2. Agreement Scope
---------------
a. Generally, Supplier will manufacture for Company and Company agrees to
purchase the following quantities of the Compound and a key
intermediate, CCA:
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
i. At least ***** (Project Plan);
ii. At least *****, using CCA prepared by Supplier (Project Plan);
and
iii. At least *****, using CCA produced by Supplier. The parties
forecast that a target quantity of 5 manufacturing-scale lots is
required to ensure production of 3 consecutively validated lots
(Validation Lot Plan).
More specifically, the Project and Validation Lot Plans set forth
technical detail regarding: the synthetic process for manufacturing
and isolating Compound, CCA and other relevant intermediates;
operational requirements for pilot lots and validation lots; and
Supplier's and Company's activities and responsibilities in connection
with Supplier's manufacture of pilot and validated lots of Compound
and CCA. Both parties shall independently agree to and execute the
Project and Validation Lot Plans.
b. In addition to preparing the above pilot and validation lots of
Compound and CCA, Supplier will manufacture and supply commercial
quantities of Compound and CCA. The Commercial Operation Plan sets
forth technical detail regarding: the synthetic process for
manufacturing and isolating Compound, CCA and other relevant
intermediates in commercial scale lots; operational requirements for
manufacturing commercial material; and Supplier's and Company's
activities and responsibilities in connection with Supplier's
manufacture of commercial quantities of Compound and CCA for Company.
c. At present, Supplier and Company have not established specific,
commercial production quantities, but the following table provides
current estimated commercial quantities through the 2001 production
year (1998-2001), subject to modification in accordance with the
procedures set forth in Paragraph 11, Commercial Forecasting.
Paragraph 11 also specifically establishes a mechanism by which
Company and Supplier will prepare and revise annual forecasts for
commercial supplies of Compound. Subject to the provisions
Page 3 of 21
<PAGE> 4
herein, Company and Supplier agree that Supplier will manufacture the
Compound (and corresponding intermediates) for Company on an exclusive
basis through the 2000 production year.
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
<TABLE>
<S> <C> <C> <C> <C>
YEAR 1998 1999 2000 2001
- ---------------------------------------------------------------
ESTIMATED QUANTITY ***** ***** ***** *****
- ---------------------------------------------------------------
</TABLE>
3. Term and Termination
--------------------
This Agreement shall commence upon complete execution by both parties, and
unless terminated sooner in accordance with the terms and conditions set
forth below, shall remain in full force and effect until the Expiration
date. Thereafter, Company may renew this Agreement for successive one (1)
year periods. Company shall provide written notice to Supplier of Company's
intent to renew no more than twelve (12) months and no less than six (6)
months prior to the Expiration date. Within thirty (30) days of Company's
written notice to Supplier, Supplier will provide written notice to Company
that it agrees to Company's renewal period.
Either party may terminate this Agreement, upon twelve (12) months written
notice to the other party; provided however that Supplier may not terminate
this Agreement prior to supplying Company's commercial requirements for
Compound through December 31, 2000.
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Upon termination, where practical and without compromising the integrity or
quality of the Work-in-Progress, Supplier will not create additional Work-
in-Progress and will use its best efforts to minimize expense to Company in
bringing the Work-in-Progress to a logical conclusion, as mutually agreed
upon by Supplier and Company. Company agrees to purchase and Supplier
agrees to sell, *****, available quantities of Compound and/or
intermediates held in storage by Supplier on the Effective Termination
Date.
Company will remain liable for costs of services rendered through the
Effective Termination Date and costs for services required to complete
Work-in-Progress.
4. Manufacturing Standards
-----------------------
Supplier will perform all work hereunder for Company in accordance with
strict application of current laboratory research and manufacturing
standards, as reflected by standards contained in the Project, Validation
Lot and Commercial Operation Plans. Supplier will strictly comply with all
current United States governmental regulatory requirements and policies
concerning cGMP (as
Page 4 of 21
<PAGE> 5
interpreted by Company) for all phases of production (pilot, validation and
commercial lots).
5. Material Warranty
-----------------
Supplier warrants that it will exercise extreme care and high standards to
achieve the desired results in accordance with standards and procedures
agreeable to and accepted by the parties. In the event the material is
non-conforming and the Material Review Board determines that the Supplier
is responsible for the non-conformance in accordance with the provisions of
Paragraph 6.d, Material Non-Conformance, Supplier and Company shall
mutually agree to one (or a combination of) the following remedies: a)
Supplier replacing non-conforming material with conforming material at no
additional cost to Company; b) Supplier remediating unacceptable
performance at no additional expense to Company; or c) Supplier refunding
or crediting to Company any fees paid or payable by Company in connection
with Supplier's unacceptable performance.
In the event material is non-conforming and the Material Review Board
determines that the Company is responsible for the non-conformance in
accordance with the provisions of Paragraph 6d, Material Non-Conformance,
the Company shall make payment to the Supplier of all fees due to the
Supplier under this Agreement in respect of such non-conforming material.
Should United States regulatory requirements change during the course of
Supplier's performance of manufacturing services hereunder, Supplier will
make every reasonable effort to meet the new requirements. In the event
that modified regulatory requirements necessitate revisions in the
manufacturing process, Supplier will submit to Company a revised technical
proposal and cost estimate, for which, if necessary, the parties will
further negotiate and to which the parties will mutually agree.
6. Documentation, Specifications, Release and Delivery
---------------------------------------------------
a. Manufacturing Documentation
---------------------------
Prior to or in conjunction with delivery of any material manufactured
for Company, Supplier will provide Official Copies of at least the
following documentation to Company:
i. A complete copy of all relevant and completed Batch Production
Records for each manufacturing run of Compound, and all
intermediates;
Page 5 of 21
<PAGE> 6
which is set forth in documentation establishing the analytical
methods contained in the Project, Validation Lot or Commercial
Operation Plans (by inclusion or reference therein).
If Supplier intends to utilize a third party to conduct a portion or
all of the analytical testing, Company shall have an opportunity to
evaluate and approve the third party prior to the third party
commencing work in support of Supplier's performance hereunder. In any
event, Company reserves the right to repeat a portion of or all tests
conducted by Supplier prior to Company's release of material to
confirm that the material meets established specifications.
d. Material non-conformance
------------------------
In the event that Company cannot release the material in accordance
with the foregoing procedures or if the material is released and
Company, Supplier or a third party later discovers that the material
is not in compliance with material specifications, the material shall
be non-conforming.
Company and Supplier will establish a Material Review Board (MRB)
composed of members of Company's Compliance and Manufacturing
Operations Units, and Supplier's Quality Assurance and Manufacturing
Departments to investigate and assess the circumstances of the
non-conformance. Based on the MRB's evaluation and assessment, the MRB
will establish a cause for the non-conformance. Company and Supplier
will ascertain responsibility for the cause of the non-conformance,
and the responsible party(ies) shall bear the financial obligation for
the non-conformance, and Company and Supplier have rights and
obligations as set forth in Paragraph 5, Material Warranty.
In the event that the MRB is unable to resolve discrepancies among
test results relied upon by Company for release of material
manufactured by Supplier, Company and Supplier agree to submit the
material to a mutually-agreed third party to verify disputed test
results of Company or Supplier, using validated analytical methods
previously utilized by both Company and Supplier. Company and Supplier
agree to share equally in the cost of obtaining such verified results.
Based on an analysis of these results, Company will either purchase
material or have the option of enforcing its rights as defined in
Paragraph 5 Material Warranty.
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<PAGE> 7
e. Shipping
--------
Company will notify Supplier of intended shipments for material
released by Company. Except as provided herein with respect to
non-conforming product, title and risk of loss as to all materials
shipped shall pass upon transfer by Supplier to such carrier at the
manufacturing facility. Company will establish all shipment,
packaging, labeling and storage requirements, with which Supplier will
comply. The Project, Validation Lot or Commercial Plans will include
these specific requirements. Supplier will ship Compound, CCA or other
intermediates or material to a location specified in writing by
Company. Company shall be responsible for paying all shipping costs,
tariffs and duties assessed and due. Supplier will provide storage for
packaged material, without charge, until Company provides shipping
instructions to Supplier. Company will provide shipping instructions
to Supplier for finished lots of Compound not more than ninety (90)
days from the date Company releases finished lots of Compound.
Supplier will maintain adequate business insurance to cover material
replacement in the event of material loss during Supplier's
manufacture or material storage up to a maximum of $750,000.
7. Independent Contractor and Third Party Subcontractors
-----------------------------------------------------
Supplier is an independent contractor, not an employee or agent of Company,
and will be solely responsible for maintaining its labor force and
operations. Company and Supplier do not intend to create any partnership,
joint venture, employment or agency relationship pursuant to this
Agreement. Except upon the prior written consent of Company, Supplier shall
have no right to bind Company by contract, or otherwise to transact any
business in Company's name or on Company's behalf, in any manner or form,
or to make any promises or representations on its behalf. Supplier will not
represent to anyone that it is an agent of Company or otherwise authorized
to bind or commit Company in any way.
Supplier shall remain directly responsible for Supplier's performance
hereunder, even though Supplier may utilize third party contractors that it
deems have the requisite expertise and skill to meet Supplier's performance
obligations under this Agreement. Should Supplier utilize third party
personnel other than those to whom Company has agreed, Supplier will
provide Company with an opportunity to review and confirm Supplier's
selection. Should Company object to Supplier's candidate, Company and
Supplier will negotiate to identify other, more suitable personnel.
Page 8 of 21
<PAGE> 8
8. Document Retention, Facility Access and Notice to Company
---------------------------------------------------------
a. Document Retention
------------------
Supplier agrees to assist Company in its submission and maintenance
post approval of the New Drug Application (NDA) for Compound and will
compile, organize and retain all information necessary to support
Company's regulatory requirements for Compound, and will provide
Official Copies of relevant documentation within a mutually agreed
period. Supplier will maintain a current Type I Facility Drug Master
File and will provide to Company a Letter of Authorization to cross-
reference the Drug Master File. All cGMP-related documentation and
data (relating to Compound, CCA and other intermediates, including,
without limitation, material samples, slides, records, and other
documents and/or materials generated by Supplier on Company's behalf)
shall be retained by Supplier unless otherwise indicated by the
Company. Company shall notify Supplier in writing as to the
disposition of any such documentation, data and information retained
by Supplier prior to such action. All documentation or material
furnished to Supplier by Company and used in connection with
Supplier's performance under this Agreement, will be returned to
Company upon the first to occur of: 1) completion of any specific
project; or 2) termination of this Agreement, except for one (1)
archival copy and required material samples which must be retained at
least 5 years past approval of the NDA.
b. Facility Access
---------------
Upon giving prior written notice to Supplier, Company or its
authorized designees shall have the right to inspect Supplier's
facilities and documentation at normal business hours to ensure
compliance with this Agreement, including applicable regulatory
requirements. Company may review or request copies of regulatory or
cGMP data at any time.
Supplier will not unreasonably withhold access by Company to data,
documentation, material, laboratories or facilities, wherever located,
if such access is required for verification of Supplier's performance
hereunder or in connection with government regulatory agency requests.
c. Notice to Company
-----------------
Supplier will immediately notify Company's Director of a duly
authorized regulatory agency's (federal, state or municipal)
communication, visit, investigation or inquiry of Supplier's process
or facilities and relating to Company's Compound (Event), and
Supplier's written confirmation thereof
Page 9 of 21
<PAGE> 9
shall not be later than twenty-four (24) hours from Supplier's first
knowledge of the Event. Supplier's notice shall provide Company's
Director of Compliance with the following information:
i. The agency;
ii. Purpose of communication, visit, investigation or inquiry;
iii. Name(s) of inspector(s) and credential number; and
iv. A copy of form(s) issued by inspector, if any.
