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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 0-27698
CHIREX INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 04-3296309
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
300 ATLANTIC STREET, SUITE 402 06901
STAMFORD, CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPLE EXECUTIVE OFFICE)
(203) 351-2300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
TITLE OF EACH CLASS OF SECURITIES
REGISTERED PURSUANT TO SECTION 12(g)
OF THE SECURITIES EXCHANGE ACT NAME OF EXCHANGE
OF 1934 ON WHICH REGISTERED
-------------------------------- --------------------------------
COMMON STOCK, $.01 PAR VALUE THE NASDAQ STOCK MARKET'S NATIONAL
MARKET
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE
ACT OF 1934: NONE.
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No []
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $269,122,158 as of February 19, 1999.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of February 19, 1999 there were 11,894,902 shares outstanding (excluding
as of such date 1,872,043 shares of common stock issuable upon exercise of
options with a weighted average price of $11.98 per share).
DOCUMENTS INCORPORATED BY REFERENCE
Items 7 and 8 of Part II incorporate by reference the Registrant's
1998 Annual Report to Stockholders. Part III incorporates by reference the
Registrant's Proxy Statement for the 1999 Annual Meeting of Stockholders.
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CHIREX INC.
TABLE OF CONTENTS
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PAGE
PART I
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ITEM 1. BUSINESS....................................................................... 1
ITEM 2. PROPERTIES..................................................................... 34
ITEM 3. LEGAL PROCEEDINGS.............................................................. 34
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS........................... 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS........................................................................ 35
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA............................................. 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION........................................................ 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................................... 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................. 38
ITEM 11. EXECUTIVE COMPENSATION......................................................... 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................. 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................. 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............... 39
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PART I
ITEM 1. BUSINESS
GENERAL
ChiRex is an integrated outsourcing company that provides an extensive
range of services to pharmaceutical and life science companies. Our services
span from the early stages of post-discovery drug development to full scale
manufacturing of active ingredients. As a customer develops a new molecule for
possible drug therapies, the creation of the compound goes through a number of
phases, any one or all of which are suitable for outsourcing to third parties
such as ChiRex, including:
. design, development and synthesis of molecules, including process
development;
. evaluation, analysis and scale-up activities; and
. full scale production in accordance with current Good Manufacturing
Practices ("cGMP") at two FDA inspected sites.
We are one of only a few outsourcing companies to offer all of these
services in-house in addition to offering proprietary process technologies. By
offering integrated services, we are able to minimize the risks, costs and time
associated with our customers bringing new drugs to market. Specifically, we
provide contract process research and development and pharmaceutical fine
chemical manufacturing services, while also offering our customers access to our
extensive portfolio of proprietary technologies. Our contract manufacturing
services, developed over the past 30 years, include process research and
development, hazard evaluation, analytical methods development, clinical
quantity production and both pilot-scale and commercial scale manufacturing. In
addition, we utilize our proprietary technologies to solve process development
challenges for our customers and reduce drug development time.
Prior to our initial public offering in March 1996, we were primarily a
contract manufacturing organization with a single facility in Dudley, England.
Since completing our initial public offering, we have taken steps to become a
high-quality, full-service outsourcing company. For example, we (i) optimized
our Dudley facility and disposed of non-core products, primarily our
acetaminophen business; (ii) opened our research and development laboratories
and an associated pilot plant (collectively, the "Development Center") at the
Dudley site that has allowed us to develop products successfully for our
customers, many of which products are
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2
based on our proprietary process chemistry technologies; (iii) purchased a cGMP
facility in Annan, Scotland, in the fall of 1997 from Glaxo Wellcome and entered
into a five-year supply agreement with Glaxo Wellcome which we estimate will
provide for approximately $450 million in aggregate sales; and (iv) redesigned,
reconfigured and upgraded the Annan facility to manufacture products under the
Glaxo Wellcome supply agreement and to increase the general flexibility of the
facility to produce products for other leading pharmaceutical and life
science companies. In addition, in April 1999 we plan to open our new process
development facility, the ChiRex Technology Center (the "CTC"), in Boston,
Massachusetts. The CTC will expand our capacity to assist our customers in the
design, development and synthesis of molecules during clinical and pre-clinical
phases, work which was previously performed to a limited extent at our
Development Center. The CTC will enable us to capitalize on our capabilities to
serve customers at the earliest stages in the development of new compounds and
allow us to further develop our proprietary technologies.
Currently, we manufacture in excess of 50 products on a commercial scale at
two world-class, cGMP facilities located in Dudley, England, and Annan,
Scotland. We have approximately 45 U.S. patents and several patent applications
with respect to our technologies. Our customers currently include Glaxo Wellcome
plc, Sanofi S.A., Rohm and Haas Company, Pharmacia & Upjohn Inc., Astra AB,
Bristol Myers-Squibb Company, Eli Lilly and Company, Pfizer Inc. and SmithKline
Beecham plc.