Communications to Supplier by the FDA regarding Supplier's Type I
DMF will require notification of the Company's Director of
Regulatory Affairs, both orally and in writing, within 24 hours
of receipt of such communication.
In addition, Supplier will handle Confidential and Proprietary
Information in accordance with the provisions of Paragraph 13,
Confidentiality. Supplier shall obtain Company's approval prior
to Supplier providing to any third party copies of documentation
which contain information related to Company.
Company will assist Supplier in responding to the communication,
visit, investigation or inquiry relating to Company's Compound.
In addition to the foregoing, Supplier will notify Company's
Director of Manufacturing Operations orally and in writing of any
interruption in Supplier's manufacturing activities that relates
to or affects Supplier's performance under this Agreement and
could likely affect delivery schedules. Supplier's notice shall
not be later than twenty- four (24) hours from Supplier's first
knowledge of the manufacturing interruption.
9. Licensing and Permitting
------------------------
Supplier shall be responsible for applying for and obtaining all federal
and local licenses and permits required in connection with its manufacture
of Compound, CCA and other intermediates. In this regard, Company shall
provide all reasonable assistance to Supplier. In addition, Supplier shall
bear the cost of all license and permit fees.
Page 10 of 21
<PAGE> 10
10. Production Results
------------------
Each month, Supplier will provide to Company, particularly in connection
with Supplier's manufacture of commercial quantities of Compound,
Supplier's status and quantities of inventories of raw materials,
intermediates and Compound. In addition, at the conclusion of production
runs, as defined in the Project, Validation Lot and Commercial Operation
Plans. Supplier will provide a final Campaign Report for the production
runs, as requested by Company.
11. Commercial Forecasting
----------------------
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Commencing in June 1997 and continuing ***** thereafter through the end of
the Agreement term, Company and Supplier will meet to prepare commercial
production and delivery forecasts. The parties intend that the *****
meetings will provide timely notice of potential conflicts in Company's
needs for Compound and Supplier's scheduling and production vacancies or
restrictions. Based on these discussions, Company and Supplier will agree
to a "rolling" production and delivery schedule for each successive
12-month period.
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
In June 1997, Company and Supplier will agree to an initial ***** forecast,
which will commit both parties to production, delivery and payment
obligations for the *****. Thereafter, at each quarterly meeting, Company
and Supplier will commit to production, delivery and payment obligations
for the ***** and establish a forecast for the *****. The commercial
forecasting procedures discussed herein are subject to any provisions of
Paragraph 3, Term and Termination.
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Following each ***** meeting with Supplier, Company will issue a Purchase
Order for Supplier's committed production and delivery, reflecting
Supplier's and Company's current commitment. Product deliveries made
thereafter will be applied against outstanding Purchase Orders, as
specified by Company.
12. Costs and Payments
------------------
Generally, Company and Supplier agree to a fixed price for Supplier's
manufacture of pilot plant and validation lots for both the Compound and
the CCA intermediate. Commercial Compound prices will be based on a
per-kilo, volume-adjusted manufacturing price, which take into account
specific inflation, currency and yield adjustments (resulting from gained
process efficiencies or technical advances in manufacturing). Supplier is
liable for paying all necessary taxes, licensing fees and other assessments
in connection with manufacturing material hereunder. All invoices will be
billed in US dollars (USD $).
Page 11 of 21
<PAGE> 11
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Specifically, Company will be liable to Supplier for the *****
PILOT LOTS OF CCA
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
*****
Page 12 of 21
<PAGE> 12
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
*****
Page 13 of 21
<PAGE> 13
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Company and Supplier agree that ***** of the total payment--less ***** as
discussed below--will be due to Supplier net ***** upon receipt of
Supplier's invoice to Company. Supplier will invoice Company (in USD $) for
the CCA intermediate and Compound produced during pilot plant or validation
lot operations upon providing documentation to the Company as set forth in
Paragraph 6a, Manufacturing Documentation. However, Company will reimburse
Supplier for all ***** set forth above as they are incurred by Supplier.
Reimbursement for ***** will be due net ***** upon receipt of Supplier's
invoice.
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Within ***** of Company's receipt of all completed production records (as
specified in Paragraph 6.a, Manufacturing Documentation) Company will issue
a Certificate of Analysis and product release document, provided that the
corresponding documentation conforms with agreed specifications and
standards as set forth in the Project Plan and Validation Lot Plan.
Supplier will then invoice the Company for the remaining ***** balance
which will be due net ***** upon receipt of Supplier's invoice. Company's
payment of any outstanding dues will not serve to waive any rights it may
have in law or as specifically stated herein, should delivered material not
meet established standards.
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Price for manufacturing commercial Compound lots and payment schedules will
be discussed upon commencement of the ***** forecasting meeting as
discussed in Paragraph 11, Commercial Forecasting. Supplier and Company
will agree to manufacturing rates by the end of the ***** for the upcoming
calendar year and will revise manufacturing rates accordingly. Factors that
affect manufacturing rates will include:
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
*****
Page 14 of 21
<PAGE> 14
(The information below marked by ***** has been omitted by a request for
confidential treatment. The omitted portion has been separately filed with the
Commission.)
Company may increase Supplier's production of Compound intermediates above
levels required to meet Company's forecasted needs for Compound. If so
requested, Supplier will manufacture designated intermediates and will
store this material without charge for future conversion to Compound. In
this event, Supplier may invoice Company, at a mutually agreed price, for
manufacturing the additional requested inventory of intermediates. Unless
otherwise stated, all invoices from Supplier will be due net ***** from
Company's receipt of the invoice.
The cost for any capital improvements that Supplier and Company deem
necessary for the manufacture of material under the Commercial Operation
Plan shall be an itemized cost in the cost structure for manufacturing
during the initial term of Supplier's commercial production for the
Company.
The parties agree that in the event a dispute arises regarding the accuracy
of Supplier's costs, Company may appoint an independent financial auditor,
at Company's sole expense, to review Supplier's records at reasonable and
convenient times to verify Supplier's calculations. Said independent
financial auditor shall be permitted to verify and report to Company on the
accuracy of Supplier's price. Based on the findings of this independent
auditor, Company and Supplier will negotiate and agree to commercial
manufacturing price adjustments.
13. Confidentiality
---------------
Supplier shall remain bound by the terms and conditions of the Confidential
Disclosure Agreement between Company and Supplier, dated March 22, 1994,
and amended April 25, 1996 (collectively, CDA), which is incorporated by
reference in its entirety and attached hereto as Exhibit A. Company and
Supplier agree that the Confidentiality Period set forth in the CDA shall
be extended to run ten (10) years from the date of termination of this
Agreement.
Page 15 of 21
<PAGE> 15
14. Intellectual Property
---------------------
IP created during performance under and specifically in connection with
this Agreement which is conceived:
i. Solely by Company's personnel shall be owned by the Company (Company
IP);
ii. Solely by Supplier's personnel shall be owned by Supplier (Supplier
IP); and
iii. Jointly by Company's and Supplier's personnel shall be jointly owned
by Company and Supplier (Joint IP).
Inventorship in IP that is created and developed during performance under
this Agreement shall be determined by Company, in consultation with
Supplier, according to United States patent law and the Washington State
Uniform Trade Secrets Act.
Patents covering Supplier IP shall be prepared, filed and prosecuted solely
by counsel selected by Supplier and reviewed and approved by Company (which
approval shall not be unreasonably withheld), but at Company's sole cost
and expense. Supplier shall provide Company with copies of all such patent
applications and relevant communications therefor, including, but not
limited to, patent office correspondence. Prior to filing a patent
application or filing or responding to any outstanding communication in the
Supplier IP patent application, Supplier will make all reasonable effort to
provide Company with thirty (30) days notice to review and provide comment.
Patents for Company and Joint IP shall be prepared, filed and prosecuted
solely by counsel selected by Company and at Company's sole cost and
expense. In the case of Company IP, Company will timely notify Supplier
that Company has filed a patent application covering Company IP.
In the case of Joint IP, Company shall provide Supplier with copies of all
such Joint IP patent applications and relevant communications, including,
but not limited to, correspondence from or to counsel or a patent office.
Prior to filing a patent application or filing or responding to any
outstanding communication from counsel or a patent office in connection
with a Joint IP patent application, Company will provide Supplier with
thirty (30) days notice to review and provide comment.
Page 16 of 21
<PAGE> 16
15. Intellectual Property Rights
----------------------------
If during the course of performing work under this Agreement, Supplier or
Joint IP is created and developed which is pertinent to the synthesis of
Compound or an intermediate, Supplier will assign all its rights in
Supplier or Joint IP to Company, but shall retain a non-exclusive,
royalty-free license to use Supplier or Joint IP in applications which do
not compete with the synthesis of Company's Compound or intermediates.
The parties acknowledge that Supplier owns or may own (or may have license
rights in) manufacturing technology (Supplier Technology) that may offer
certain manufacturing advantages if utilized in Supplier's performance
under this Agreement. In the event that Supplier and Company agree that
incorporating such Supplier Technology into Company's process for
manufacturing Compound, CCA and/or intermediates is prudent and warranted,
Supplier will use reasonable efforts to obtain Company's ability to utilize
Supplier Technology, on reasonable terms to be negotiated.
Furthermore, should Company integrate Supplier Technology into Company's
process for manufacturing Compound, CCA and/or intermediates and Company
subsequently requires the manufacturing services of a third party, Company
will obtain Supplier's authorization for a third party's use of the
Supplier Technology, on reasonable terms to be negotiated.
16. Publication and Promotion
-------------------------
Supplier may only publish details of the synthesis or manufacture of
Compound, CCA or intermediates upon obtaining prior written permission of
Company.
The text of any press release or other communication to be published in the
media concerning the subject matter of this Agreement, Compound or the
parties' relationship shall require the approval of both Company and
Supplier. Company shall have the right to request removal of confidential
information and may require that publication be delayed up to a maximum of
three (3) months from first notification of such publication to enable
Company to protect its Intellectual Property rights.
Supplier agrees not to use or imply Company's name for advertising,
self-promotion purposes, raising capital, recommending investments, which,
inter alia, implies endorsement by Company, and will only reference
Company's name after obtaining Company's prior written permission.
Page 17 of 21
<PAGE> 17
17. Indemnification
---------------
a. Supplier to Company
-------------------
Supplier shall indemnify, defend and hold harmless Company, its
officers, directors, employees, and agents against any liability,
obligation, loss, damage, penalty, action, judgment, suit, expenses
(including reasonable attorney's fees) or disbursements of any kind
and nature whatsoever arising out of: (i) any breach by Supplier of
its obligations under this Agreement; (ii) a patent infringement claim
relating to manufacturing technology provided by Supplier; or (iii)
personal injury resulting from an adverse reaction of the Compound,
which is due to Supplier's breach of Material Warranty, determined in
accordance with the provisions of paragraph 6(d), provided that
Company gives reasonable notice to Supplier of such claim, suit or
action and such liability, obligation, loss, damage, penalty, action
or judgment is not the result of Company's negligent act or omission
or willful misconduct.
Provided Supplier properly protects the interests of Company and
Supplier and Company do not have conflicting defenses, Supplier shall
have exclusive control of the defense of any such action and
settlement or compromise negotiations, except that prior to accepting
any settlement or compromise, Supplier will inform Company in writing
of the terms of the anticipated settlement or compromise. Company will
provide Supplier, at Supplier's expense with reasonable assistance in
defending any claim, suit or action. Such assistance shall not be
deemed a waiver of Company's indemnification rights hereunder.
b. Company to Supplier
-------------------
Company shall indemnify, defend and hold harmless Supplier, its
officers, directors, employees, and agents against any liability,
obligation, loss, damage, penalty, action, judgment, suit, expenses
(including reasonable attorney's fees) or disbursements of any kind
and nature whatsoever arising out of: (i) any breach by Company of its
obligations under this Agreement; (ii) a patent infringement claim
relating to the Compound, intermediates and/or manufacturing
technology provided by Company; or (iii) personal injury resulting
from an adverse reaction of the Compound, which is not caused by
Supplier's breach of Material Warranty, determined in accordance with
the provisions of paragraph 6(d), provided that Supplier gives
reasonable notice to Company of such claim, suit or action and such
liability, obligation, loss, damage, penalty, action or judgment is
not the result of Supplier's negligent act or omission or willful
misconduct.
Page 18 of 21
<PAGE> 18
Provided Company properly protects the interests of Supplier and
Company and Supplier do not have conflicting defenses, Company shall
have exclusive control of the defense of any such action and
settlement or compromise negotiations, except that prior to accepting
any settlement or compromise, Company will inform Supplier in writing
of the terms of the anticipated settlement or compromise. Supplier
will provide Company, at Company's expense with reasonable assistance
in defending any claim, suit or action. Such assistance shall not be
deemed a waiver of Supplier's indemnification rights hereunder.
18. Notices
-------
All notices required or permitted to be given under this Agreement shall be
in writing and shall be delivered personally, sent by secure facsimile or
mailed prepaid to the persons named and addresses set forth below.
If to Company: Director of Manufacturing Operations
Cell Therapeutics, Inc.
201 Elliott Avenue West, Suite 400
Seattle, Washington 98119
Telephone No.: (206) 282-7100
Facsimile No.: (206) 284-6206
If to Supplier: Chairman and CEO
ChiRex Ltd.
Dudley, Cramlington
Northumberland, NE23 7QG
ENGLAND
Telephone No.: 0191 250 0471
Facsimile No.: 0191 250 1154
19. Applicable Law and Jurisdiction
-------------------------------
This Agreement shall be construed in accordance with, and its performance
shall be governed by, the laws of the State of Washington, exclusive of
choice of law provisions.
20. Force Majeure
-------------
If Supplier cannot perform its obligations hereunder by reason of
impediment such as Acts of God, war, rebellion, tumult, riot, civil
commotion, insurrection, political disturbance, strike, lock-out, fire,
flood, interruption of transportation, embargo, shortage of raw materials,
instruction of the authorities or any other
Page 19 of 21
<PAGE> 19
cause or event of similar nature affecting Supplier and over which Supplier
has no control, Supplier shall have the right to postpone performance of
such obligation for the duration of such impediment. Supplier shall
immediately notify Company (no later than twenty-four (24) hours from
Supplier's first knowledge of the impediment) and provide an anticipated
duration of the impediment. In addition, Supplier shall subsequently notify
Company as quickly as possible of its cessation.
In the case of Force Majeure affecting Supplier, should Supplier not be
able to resume performance hereunder within two (2) weeks of the occurrence
of the impediment, Company shall be entitled to obtain Compound or other
materials from an alternative supplier. Materials obtained from another
source will accordingly reduce commercial forecasts. Company will remain
liable to Supplier only for fees and expenses of material manufactured by
Supplier satisfying all requirements of this Agreement and shipped to
Company in accordance with the provision of Paragraph 6.e, Shipping through
the occurrence of the impediment. Supplier shall cooperate and make all
effort to assist Company in transferring technology for manufacturing of
Compound to the other source for material.
21. Amendments
----------
Any amendments, changes, or revisions to this Agreement must be proposed in
writing by either party, and accepted in writing by the other party before
they shall become effective and binding.
22. Assignment
----------
This Agreement being for specialized manufacturing services, Supplier shall
not assign, transfer or convey this Agreement or any moneys due or to
become due hereunder without the prior written consent of Company; however,
this Agreement shall enure to benefit Company, its assigns, subsidiaries or
successors in business.
23. Entire Agreement
----------------
This Agreement (all Exhibits and documents attached hereto and referenced
herein) represents the entire understanding and agreement between Company
and Supplier. In the event that a conflict arises between this Agreement
and printed terms and conditions on any subsequently prepared document
concerning performance of the parties under this Agreement, the terms and
conditions provided in this Agreement shall prevail, unless the document
satisfies the requirements herein for amendments to this Agreement.
Page 20 of 21
<PAGE> 20
IN WITNESS WHEREOF, the parties by their authorized representatives have
set their hands on the day first above written.
CELL THERAPEUTICS, INC. CHIREX LTD.
By: /s/ Maurice J. Schwarz By: /s/ Alan R. Clark
--------------------------------- ---------------------------------
Maurice J. Schwarz Alan R. Clark
Title: EVP, Product Development Title: Chairman CEO
-------------------------- ------------------------------
Address: 201 Elliott Avenue West Address: Dudley, Cramlington
-------------------------- ---------------------------
Seattle, Washington 98119 Northumberland, NE237QG
-------------------------- ---------------------------
USA ENGLAND
-------------------------- ---------------------------
The remaining portion of this page left intentionally blank.
Page 21 of 21
<PAGE> 21
Exhibit A
SANOFI WINTHROP LIMITED
AND
CELL THERAPEUTICS INC
AND
STERLING ORGANICS
- ---------------------------------
CONFIDENTIAL DISCLOSURE AGREEMENT
- ---------------------------------
Sanofi Winthrop Limited
One Onslow Street
Guildford
Surrey GU1 4YS
Telephone :0483 505515
Reference :AWS/ERIB.SOA11054
Date :11th May 1994
<PAGE> 22
2
THIS AGREEMENT is made the 22 day of March 1994 BETWEEN SANOFI WINTHROP LIMITED
whose principal office is situate at One Onslow Street, Guildford, Surrey GU1
4YS (hereinafter called "Sanofi Winthrop") of the one part and CELL THERAPEUTICS
INC of 201 Elliott Avenue West, Suite 400, Seattle, Washington 98119, USA
(hereinafter called "Cell") of the other part and STERLING ORGANICS, a division
of Sterling Winthrop of 33 Riverside Avenue, Rensselaer, New York 12144, USA
(hereinafter called "Sterling Organics").
WHEREAS:
Sanofi Winthrop, Cell and Sterling Organics wish to exchange information
concerning various processing options for Compound CT-1501R (hereinafter called
"the Options") enabling Cell to evaluate their interest in pursing the options
(hereinafter called "the Evaluation")
Much of the information disclosed by Sanofi Winthrop, Cell and Sterling Organics
will be of a confidential nature and by entering into this agreement the parties
wish to ensure that such confidentiality is preserved.
NOW THEREFORE IT IS AGREED as follows:
1. Confidential Information
In this Agreement "Confidential Information" means any scientific,
statistical, commercial or technical information, know-how or data
relevant to the Options which may be disclosed or communicated hereunder
by one party hereto to another either directly or indirectly and whether
in writing, by drawings, samples or by any other means for the purpose of
the Evaluation.
2. Disclosure
Promptly after the execution of this Agreement, Sanofi Winthrop, Cell and
Sterling Organics shall disclose all such Confidential Information which
the disclosure is free to disclose for the purpose only of enabling the
Evaluation to take place.
3. Undertaking
In consideration of the disclosure of Confidential Information by each
party to the other, Sanofi Winthrop, Cell and Sterling Organics hereby
undertakes to keep secret and strictly confidential all such Confidential
Information of the other party which shall not be disclosed to any third
party nor used for purposes other than the said Evaluation without the
disclosing party's express written consent to such disclosure or use.
<PAGE> 23
3
4. Limitation of Confidentiality
The obligations of confidence and non-use herein and any implied by law
shall continue for a period of ten (10) years from the date hereof
notwithstanding the completion of the Evaluation but shall not apply to
any part of the Confidential Information which:
(a) it can be proved by evidence in writing was known to the recipient
before its receipt from the discloser;
(b) was available to the public before that date or was in the public
domain;
(c) becomes available to the public or to the public domain after that
date otherwise than as a result of an act or default of the
recipient;
(d) is received by the recipient from a third party not bound to the
disclosing party by any obligation of secrecy; or
(e) is independently developed by the recipient after that date without
using the Confidential Information.
5. Employee's Obligations
All parties shall ensure that any of their employees who receive the
Confidential Information are both advised of the confidentiality and use
terms of this Agreement and have, as part of their terms and conditions of
employment, undertaken obligations of confidentiality to their employer
concerning information received in the course of their employment.
6. Return of Information
Whether on termination of the Discussions for any reason whatsoever or at
any time upon the request of any party, the other shall return forthwith
to the party making the request all written or other documentary
Confidential Information, by whomsoever prepared, together with all
samples, models and the like in its possession embodying Confidential
Information of the other.
7. Governing Law
This Agreement shall be governed in all respects by the laws of the State
of Washington, USA.
<PAGE> 24
4
IN WITNESS whereof the parties have caused this Agreement to be signed by their
duly authorized representatives the day and year first above written.
SIGNED BY ) /s/ J. Graham Thorpe
for and on behalf of ) March 22, 1994
SANOFI WINTHROP LIMITED )
SIGNED BY ) /s/ Jeffrey B. Oster
for and on behalf of ) March 22, 1994
CELL THERAPEUTICS INC )
SIGNED BY ) /s/ John G. Fallone
for and on behalf of ) March 22, 1994
STERLING ORGANICS )
<PAGE> 25
[CHIREX LTD. LETTERHEAD]
JGT/ljc secrecy/c94008 20th March 1996
Cell Therapeutics Inc.
201 Elliott Avenue West
Seattle
Washington 98119
USA
Notification of Name Change and Transfer of Responsibilities
Dear Sirs,
I refer to the agreement dated March 22nd, 1994 made between Sterling Organics
Limited and Cell Therapeutics Inc. concerning various processing options for
Compound CT-1501R ("the Agreement").
I am writing to advise you that Sterling Organics Ltd. has merged with
SepraChem Inc. to form a new Public Company called ChiRex Inc.
The manufacturing and research and development facilities of the new company
are based at Dudley and are encompassed by the new U.K. legal entity ChiRex
Ltd. Accordingly the above agreement is transferred to ChiRex Ltd. who will
continue to fulfill the terms and obligations of the agreement.
Yours faithfully,
/s/ J.G. Thorpe
J.G. THORPE
- -----------
Business Development Director
Accepted and Acknowledged by Dalton Weekley (Name)
----------------------
/s/ Dalton Weekley (Signature)
----------------------
April 25, 1996 (Date)
----------------------
<PAGE> 1
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
Exhibit 10.12
LICENSE AGREEMENT
BETWEEN
PRESIDENT AND FELLOWS OF HARVARD COLLEGE
AND
CHIREX
Effective as of 3rd February, 1997
Re: Harvard Case No. Jacobsen 1163
In consideration of the mutual promises and covenants set forth below, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 AFFILIATE: any company, corporation, or business in which LICENSEE owns or
controls at least fifty percent (50%) of the voting stock or other
ownership. Unless otherwise specified, the term LICENSEE includes
AFFILIATES.
1.2 FIELD: Manufacture of human and veterinary pharmaceuticals and their
intermediates, compounds for use in drug discovery, agrochemicals, food,
flavor, and electronic chemicals.
1.3 HARVARD: President and Fellows of Harvard College, a nonprofit
Massachusetts educational corporation having offices at the Office for
Technology and Trademark Licensing, 124 Mt. Auburn Street, Suite 410 South,
Cambridge, Massachusetts 02138.
1.4 LICENSED PROCESSES: the processes covered by PATENT RIGHTS.
1.5 LICENSED PRODUCTS: produces covered by PATENT RIGHTS or products made or
services provided in accordance with or by means of LICENSED PROCESSES.
1
<PAGE> 2
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
1.6 LICENSEE: ChiRex, a Delaware corporation, having its principal offices at
65 Williams St., Wellesley, MA 02131.
1.8 NET SALES: The amount billed, invoiced, or received (whichever occurs
first) for sales, leases, or other transfers of LICENSED PRODUCTS, less:
(a) customary trade, quantity or cash discounts and non-affiliated brokers
or agents' commissions actually allowed and taken;
(b) amounts repaid or credited by reason of rejection or return; and
(c) to the extent separately stated on purchase orders, invoices or other
documents of sale, taxes levied on and/or other governmental charges
made as to production, sale, transportation, delivery or use and paid
by or on behalf of LICENSE or sublicensees.
(d) reasonable charges for delivery or transportation provided by third
parties, if itemized.
(e) royalty payments to unrelated third party entities in compensation for
rights to manufacture, use or sell LICENSED PRODUCTS.
NET SALES also includes the fair market value of any non-cash consideration
received by LICENSEE or sublicensees for the sale, lease, or transfer of
LICENSED PRODUCTS.
1.9 NON-COMMERCIAL RESEARCH PURPOSES: use of PATENT RIGHTS for academic
research or other not-for-profit scholarly purposes which are undertaken at
a non-profit or governmental institution that does not use the PATENT
RIGHTS in the production or manufacture of products for sale or the
performance of services for a fee.
1.10 NON-ROYALTY SUBLICENSE INCOME: Sublicense issue fees, sublicense
maintenance fees, sublicense milestone payments, and similar non-royalty
payments made by sublicensees to LICENSEE on account of sublicenses
pursuant to this Agreement, less amounts paid by LICENSEE to unrelated
third party entities in compensation for rights to manufacture, use or sell
LICENSED PRODUCTS. The foregoing notwithstanding, NON-ROYALTY SUBLICENSING
INCOME shall not include funds received for purchase of equity or funds
received in support of research and development.
1.11 PATENT RIGHTS: United States patent application Serial No. ***** ***** the
inventions described and claimed therein, and any divisions, continuations,
continuations-in-part which are dominated by the claims of the existing
PATENT RIGHTS (US patent application serial no. ***** patents issuing
thereon or reissues thereof, and any and all
2
<PAGE> 3
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
foreign patents and patent applications corresponding thereto, all to
the extent owned or controlled by HARVARD.
1.12 TERRITORY: Worldwide.
1.13 The terms "Public Law 96-517" and "Public Law 98-620" include all
amendments to those statutes.
1.14 The terms "sold" and "sell" include, without limitation, leases and other
transfers and similar transactions.
ARTICLE II
REPRESENTATIONS
2.1 HARVARD is owner by assignment from Eric Jacobsen, James Leighton and Luis
Marinez of their entire right, title and interest in United States Patent
Application Serial No. ***** entitled "Stereo Selective Ring Opening
Reactions, (H.U. Case #1163), and the foreign patent applications
corresponding thereto, and in the inventions described and claimed therein.
The technology pertains specifically to epoxide ring opening reactions
using asymmetric metal chelate catalysts with a variety of nucleophiles to
make enantiomerically enriched epoxides, diols and other products.
2.2 HARVARD has the authority to issue licenses under PATENT RIGHTS.
2.3 HARVARD is committed to the policy that ideas or creative works produced at
HARVARD should be used for the greatest possible public benefit, and
believes that every reasonable incentive should be provided for the prompt
introduction of such ideas into public use, all in a manner consistent with
the public interest
2.4 LICENSEE is desirous of obtaining an exclusive license in the TERRITORY and
FIELD in order to practice the above referenced invention covered by PATENT
RIGHTS in the United States and in certain foreign countries, and to
manufacture, use and sell in the commercial market the products made in
accordance therewith, and HARVARD is desirous of granting such a license to
LICENSEE in accordance with the terms of this Agreement.
2.5 LICENSEE is desirous of obtaining an exclusive license in the TERRITORY and
FIELD in order to practice the above-referenced invention covered by PATENT
RIGHTS in the United States and in certain foreign countries, and to
manufacture, use and sell in the commercial market the products made in
accordance therewith, and HARVARD is desirous of granting such a license to
LICENSEE in accordance with the terms of this Agreement.
3
<PAGE> 4
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
ARTICLE III
GRANT OF RIGHTS
3.1 HARVARD hereby grants to LICENSEE and LICENSEE accepts, subject to the
terms and conditions hereof, in the TERRITORY and in the FIELD:
(a) an exclusive commercial license under PATENT RIGHTS to the extent
PATENT RIGHTS are dominated by issued patents corresponding to U.S.
Patent Application Serial No. ***** and to the extent such patents are
exclusively licensed by LICENSEE,
to make and have made, to use and have used, to sell, have sold and import
the LICENSED PRODUCTS, and to practice the LICENSED PROCESSES, for the life
of the PATENT RIGHTS. Such licenses shall include the right to grant
sublicenses, subject to HARVARD'S approval, which approval shall not be
unreasonably withheld. In order to provide LICENSEE with commercial
exclusively for so long as the license under PATENT RIGHTS remains
exclusive, HARVARD agrees that it will not grant licenses under PATENT
RIGHTS to others within the scope of the rights granted herein except as
required by HARVARD's obligations in paragraph 3.2(a) or as permitted in
paragraph 3.2(b).
3.2 The granting and exercise of this license is subject to the following
conditions:
(a) HARVARD's "Statement of Policy in Regard to Inventions, Patents and
Copyrights," dated March 17, 1986, Public Law 96-517, Public Law
98-620, and HARVARD's obligations under agreements with other sponsors
of research. Any right granted in this Agreement greater than that
permitted under Public Law 96-517, or Public Law 98-620, shall be
subject to modification as may be required to conform to the
provisions of those statutes.
(b) HARVARD reserves the right to
(i) make and use, and grant to others non-exclusive licenses in the
FIELD to make and use for NON-COMMERCIAL RESEARCH PURPOSES, the
subject matter described and claimed in PATENT RIGHTS.
(c) LICENSEE shall use diligent efforts to effect introduction of the
LICENSED PRODUCTS into the commercial market as soon as practicable ,
consistent with sound and reasonable business practice and judgment;
thereafter, until the expiration of this Agreement,
4
<PAGE> 5
LICENSEE shall endeavor to keep LICENSED PRODUCTS reasonably
available to the public.
(d) At any time after three years from the effective date of this
Agreement, HARVARD may terminate or render this license non-exclusive
if, in HARVARD's reasonable judgment, the Progress Reports furnished
by LICENSEE do not demonstrate that LICENSEE:
(i) has put the licensed subject matter into commercial use in the
country or countries hereby licensed, directly or through a
sublicense, and is not keeping the licensed subject matter
reasonably available to the public, or
(ii) is engaged in research, development, manufacturing, marketing or
sublicensing activity appropriate to achieving 3.2(d)(i).
(iii) remains an exclusive licensee of the patents and patent
applications sited in Section 3.1(a) above.
(e) In all sublicenses granted by LICENSEE hereunder, LICENSEE shall
include a requirement that the sublicensee use its best efforts to
ring the subject matter of the sublicense into commercial use as
quickly as is reasonably possible. LICENSEE shall further provide in
such sublicenses that such sublicenses are subject and subordinate to
the terms and conditions of this Agreement, except (i) the sublicensee
may not further sublicense; and (ii) the rate of royalty on NET SALES
paid by the sublicensee to the LICENSEE. Copies of all sublicense
agreements shall be provided promptly to HARVARD.
(f) LICENSEE will negotiate sublicenses reasonably and in good faith with
any party interested in a sublicense and as suggested by HARVARD
unless such potential sublicensee, in LICENSEE's reasonable judgment
is a direct competitor in the business in which LICENSEE, or its
sublicensees, is selling or using the LICENSED PRODUCTS or LICENSED
PROCESSES and the granting of such license would not materially
increase the availability to the public of LICENSED PRODUCTS.
(g) A license in any other territory or field of use in addition to the
TERRITORY and/or FIELD shall be subject of a separate agreement and
shall require LICENSEE's submission of evidence, satisfactory to
HARVARD, demonstrating LICENSEE's willingness and ability to develop
and commercialize in such other territory and/or field of use the
kinds of products or processes likely to be encompassed in such other
territory and/or field.
5
<PAGE> 6
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
(h) LICENSEE shall cause any LICENSED PRODUCT for sale in the United
States to be manufactured in accordance with all applicable United
States regulations relating to manufacture and place of manufacture,
including the regulations explicitedly stated in Public Laws 96-517
and 98-620.
3.3 All rights reserved to the United States Government and others under Public
Law 96-517, and Public Law 98-620, shall remain and shall in no way be
affected by this Agreement.\
ARTICLE IV
ROYALTIES
4.1 LICENSEE shall pay to HARVARD a non-refundable license royalty fee in the
sum of ***** upon execution of this Agreement, and the sum of ***** open
issuance of the first U.S. patent in PATENT RIGHTS.
4.2 (a) LICENSEE shall pay to HARVARD during the term of this Agreement a
royalty of ***** of NET SALES by LICENSEE and sublicensees. In the
case of sublicensees, such as pharmaceutical companies who wish to
perform the process relating to the PATENT RIGHTS in house, but who
will not be selling LICENSED PRODUCTS, LICENSEES, in consultation with
HARVARD, will negotiate a suitable royalty on sales os such
sublicensee's end product. LICENSEE will pay to HARVARD ***** of such
negotiated royalty, less payments by LICENSEE to unrelated third party
enmities in compensation for rights to manufacture, use or sell
LICENSED PRODUCTS.
In the case of sublicenses, LICENSEES shall also pay to HARVARD a
royalty of ***** of NON-ROYALTY SUBLICENSE INCOME under any sublicense
executed during the two (2) years immediately following execution of
this agreement and ***** of NON-ROYALTY SUBLICENSE INCOME under any
other sublicenses.
(b) If the license pursuant to this Agreement is converted to a
non-exclusive one and if other non-exclusive licenses in the same
field and territory are granted, the above royalties shall not exceed
the royalty rate to be paid by other licensees in the same field and
territory during the term of the non-exclusive license.
(c) On sales between LICENSEE and its AFFILIATES or sublicensees for
resale, the royalty shall be paid on the NET SALES of the AFFILIATE or
sublicensee.
6
<PAGE> 7
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
4.3 No later than January 1 of each calendar year after the effective date of
this Agreement, LICENSEE shall pay to HARVARD the following non-refundable
license maintenance royalty and/or advance on royalties. Such payments may
be credited against running royalties due for that calendar year and
Royalty Reports shall reflect such a credit. Such payments shall not be
credited against milestone payments (if any) nor against royalties due for
any subsequent calendar year.
January 1, 1998 *****
January 1, 1999 *****
each year thereafter *****
ARTICLE V
REPORTING
5.1 Within sixty (60) days of execution of this Agreement, LICENSEE will
provide to HARVARD a written research and development plan under which
LICENSEE intends to bring the subject matter of the licenses granted
hereunder into commercial use. Such plan includes projections of sales and
proposed marketing efforts and these shall be kept confidential.
5.2 No later than ninety (90) days after June 30 of each calendar year,
LICENSEE shall provide to HARVARD a written annual Progress report
describing progress on research and development, regulatory approvals,
manufacturing, sublicensing, marketing and sales during the most recent
twelve (12) month period ending June 30 and plans for the forthcoming year.
LICENSEE shall also provide any reasonable additional data HARVARD requires
to evaluate LICENSEE's performance and these shall be kept confidential.
5.3 LICENSEE shall report to HARVARD the date of first commercial sale of
LICENSED PRODUCTS (or commercial results of LICENSED PROCESSES) in each
country within thirty (30) days of occurrence.
5.4 (a) LICENSEE shall submit to HARVARD within ninety (90) days after each
calendar half year ending June 30 and December 31, a Royalty Report
setting forth for such half year at least the following information:
(i) The number of LICENSED PRODUCTS sold by LICENSEE, its AFFILIATES
and sublicensees in each country;
(ii) Total billings for such LICENSED PRODUCTS;
(iii) an accounting for all LICENSED PRODUCTS used or sold;
7
<PAGE> 8
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
(iv) deductions applicable to determine the NET SALES thereof;
(v) the amount of NON-ROYALTY SUBLICENSE INCOME received by LICENSEE;
and
(vi) the amount of royalty due thereon, or, if no royalties are due to
HARVARD for any reporting period, the statement that no royalties
are due.
Such report shall be certified by an officer of LICENSEE and shall
include a detailed listing of all deductions from royalties.
(b) LICENSEE shall pay to HARVARD with each such Royalty Report the amount
of royalty due with respect to such half year. If multiple
technologies are covered by the license granted hereunder, LICENSEE
shall specify which PATENT RIGHTS are utilized for each LICENSED
PRODUCT and LICENSED PROCESS included in the Royalty Report.
(c) All payments due hereunder shall be deemed received when funds are
credited to Harvard's bank account and shall be payable by check or
wire transfer in United States dollars. Conversion of foreign currency
to U.S. dollars shall be made at the conversion rate existing in the
United States (as reported in the New York Times or the Wall Street
Journal) on the last working day of each royalty period. No transfer,
exchange, collection or other charges shall be deducted from such
payments.
(d) All such reports shall be maintained in confidence by HARVARD except
as required by law; however, HARVARD may include in its usual reports
annual amounts of royalties paid.
(e) Late payments shall be subject to a charge of ***** ***** per month,
or ***** whichever is greater.
ARTICLE VI
RECORD KEEPING
6.1 LICENSE shall keep, and shall require its AFFILIATES and sublicensees to
keep, accurate records (together with supporting documentation) of LICENSED
PRODUCTS made, used or sold under this Agreement, appropriate to determine
the amount of royalties due to HARVARD hereunder. Such records shall be
retained for at least three (3) years following the end of the reporting
period to which they relate. They shall be available during normal
business hours for examination by an accountant selected by HARVARD, for
the sole purpose of verifying reports and payments hereunder. In
conducting examination pursuant to
8
<PAGE> 9
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
this paragraph, HARVARD's accountant shall have access to all records
which HARVARD reasonably believes to be relevant to the calculation of
royalties under Article IV.
6.2 HARVARD's accountant shall not disclose to HARVARD any information other
than information relating to the accuracy of reports and payments made
hereunder.
6.3 Such examination by HARVARD's accountant shall be at HARVARD's expense,
except that if such examination shows an underreporting or underpayment in
excess of ***** for any twelve (12) month period, then LICENSEE shall pay
the cost of such examination as well as any additional such that would have
been payable to HARVARD had the LICENSEE reported correctly, plus interest
on said sum at the rate of ***** ***** per month.
ARTICLE VII
DOMESTIC AND FOREIGN PATENT FILING AND MAINTENANCE
7.1 Upon execution of this Agreement, LICENSEE shall reimburse HARVARD for all
reasonable expenses HARVARD has incurred for the preparation, filing,
prosecution and maintenance of PATENT RIGHTS, such expenses total ***** as
of December 3, 1996. Thereafter, LICENSEE shall reimburse HARVARD for all
such future expenses upon receipt of invoices from HARVARD. Late payment of
these invoices shall be subject to interest charges of ***** per month.
HARVARD shall, in its sole discretion, be responsible for the preparation,
filing, prosecution and maintenance of any and all patent applications and
patents included in PATENT RIGHTS. HARVARD shall consult with LICENSEE as
to the preparation, filing, prosecution and maintenance of such patent
applications and patents and shall furnish to LICENSEE copies of documents
relevant to any such preparation, filing, prosecution or maintenance.
7.2 HARVARD and LICENSEE shall cooperate fully in the preparation, filing,
prosecution and maintenance of PATENT RIGHTS and of all patents and patent
applications licensed to LICENSEE hereunder, executing all papers and
instruments or requiring members of HARVARD to execute such papers and
instruments so as to enable HARVARD to apply for, to prosecute and to
maintain patent applications and patents in HARVARD's name in any country.
Each party shall provide to the other prompt notice as to all matters which
come to its attention and which may affect the preparation, filing,
prosecution or maintenance of any such patent applications or patents.
9
<PAGE> 10
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
7.3 LICENSEE may elect to surrender its PATENT RIGHTS in any country upon sixty
(60) days written notice to HARVARD. Such notice shall not relieve LICENSEE
from responsibility to reimburse HARVARD for patent-related expenses
incurred prior to the expiration of the (60)-day notice period (or such
longer period specified in LICENSEE's notice).
ARTICLE VIII
INFRINGEMENT
8.1 With respect to any PATENT RIGHTS that are exclusively licensed to LICENSEE
pursuant to this Agreement. LICENSEE shall have the right to prosecute in
its own name and at its own expense any infringement of such PATENT RIGHTS,
so long as such license is exclusive at the time of the commencement of
such action. HARVARD agrees to notify LICENSEE promptly of each
infringement of such PATENT RIGHTS of which HARVARD is or becomes aware.
Before LICENSEE commences an action with respect to any infringement of
such PATENT RIGHTS, LICENSEE shall give careful consideration to the views
of HARVARD and to potential effects on the public interest in making its
decision whether or not to sue.
8.2 (a) If LICENSEE elects to commence an action as described above, HARVARD
may, to the extent permitted by law, elect to join as a party in that
action. Regardless of whether HARVARD elects to join as a party,
HARVARD shall cooperate fully with LICENSEE in connection with any
such action.
(b) If HARVARD elects to join as a party pursuant to subparagraph (a),
HARVARD shall jointly control the action with LICENSEE. If HARVARD
elects not join, LICENSEE may join HARVARD to the extent necessary to
maintain the action.
(c) LICENSEE shall reimburse HARVARD for any reasonable costs HARVARD
incurs, including reasonable attorney's fees, as part of an action
brought by LICENSEE, irrespective of whether HARVARD becomes a
co-plaintiff.
8.3 If LICENSEE elects to commence an action as described above, LICENSEE may
deduct from its royalty payments to HARVARD with respect to the patent(s)
subject to suit an amount not exceeding ***** ***** of LICENSEE'S expenses
and costs of such action, including reasonable attorney's fees; provided,
however, that such reduction shall not exceed ***** ***** of the total
royalty due to HARVARD with respect to the patent(s) subject to suit for
each calendar year. If such ***** of LICENSEE's expenses and costs
exceeds the amount of royalties deducted
10
<PAGE> 11
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
by LICENSEE for any calendar year, LICENSEE may to that extent reduce
the royalties due to HARVARD from LICENSEE in succeeding calendar years,
but never by more than ***** of the total royalty due in any one year with
respect to the patent(s) subject to suit.
8.4 No settlement, consent judgment or other voluntary final disposition of the
suit may be entered into without the prior written consent of HARVARD,
which consent shall not be unreasonably withheld.
8.5 Recoveries or reimbursements from actions commenced pursuant to this
Article shall first be applied to reimburse LICENSEE and HARVARD for
litigation costs, including attorney fees, not paid from royalties and then
to reimburse HARVARD for royalties deducted by LICENSEE pursuant to
paragraph 8.3. Any remaining recoveries or reimbursements shall be shared
***** by LICENSEE and ***** HARVARD.
8.6 If LICENSEE elects not to exercise its right to prosecute an infringement
of the PATENT RIGHTS pursuant to this Article, HARVARD may do so at its own
expense, controlling such action and retaining all recoveries therefrom.
LICENSEE shall cooperate fully with HARVARD in connection with any such
action.
8.7 Without limiting the generality of paragraph 8.6, HARVARD may, at its
election and by notice to LICENSEE, establish a time limit of one hundred
eighty (180) days for LICENSEE to decide whether to prosecute any
infringement of which HARVARD is or becomes aware. If, by the end of such
one hundred eighty (180) days period, LICENSEE has not commenced such an
action, HARVARD may prosecute such an infringement at its own expense,
controlling such action and retaining all recoveries therefrom. With
respect to any such infringement action prosecuted by HARVARD in good
faith, LICENSEE shall pay over to HARVARD any payments (whether or not
designated as "royalties") made by the alleged infringer to LICENSEE under
any existing or future sublicense authorizing LICENSED PRODUCTS, up to the
amount of HARVARD's unreimbursed litigation expenses (including but not
limited to, reasonable attorney's fees).
8.8 If a declaratory judgment action is brought naming LICENSEE as a defendant
and alleging invalidity of any of the PATENT RIGHTS. HARVARD may elect to
take over the sole defense of the action at its own expense. LICENSEE shall
cooperate fully with HARVARD in connection with any such action.
8.9 In the event that an action is brought against LICENSEE or any of its
sublicensees alleging direct infringement of a patent right due to the
manufacture, use, offer for sale, or sale of LICENSED PRODUCTS,
11
<PAGE> 12
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
LICENSEE shall have the right to control the defense of such action,
During the period of time that such an action is pending, LICENSEE may
deduct from its royalty payments to HARVARD an amount not exceeding *****
***** of LICENSEE's expenses and costs of such action, including reasonable
attorneys' fees; provided, however, that such reduction shall not exceed
***** ***** of the total royalty due to HARVARD with respect to the
patent(s) subject to suit for each calendar year. LICENSEE may not carry
forward any expenses not deducted within the calendar year in which they
were incurred.
ARTICLE IX
TERMINATION OF AGREEMENT
9.1 This Agreement, unless terminated as provided herein, shall remain in
effect until the last patent or patent application in PATENT RIGHTS has
expired or been abandoned.
9.2 HARVARD may terminate this Agreement as follows:
(a) If LICENSEE does not make a payment due hereunder and fails to cure
such non-payment (including the payment of interest in accordance with
paragraph 5.4(e)) within forty-five (45) days after the date of notice
in writing of such non-payment by HARVARD.
(b) If LICENSEE defaults in its obligations under paragraph 10.4(c) and
(d) to procure and maintain insurance.
(c) If, at any time after three years from the date of this Agreement,
HARVARD determines that the Agreement should be terminated pursuant to
paragraph 3.2(d).
(d) If LICENSEE shall become insolvent, shall make an assignment for the
benefit of creditors, or shall have a petition in bankruptcy filed for
or against it. Such termination shall be effective immediately upon
HARVARD giving written to LICENSEE.
(e) If an examination by HARVARD's accountant pursuant to Article VI shows
an underreporting or underpayment by LICENSEE in excess of ***** for
any twelve (12) month period and such underpayment is not cured within
the cure period defined in 9.2a.
(f) If LICENSEE is convicted of a felony relating to the manufacture, use,
or sale of LICENSED PRODUCTS.
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<PAGE> 13
(g) Except as provided in subparagraphs (a), (b), (c), (d), (e) and (f)
above, if LICENSEE defaults in the performance of any obligations
under this Agreement and the default has not been remedied within
ninety (90) days after the date of notice in writing of such default
by HARVARD.
9.3 LICENSEE shall provide, in all sublicenses granted by it under this
Agreement, that LICENSEE's interest in such sublicenses shall at HARVARD's
option terminate or be assigned to HARVARD upon termination of this
Agreement.
9.4 LICENSEE may terminate this Agreement by giving ninety (90) days advance
written notice of termination to HARVARD. Upon termination, LICENSEE shall
submit a final Royalty Report to HARVARD and any royalty payments and
unreimbursed patent expenses invoiced by HARVARD shall become immediately
payable.
9.5 Paragraphs 6.1, 6.2, 6.3, 8.5, 9.4, 9.5, 10.2, 10.3, 10.4, 10.7, and 10.8
of this Agreement shall survive termination.
ARTICLE X
GENERAL
10.1 HARVARD does not warrant the validity of the PATENT RIGHTS licensed
hereunder and makes no representations whatsoever with regard to the scope
of the licensed PATENT RIGHTS or that such PATENT RIGHTS may be exploited
by LICENSEE, an AFFILIATE, or sublicensee without infringing other patents.
10.2 HARVARD EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES AND
MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE OF THE PATENT RIGHTS, OR INFORMATION SUPPLIED BY
HARVARD, LICENSED PROCESSES OR LICENSED PRODUCTS CONTEMPLATED BY THIS
AGREEMENT.
10.3 (a) LICENSEE shall indemnify, defend and hold harmless HARVARD and its
current or former directors, governing board members, trustees,
officers, faculty, medical and professional staff, employees,
students, and agents and their respective successors, heirs and
assigns (collectively, the "Indemnitees"), against any liability,
damage, loss or expenses (including reasonable attorneys' fees and
expenses of litigation) incurred by or imposed upon the Indemnitees or
any of them in connection with any claims, suits, actions, demands or
judgments arising out of any theory of product liability (including,
but not limited to, actions in the form of tort, warranty, or strict
liability) concerning any product, process or service
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<PAGE> 14
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
made, used or sold pursuant to any right or license granted under
this Agreement.
(b) LICENSEE shall, at its own expense, provide attorneys reasonably
acceptable to HARVARD to defend against any actions brought or filed
against any Indemnitee hereunder with respect to the subject of
indemnity contained herein, whether or not such actions are rightfully
brought.
(c) Beginning at the time any such product, process or service is being
commercially distributed or sold (other than for the purpose of
obtaining regulatory approvals) by LICENSEE or by a sublicensee,
AFFILIATE or agent of LICENSEE, LICENSEE shall, at its sole cost and
expense, procure and maintain commercial general liability insurance
in amounts not less than ***** per incident and ***** annual aggregate
and naming the Indemnitees as additional insureds. During clinical
trials of any such product, process or service, LICENSEE shall, at its
sole cost and expenses, procure and maintain commercial general
liability insurance in such equal or lesser amount as HARVARD shall
require, naming the Indemnitees as additional insureds. Such
commercial general liability insurance shall provide (i) product
liability coverage and (ii) broad form contractual liability coverage
for LICENSEE's indemnification under this Agreement. If LICENSEE
elects to self-insure all or part of the limits described above
(including deductibles or retentions which are in excess of *****
annual aggregate) such self-insurance program must be acceptable to
HARVARD and the Risk Management Foundation of the Harvard Medical
Institutions, Inc. in their sole discretion. The minimum amounts of
insurance coverage required shall not be construed to ***** a limit of
LICENSEE's liability with respect to its indemnification under this
Agreement.
(d) LICENSEE shall provide HARVARD with written evidence of such insurance
upon request of HARVARD. LICENSEE shall provide HARVARD with written
notice at least fifteen (15 days prior to the cancellation,
non-renewal or material change in such insurance; if LICENSEE does not
obtain replacement insurance providing comparable coverage within such
fifteen (15) day period, HARVARD shall have the right to terminate
this Agreement effective at the end of such fifteen (15) day period
without notice or any additional waiting periods.
(e) LICENSEE shall maintain such commercial general liability insurance
beyond the expiration or termination of this Agreement during (i) the
period that any product, process, or service, relating to, or
developed pursuant to, this Agreement is being commercially
distributed or sold by LICENSEE or by a sublicensee, AFFILIATE
or agent of LICENSEE and (ii) a reasonable period after the period
referred to in (e)(i) above which in no event shall be less than
fifteen (15) years.
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<PAGE> 15
10.4 LICENSEE shall not use HARVARD's name or insignia, or any adaptation of
them, or the name of any of HARVARD's inventors in any advertising,
promotional or sales literature without the prior written approval of
HARVARD, except as legally required.
10.5 Without the prior written approval of HARVARD in each instance, neither
this Agreement nor the rights granted hereunder shall be transferred or
assigned in whole or in part by LICENSEE to any person whether voluntarily
or involuntarily, by operation of law or otherwise, except in connection
without eh sale of substantially all of LICENSEE's business to which this
Agreement relates or upon the acquisition of more than fifty percent (50%)
of LICENSEE's stock entitled to vote. This Agreement shall be binding upon
the respective successors, legal representatives and assignees of HARVARD
AND licensee.
10.6 The interpretation and application of the provisions of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts.
10.7 LICENSEE shall comply with all applicable laws and regulations. In
particular, it is understood and acknowledged that the transfer of certain
commodities and technical data is subject to United States laws and
regulations controlling the export of such commodities and technical data,
including all Export Administration Regulations of the Untied States
Department of Commerce. These laws and regulations among other things,
prohibit or require a license forth export of certain types of technical
data to certain specified countries. LICENSEE hereby agrees and gives
written assurance that it will comply with all United States laws and
regulations controlling the export of commodities and technical data, that
it will be solely responsible for any violation of such by LICENSEE or its
AFFILIATES or sublicensee, and that it will defend and hold HARVARD
harmless in the event of nay legal action of any nature occasioned by such
violation.
10.8 LICENSEE agrees (i) to obtain all regulatory approvals required for the
manufacture and sale of LICENSED PRODUCTS and LICENSED PROCESSES and (ii)
to utilize appropriate patent marking on such LICENSED PRODUCTS. LICENSEE
also agrees to register or record this agreement as is required by law or
regulation in any country where the license is in effect.
10.9 Any notices to be given hereunder shall be sufficient if signed by the
party (or party's attorney) giving same and either (a) delivered in person,
or (b) mailed certified mail return receipt requested, or (c) faxed to
other party if the sender has evidence of successful transmission and if
the sender promptly sends the original by ordinary mail, in any event to
the following addresses:
15
<PAGE> 16
If to LICENSEE:
ChiRex, Inc.
65 Williams St.
Wellesley, MA 02181
Fax No.: 617-431-2526
If to Harvard to:
Office for Technology and
Trademark Licensing
Harvard University
124 Mt. Auburn Street, Suite 410 South
Cambridge, MA 02138
By such notice either party may change their address for future notices.
Notices delivered in person shall be deemed given on the date delivered.
Notices sent by fax shall be deemed given on the date faxed. Notices mailed
shall be deemed given on the date postmarked on the envelope.
10.10 Should a court of competent jurisdiction later hold any provision of this
agreement to be invalid, illegal, or unenforceable, and such holding is
not reversed on appeal, it shall be considered severed from this
Agreement. All other provisions, rights and obligations shall continue
without regard to the severed provision, provided that the remaining
provisions of this Agreement are in accordance without eh intention of the
parties.
10.11 In the event of any controversy or claim arising out of or relating to any
provision of this Agreement or the breach thereof, the parties shall try
to settle such conflict amicably between themselves. Subject to the
limitation stated in the final sentence of this section, any such conflict
which the parties are unable to resolve promptly shall be settled through
arbitration conducted in accordance with the rules of the American
Arbitration Association. The demand for arbitration shall be filed within
a reasonable time after the controversy or claim has arisen, and in no
event after the date upon which institution of legal proceedings based on
such controversy or claim would be barred by the applicable statute of
limitation. Such arbitration shall be held in Boston, Massachusetts. The
award through arbitration shall be final and binding. Either party may
enter any such award in a court having jurisdiction or may make
application to such court for judicial acceptance of the award and an
order
16
<PAGE> 17
of enforcement, as the case may be. Notwithstanding the foregoing,
either party may, without recourse to arbitration, assert against the
other party a third-party claim or cross-claim in any action brought by
a third party, to which the subject matter of this Agreement may be
relevant.
10.12 This Agreement constitutes the entire understanding between the parties
and neither party shall be obligated by any condition or representation
other than those expressly stated herein or as may be subsequently agreed
to by the parties hereto in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
PRESIDENT AND FELLOWS
OF HARVARD COLLEGE CHIREX
/s/ Joyce Brinton /s/ Alan R. Clark
- --------------------------------- ----------------------------
Joyce Brinton, Director Chairman & C.E.O.
Office for Technology and Trademark Licensing
1/15/97 28 January, 1997
- --------------------------------- -----------------------------
Date Date
17
<PAGE> 18
Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment. The omitted portions are marked
***** and have been filed separately with the Commission.
APPENDIX A: PATENT RIGHTS
United States Patent Application serial no. *****
United States Patent Application serial no. *****
PCT Application serial no. *****
18
<PAGE> 1
Exhibit 10.29
[COMPANY LETTERHEAD]
The Directors
ChiRex (Holdings) Limited
18 June 1996
Dear Sirs,
Midland Bank plc ('Midland') is pleased to offer the Company a Sterling/Currency
LIBOR Revolving Credit Facility ('the Facility') for the purpose of Restructure
of existing facilities but Midland shall be under no responsibility to ensure
that the Facility shall be used for such purpose.
LIMIT
(pound)10,500,000 (ten million five hundred thousand pounds (the 'Limit'), or
the equivalent in optional currencies.
TERM
Two years from the first drawing.
INTEREST RATE
1.25% over LIBOR
An Additional Regulatory Cost Rate will be payable.
A Non-utilisation Fee of 0.375% will be payable in respect of any sums undrawn.
SECURITY
The repayment and discharge of all monies at any time owing in respect of the
Facility will be secured by all security at any time given to Midland in respect
of the Company's liabilities to Midland.
Without limiting the above, the security listed in the attached Security
Schedule is to be held.
All costs, fees and expenses, as mentioned in the General Terms and Conditions
attached to this letter, shall be payable by the Company.
TERMS AND CONDITIONS
<PAGE> 2
Details of the further terms and conditions which apply to the Facility are set
out in the General Conditions Special Conditions and Security Schedule attached
to this letter.
ENVIRONMENTAL RESPONSIBILITY
The Company, by accepting the terms of this Facility, warrants and represents to
Midland (and shall be deemed to so warrant and represent on the date of each
drawing) that:
the Company is in full compliance with all applicable current laws, regulations
and practices relating to the protection of the environment from pollution (the
"environmental responsibility") and is not aware of any circumstances which may
prevent full compliance in the future.
The Company by accepting this facility hereby indemnifies Midland against all
losses, claims, damages, costs, or any other liability which might arise (by
reason of Midland providing this or any other facility and/or having a security
interest in the Company's assets) in respect of a breach of, or a failure to
meet, an environmental responsibility.
ACCEPTANCE
To accept this offer please arrange for the enclosed copy of this letter to be
signed and returned to the address above to arrive no later than 28 days from
the date of this letter. The Acceptance Date shall be the date of receipt at
this office of the enclosed copy duly completed. If not accepted within this
period, the offer will lapse.
Yours faithfully,
/s/ A K Taylor
A K Taylor
Senior Business Banking Manager
For and on behalf of Midland Bank plc
<PAGE> 3
GENERAL TERMS AND CONDITIONS
1 DRAWINGS
(a) First drawing to be made within three months of the date of Acceptance
of this letter.
(b) Drawings shall be made in minimum amounts of (pound)100,000 (one
hundred thousand pounds) and in integral multiples of (pound)100,000,
or in the currency equivalents thereof. Any one drawing must be
dominated in a single currency.
(c) The Company shall give Midland irrevocable written notice of the
amount, date and period of any proposed drawing. Notice shall be given
no later than 10.30 a.m. on the morning of the proposed drawing,
unless otherwise agreed by Midland.
2 INTEREST
(a) The rate of interest, in respect of the Facility shall be fixed for
successive interest periods of 1, 3, 6 or 12 months or other periods,
mutually agreed between the Company and Midland. The Company shall
have the right to select the duration of any such interest period by
giving Midland irrevocable written notice no later than 10.30 a.m. on
the day of the commencement of each interest period unless otherwise
agreed by Midland. If no such interest period is selected by the
Company, a period selected by Midland shall apply. If an interest
period would otherwise end on a day which is not a Business Day, that
interest period shall be extended to the next succeeding Business Day.
No interest period shall extend beyond the end of the Term, when all
drawings shall be repaid.
(b) The annual percentage rate or interest applicable to each interest
period shall be the aggregate of the Margin, and LIBOR and the
Additional Regulatory Cost Rate, rounded to the nearest fourth decimal
place.
(i) The Margin shall be 1.25%.
(ii) LIBOR for each interest period shall be the annual rate of
interest at which Sterling Deposits for a similar amount and
period are offered to Midland in the London Interbank Market at
or around 11 a.m. on the date when the interest period is due to
commence. In the event that Midland is unable to obtain an offer
of such deposits in the London Interbank Market, the relevant
notice of drawdown shall cease to have effect. See Multi-
currency Appendix for details of interest charged on any currency
borrowing.
<PAGE> 4
(iii) The Additional Regulatory Cost Rate for each relevant interest
period shall be calculated in the manner described in the
attached appendix. The Additional Regulatory Cost Rate is to
compensate Midland for the additional cost of maintaining this
Facility in compliance with the Bank of England's or other
governmental authorities' or agencies' monetary control
requirements.
(c) Interest shall be calculated on the amount of each outstanding drawing
on a daily basis and on the basis that there are 365 days in each year
(including leap years). This means in a leap year an extra day's
interest is payable. Interest shall be debited in arrears to the
Company's current account on the last day of each interest period and
quarterly after the commencement of such interest period in the case
of an interest period longer than three months.
3 FEES
The Non-utilisation Fee will be payable on the amount for the time being
remaining undrawn after the date of acceptance of this letter. The
Non-Utilisation Fee shall accrue daily and shall be debited in arrears to a
current account of the Company with Midland on Midland's normal charging
dates.
4 COSTS
The Company shall pay to Midland all costs, expenses, fees (including but
not limited to any legal, security and valuation fees), stamp duty and
similar taxes and charges, and registration costs incurred or charged by
Midland in connection with the negotiation, preparation, investigation,
administration, supervision or enforcement of the Facility, this letter or
any Security. Midland will debit these costs to the Company's current
account. Midland will tell the Company the amount of such costs before they
are debited.
5 CANCELLATION AND EARLY TERMINATION
The Company may, on giving at least 14 days prior written irrevocable
notice cancel, or reduce in integral multiples of (pound)100,000, the whole
or part of the Facility which is unutilised at the expiry of the notice.
Midland may refuse part cancellation of the Facility if the remaining
amount in Midland's opinion would not be a marketable amount.
The Company shall compensate Midland for any loss or expense incurred by it
consequent upon the early termination for any reason of any interest
period, including but not limited to cancellation.
<PAGE> 5
6 TERMINATION
At any time after any one or more of the events described below shall, in
Midland's reasonable opinion, have occurred, no drawing may be made and,
Midland may demand repayment of all monies for the time being (whether by
way of principal, interest, fees or otherwise) outstanding in respect of
the Facility.
The events referred to above are:
(a) if it should become apparent to Midland that any matter disclosed, or
representation made, to Midland by or on behalf of the Company was or
has become, materially adversely misleading or incorrect;
(b) any failure by the Company to pay any sum under this letter when due
and payable;
(c) any failure by the Company to repay or discharge in full any of its
indebtedness or liabilities (whether owed as principal or surety) to
Midland or any other party for monies borrowed or owing on judgement
when they have become due and payable;
(d) any failure by the Company to comply with the terms and conditions of
this letter or the attached Special Conditions, if any, which Midland
shall consider material;
(e) any event which, by itself or with the giving of notice and/or the
lapse of time and/or the making of a determination, constitutes a
breach or event of default under any other agreement in respect of any
borrowings by or lease to the Company;
(f) the cessation of the whole or a substantial part of the Company's
business or an act whether of the Company or another person which by
itself either constitutes or could directly result in a formal step
being taken for the receivership, administration, liquidation,
dissolution or analogous proceedings of or in respect to the Company
or any of the Company's assets;
(g) any event upon the occurrence of which any guarantee of or security
for the repayment by the Company of any monies hereunder shall become
enforceable or the termination or variation without Midland's prior
written consent of the continuing nature or priority of any such
guarantee or security.
<PAGE> 6
Interest after demand will be charged at the same rate and calculated on
the same basis as before such demand save that Midland may select any
period of time as the interest period(s). In addition the Company shall
reimburse Midland all losses and expenses incurred consequent upon
termination.
7 NOTICES AND PAYMENTS
Any demand or notice under this letter by Midland may be made or given by
any manager or officer of Midland by letter addressed to the Company or any
office of the Company sent by first class post or left at the address of
the Company last known to Midland or at the registered office of the
Company. If sent by post, the notice shall be deemed to have been made or
given at noon the day following the day the letter was posted and shall be
effective even if it is undelivered or returned undelivered.
Unless otherwise advised by Midland any notices by the Company under this
letter shall be delivered to the above address and all payments by the
Company shall be made at the branch or office at which the facility is
maintained or such other branch or office as Midland may specify from time
to time. Such payments shall be made without set-off or deduction in
cleared sterling funds on a Business Day on the due date for payment or, if
that day is not a Business Day, on the next Business Day.
8 INFORMATION
The Company will provide, promptly, any financial or other information that
Midland may, from time to time, reasonably request. Where financial
accounts have not been audited, Midland may request an audit be carried out
at the Company's expense. The auditor must be a Registered Auditor.
9 SHAREHOLDING CONTROL
Should control of the issued share capital or voting rights attached
thereto be changed or sold or disposed of during the period of the Facility
without Midland's written consent, Midland reserves the right in its
absolute discretion to terminate or renegotiate all facilities available to
the Company.
<PAGE> 7
10 CHANGE OF CIRCUMSTANCE
To the extent that Midland shall not be compensated under any other
provision hereof the Company shall compensate Midland either by an increase
in the Margin or by such other payments as it may require in respect of
each cost or reduction in return relating to the Facility which shall be
consequent upon any future requirement of law or of governmental fiscal or
monetary authority. The foregoing shall, without limiting its generality,
include the following:
(a) any reserve requirements;
(b) any additional cost to, or reduced receipt by, Midland as a result of
having _____ into and/or performing its obligations and/or assuming or
maintaining a commitment under this Agreement;
(c) any reduction in the rate of return on the overall capital of Midland
which it would have been able to obtain but for its having entered
into and/or performing its obligations and/or assuming or maintaining
a commitment under this Agreement or such proportion thereof as is, in
the opinion of Midland, attributable to its obligations hereunder; and
(d) the consequence of any tax in respect of any payment received or
receivable by Midland under the Facility (other than tax assessable on
its overall net income).
11 WAIVERS
No delay or failure by Midland in exercising any right or remedy shall be
construed or take effect as a waiver or release of that right or remedy and
Midland shall always be entitled to exercise all its rights and remedies
unless it shall have expressly waived them in writing.
12 FORCE MAJEURE
Midland shall not be liable to the Company for any loss, damage or delay
attributable in whole or part to action by any government or government
agency or other force majeure and in particular but not limited to strikes,
industrial action, equipment failure or interruption of power supplies.
Midland will always endeavour to give notice generally to customers of any
anticipated delays by notices in branches.
13 CERTIFICATES
Midland's certificate of any sum due from the Company under the terms of
this letter shall (apart from obvious mistake) be conclusive.
<PAGE> 8
14 BUSINESS DAY
Business Day shall mean a day and time on which the relevant banking
offices and markets are open for business for the transaction involved.
15 GOVERNING LAW
The terms and conditions of this Facility shall be governed by and
construed in accordance with the laws of England and Wales. The Company and
Midland submit to the non-exclusive jurisdiction of the courts of England
and Wales.
16 STERLING EQUIVALENTS
The Sterling Equivalent of any amount denominated in another currency shall
be calculated by reference to Midland's then current spot rate of exchange
for the sale of the relevant currency of denomination against Sterling. The
aggregate Sterling Equivalents of all drawings outstanding and/or proposed
will be calculated at such time as Midland shall determine before the
drawdown of each drawing, for the purpose of determining compliance or
otherwise with the limit.
<PAGE> 9
MULTI-CURRENCY OPTION
1 DRAWINGS
The Option may be utilised by drawing in any major currency other than
Sterling as Midland may agree upon the relevant currency account:
(a) in the case of a drawing denominated in US $ (where applicable) upon
receipt of the Company's irrevocable written request before 10.00 a.m.
(London time) on a Business Day;
(b) in the case of a drawing denominated in any other currency following
such period of irrevocable written notice as Midland shall determine
by reference to the then current practice in the London Eurocurrency
Interbank Market ('the Euro-Market').
2 INTEREST
From one Business Day to the next, interest will accrue on a 360- or
365-day year basis (as appropriate) on the aggregate debit balance on the
currency account at 1.25% per annum over Midland's relevant Currency LIBOR
Rate as varied from time to time. Such interest shall be calculated up to
and including the last Business Day of each May and November or upon
earlier termination of the Facilities or this Option and debited in arrears
on such day as Midland shall determine to the relevant currency account
together with any applicable commission charge in accordance with Midland's
then current tariff.
Without prejudice to Paragraph 5 below, interest after demand will be
charged at the same rate and calculated on the same basis as before such
demand.
3 UNAVAILABILITY
If in Midland's opinion deposits in a currency are unavailable to Midland
at any time to finance any drawing on the relevant currency account such
drawing may in Midland's discretion be re-denominated in such currency as
Midland shall determine by reference to Midland's then current spot selling
rate of exchange for the sale of the outstanding currency against the
currency of re-denomination and any re-denominated drawing shall be
similarly subject to re-denomination.
<PAGE> 10
4 CREDITS
The following shall apply for the purpose of ascertaining the Business Day
on which currency accounts will be credited with good value in respect of
credits received:
(a) In respect of a properly completed, authenticated, interbank payment
instruction/order ('the advice') received by Midland by 3.00 p.m.
(London time) on a Business Day and issued by a banking office
acceptable to Midland, advising that Midland's account with the
relevant office has been credited for value on or prior to the date
Midland received such advice, value shall be deemed to have been
received for payments denominated in:
(i) US $ and Canadian $ on the date of receipt of the advice;
(ii) currencies other than US $ and Canadian $ on the Business Day
after receipt of the advice.
If such advice is received by Midland on a Business Day but after 3.00
p.m. (London time) payment shall be deemed to have been made one
Business Day later than would otherwise have been the case.
(b) In the case of any other method of payment, it shall be deemed to have
been made on such Business Day as Midland shall determine in
accordance with Midland's normal practice.
5 VARIATION UPON RE-DENOMINATION
Upon any re-denomination, for any reason, Midland may vary the terms of
this Option relating to notice periods, interest rates, the basis of
interest calculations and the value dating of credits received, if Midland
shall consider that these terms are not appropriate for the re-denominated
currency.
6 TERMINATION
If Midland shall demand repayment, Midland may at any time re-denominate in
Sterling any amount due at Midland's spot selling rate for the relevant
outstanding currency. The provisions of Paragraph 5 above shall remain in
force following such redenomination.
<PAGE> 11
SPECIAL CONDITIONS
The following special conditions shall apply:
Introduction to financial covenants
- -----------------------------------
The Company, by accepting the terms of this facility, covenants with Midland
that for so long as monies are outstanding under the Facility:
Interest Cover
- --------------
Profit before interest and tax shall not fall below a figure equal to 300% of
the aggregate of Group interest charges and the interest element of finance
leases, in any Accounting Reference Period.
Minimum Adjusted Tangible Net Worth
- -----------------------------------
Adjusted Tangible Net Worth shall not be less than (pound)28m.
Gearing
- -------
Borrowings shall not exceed an amount equal to 50% of Adjusted Tangible Net
Worth.
Cash Flow
- ---------
Operational cash flow shall cover Bank interest and repayments, institutional
dividends, management charges, capital expenditure and additional loans to
parent at a minimum of 1:1.
Source of financial information
- -------------------------------
Compliance with the Interest Cover, Minimum Adjusted Tangible Net Worth and
Gearing financial covenants shall be calculated by reference to the most
recently published Group consolidated accounts of the Company.
In the period to 30 April 1997 the Company will certify to Midland on 31 October
1996 and 31 January 1997 that it is in compliance with the Cash Flow financial
covenant during the current Accounting Reference Period and that it expects to
comply with the covenant at the end of the Accounting Reference Period (30 April
1997).
In the period after 30 April 1997, compliance with the Cash Flow financial
covenant shall be calculated on a rolling 12 month basis by reference to the
most recent management accounts of the Company.
<PAGE> 12
'Accounting Reference Period' shall have the same meaning as part VII, Section
224 of the Companies Act 1985. In the case of an Accounting Reference Period of
more or less than 12 months' duration, the figures shall be calculated by using
an appropriate proportion or multiple to determine the annualised equivalent.
At Midland's option, management accounts in a form and on a basis satisfactory
to Midland, may be used to calculate compliance in place of audited accounts.
Audited individual and consolidated accounts are to be submitted not later than
120 days after the balance sheet date, and shall include ChiRex (Holdings)
Limited and ChiRex Inc.
Monthly management accounts in a form acceptable to Midland are to be submitted
within 28 days of the end of the month to which they relate. Such management
accounts are to contain:
- - detailed profit & loss accounts,
- - individual/consolidated balance sheets,
- - an aged analysis of debtors and creditors,
- - a cash flow summary,
- - a schedule of stock and work in progress,
- - details of order book/contracts awarded,
- - comments on material deviations to budget,
The Management information will, where applicable, compare actual performance
with forecast performance.
Budgets covering a twelve-month period are to be submitted not later than 21
days prior to the commencement of the period to which they relate.
The Company shall not cease to carry on or materially discontinue the business
it carries on at the date hereof or enter into any new or unrelated business.
The Company shall not create or allow any mortgage, charge, pledge, lien (other
than a lien arising by operation of law) or other encumbrance over all or any
part of its assets or revenues or uncalled capital, subject to a maximum
aggregate amount of (pound)1,000,000.
The Company shall not, without the prior written consent of Midland, form or
enter into any joint venture, partnership, acquisition, co-operation,
profit-sharing or other similar agreement, such consent not being unreasonably
withheld.
<PAGE> 13
The Company shall insure and keep insured its assets for their full replacement
value against the perils that a prudent person considers appropriate for their
business type, including but not limited to fire, theft, explosion, terrorist
activities, floods and storm. The insurance shall also cover financial loss
following business interruption as a result of damage or loss of the Company's
assets caused by these perils. The Company shall pay the premiums as they become
due and shall provide Midland with a copy of the relevant policies and insurance
premium receipts upon request.
The Company shall not, without the prior written consent of Midland, convene any
meetings with a view either to the alteration of any provision of its Memorandum
and/or Articles of Association or to the passing of a resolution that it be
wound up or otherwise permit any alteration to its Memorandum and/or Articles of
Association, such consent not being unreasonable withheld.
The Company will not sell, transfer, lease, lend or otherwise dispose of or
cease to exercise direct control over the whole or any part of the present or
future undertakings, assets or revenues of the Company whether by one or a
series of transactions related or not save that this restriction shall not
apply:
- to the disposal of stock-in-trade in the ordinary course of day-to-day
trading
- to the sale of an asset for its full market value in cash
- to disposals on normal commercial terms of obsolete assets
- to disposals for cash or other valuable consideration on arms-length
terms and for fair market value
The Company by accepting the terms of this facility warrants and represents to
Midland:
- - no material change in the accounting policies of the Company (other than in
changes of general application arising by reason of the requirements of law or
accounting standards in which case details of such changes shall be supplied
with the relevant accounts to Midland) or alteration of accounting reference
date shall be made.
- - acting by two executive directors, the Company shall warrant on a quarterly
basis that no event or circumstance of Default has occurred or is expected to
occur before the next quarter end and that the Company is in full compliance of
all of the terms and conditions of the attached letter.
<PAGE> 14
ADDITIONAL REGULATORY COST RATE
To establish the Additional Regulatory Cost Rate, Midland shall calculate a rate
in accordance with the following formula:
AB + C(B -E) + D(B-F)
---------------------
100 - (A +D)
where:
"A" is the cash ratio, expressed as a percentage of eligible liabilities,
required by the Bank of England (or other governmental authorities or
agencies) to be maintained by Midland on a non-interest bearing account
with the Bank of England; the percentage used being the average for the
relevant interest period.
"B" is the percentage rate per annum at which Sterling deposits are offered to
Midland at or about 11 am on the first day of the relevant interest period
in the London Interbank Market for amounts comparable to the matching
deposit and relevant interest period.
"C" is the average percentage of eligible liabilities required by the Bank of
England (or other governmental authorities or agencies) to be maintained by
Midland as secured money with members of the London Discount Market
Association and/or a secured call money with money brokers and gilt edged
market makers; the percentage used being the average for the relevant
interest period.
"D" is the level of Special Deposits required from time to time to be
maintained by Midland with the Bank of England or other governmental
authorities or agencies; the percentage used being the average level
applicable during the relevant interest period.
"E" is the lower of "B" and the average of rates at which members of the London
Discount Market Association bid for sterling deposits for the relevant
period or for such periods as Midland shall determine will substantially
coincide with the relevant interest period.
"F" is the lower of "B" and the average yield on Special Deposits during the
relevant interest period calculated on a weekly basis.
<PAGE> 15
DEFINITIONS
Company
- -------
'Company' shall mean the Company numbered 3080257 and presently known as ChiRex
(Holdings) Limited.
Group
- -----
'Group' shall mean the Company and every subsidiary for the time being of the
Company ('subsidiary' having the same meaning as in Section 736, of the
Companies Act 1985).
Ultimate Parent Company
- -----------------------
'Ultimate Parent Group' shall mean that company which has either a majority
shareholding in the Company or control of the composition of the board of the
company.
Profit before interest and tax
- ------------------------------
'Profit before interest and tax' shall mean the profit excluding taxation,
Exceptional and Extraordinary items and after deducting all charges and
expressed other than interest and the interest element of finance leases.
Exceptional and Extraordinary items
- -----------------------------------
'Exceptional items' and 'Extraordinary items' shall have the same meaning as
defined in the United Kingdom Financial Reporting Standard 1 (FRS1).
Adjusted Tangible Net Worth
- ---------------------------
'Adjusted Tangible Net Worth' shall mean Shareholders' Funds less Intangible
Assets plus non-redeemable preference shares and loan from the parent company.
Shareholders Funds
- ------------------
'Shareholders Funds' shall mean the aggregate of the amount paid up under
ordinary share capital, the share premium account, the capital reserve accounts,
retained earnings and any asset revaluation reserves.
Borrowings
- ----------
'Borrowings' shall mean the aggregate of the principal amount (together with any
fixed or minimum premium payable on final repayment) of every sum borrowed
(excluding inter-company loans), the face value of every bill of exchange drawn
in respect of any bills, discounting and acceptance credit facilities, the
future capitalised value of finance leases, the aggregate amount of financial
guarantees issued to third parties, the aggregate face value of bills receivable
discounted with recourse and shall include any interest/finance charges accruing
on the principal amount.
<PAGE> 16
Interest
- --------
'Interest' shall mean the aggregate of interest payable by the Group as
disclosed by the most recently published Group Consolidated Accounts but
excluding interest payable on any loans from the ultimate parent company.
Cash Flow
- ---------
'Cash Flow' shall mean the profit earned by the Company in an Accounting
Reference Period before taxation, interest and extraordinary and exceptional
items, but after adding back depreciation, amortisation of goodwill and adding
or subtracting any decrease or increase in working capital.
<PAGE> 17
SECURITY SCHEDULE
Counter-Indemnities given by ChiRex Limited in respect of guarantees etc. given
by Midland.
First Fixed Charge over all book debts and other debts, goodwill, uncalled
capital and intellectual property rights, and First Floating Charge over all
assets and undertaking, both present and future given by ChiRex (Holdings)
Limited.
First Fixed Charge over all book debts and other debts, goodwill, uncalled
capital and intellectual property rights, and First Floating Charge over all
assets and undertaking, both present and future given by ChiRex Limited.
Freehold property known as Land & Buildings to the West of Northern Terrace,
Dudley. First Legal Charge given by ChiRex Limited.
Unlimited Cross Guarantees given by ChiRex Limited and ChiRex (Holdings)
Limited, to secure all liabilities of each other.
Inter-Creditor Agreement, Support Agreement and Pledge re shares in ChiRex
Limited.
<PAGE> 18
ACCEPTANCE BY COMPANY
We ChiRex (Holdings) Limited accept the offer contained in the attached letter
dated 18 June 1996. We agree to comply with all its terms and conditions.
Date: 2nd August 1996
-----------------------------------------
Director: /s/ Alan R. Clark
-------------------------------------
Director/
Secretary: /s/ J.E. Weir
------------------------------------
(Signed for and on behalf of ChiRex (Holdings) Limited, pursuant to a Resolution
of the Board of Directors passed on 2nd August 1996 ).
-------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
ChiRex America Inc. (Delaware Corporation)
ChiRex (Holdings) Limited (Incorporated under the laws of England and Wales)
ChiRex Limited (Incorporated under the laws of England and Wales)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of ChiRex Inc.:
As independent public accountants, we hereby consent to the use of our
reports dated February 17, 1997 (and to all references to our Firm) included in
or made a part of the Registration Statement, as amended, and related Prospectus
of ChiRex Inc.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 18, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-22401) of ChiRex Inc., of our report dated
February 9, 1996, on our audits of the financial statements and financial
statement schedule of ChiRex Inc. (formerly SepraChem Inc.). We also consent to
the references to our firm under the captions "Experts" and "Selected Historical
Financial Data."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 18, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-22401) of ChiRex, Inc., of our reports dated
February 27, 1996, on our audits of the financial statements of Sterling
Organics Limited and our audit of the financial statements of Crossco (157)
Limited. We also consent to the references to our firm under the captions
"Selected Historical Financial Data" and "Experts."
COOPERS & LYBRAND
Newcastle upon Tyne
England
March 18, 1997