INDUSTRY TRENDS
Recent trends in the industry are resulting in the increased outsourcing of
drug design, development and manufacturing. Pharmaceutical and life science
companies are under pressure to deliver new drugs to market in the shortest
period of time in order to capture market share, accelerate the realization of
revenues and maximize the impact of the limited life of patent protection. As a
result, they have increasingly focused their resources on the discovery of new
drugs and sought to outsource more and more services. We believe this trend
towards outsourcing drug design, development and manufacture will continue
for the following reasons:
. the development of new technologies that have resulted in the
identification of a larger number of promising therapeutics,
increasing the demand for the services which we offer;
. the pressure to reduce drug development time in order to enhance
competitive position and maximize return on investment;
. the continuing cost containment pressures in the consumer market, led
by health maintenance organizations and other health insurance
intermediaries, resulting in pharmaceutical companies shifting more of
their fixed cost base to variable cost alternatives through
outsourcing;
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3
. the increasing complexity of the chemical synthesis used to produce
new drugs, particularly in commercial quantities; and
. the growth of the biotechnology industry, in which many companies
do not have the chemical expertise and capabilities needed to conduct
their own process development, scale up work or commercial sale
manufacture.
BUSINESS STRATEGY
Our strategy is to increase shareholder value by capitalizing on our
technological strengths and manufacturing capabilities to be the preferred
partner to major pharmaceutical and life science companies in the design,
development and synthesis of new drugs and for the manufacturing of active
ingredients. The key elements of our strategy are as follows:
Provide Integrated Services/"One Stop" Shopping
We believe that significant opportunities exist for a company that provides
a broad range of outsourcing services. With the CTC, we will now be able to
offer our customers a complete and integrated package of services throughout the
life cycle of a product. By providing process development expertise, pilot plant
capacity and full scale manufacturing facilities, we will be able to offer a
convenient and seamless solution to our customers' outsourcing needs. Our
integrated approach offers technical and commercial synergies and the potential
to reduce the time and decrease the costs and risks associated with the
development of new drugs.
Commercialization of Proprietary Technology
With the CTC, we will capitalize on the industry trend for drug companies
to outsource the timeline. The CTC will expand on our accumulated expertise
established at the Development Center. Through the addition of the CTC, we will
focus on assisting customers in the early stages of process development to
devise manufacturing processes that will be viable and cost efficient for scale-
up and full scale commercial production. The CTC will further strengthen our
ability to use our proprietary technologies to solve process development
challenges for our customers and to reduce drug development time. The CTC is
intended to:
. advance the commercialization of a variety of our technologies, with an
initial emphasis on our kinetic resolution process technology developed
by Professor Eric Jacobsen which enables the production of single-isomer
pharmaceutical chiral intermediates;
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4
. provide process development services that will serve as a source of new
commercial-scale product opportunities for our manufacturing
facilities;
. develop and market non-regulated, proprietary chiral building blocks to
innovative pharmaceutical companies to save them time and money and to
infuse the benefit of our technologies into their development
pipelines;
. serve as a source of licensing revenues derived from our technologies
where our customer has other manufacturing capacity, the technology is
being used for non-pharmaceutical purposes, or capacity constraints
prevent us from offering manufacturing services; and
. enhance our presence in the United States, the world's largest
pharmaceutical market.
The CTC will be initially staffed with approximately ten research
scientists under the direction of Professor Eric Jacobsen, Professor of
Chemistry and Chemical Biology at Harvard University.
Focus on Manufacturing High-Margin, Value-Added Products
We intend to continue focusing on manufacturing high-margin, highly-
engineered, value-added products which are manufactured using a variety of
technologies. Because of the high level of development engineering and synthesis
design required for these products and because these products must be made in
strictly controlled FDA inspected facilities, they require the expertise of a
company such as ours and offer the potential for higher margins than specialty
chemicals and non-regulated fine chemicals. In addition, once full production of
these products is commenced, the commercial relationship for such products is
generally stable due to the significant costs of transferring production to a
new facility.
Continue Developing Significant, Long-Term Relationships with Industry
Leaders
We intend to expand our customer base by developing significant, long-term
relationships with a few major pharmaceutical and life science companies. We
believe that the CTC will be a valuable platform for forging new relationships
as customers seek the benefits of our proprietary technologies. In addition, our
Annan facility has substantial available capacity which we are marketing to
potential customers.
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5
Pursue Selective Acquisitions/Affiliations/Expansions.
We intend to expand our business activities through selective
acquisitions, strategic affiliations and internal expansion, including:
. in the technology area, we intend to seek opportunities to acquire or
license complementary technologies and to collaborate or form alliances
with third parties with valuable, complementary technology;
. in the development business, we intend to pursue strategic acquisitions
in North America and extend our geographical presence and customer base
by acquiring or building development capability near the CTC; and
. in manufacturing operations, we intend to pursue strategic, value-added
acquisitions to add to our geographic scope or customer base.
COMPETITIVE STRENGTHS
We believe we have a strong competitive position in our industry, which is
attributable to a number of factors:
Full Complement of Integrated Services
We believe that our ability to address our customers' outsourcing needs at
each stage in the chemical development process allows us to compete effectively
for the entire range of outsourcing arrangements that customers require. In
addition, we believe we will have a competitive advantage because we can
internally transfer technology throughout the product lifecycle, saving time and
money and reducing risk. Our ability to provide services at the earliest stages
of the drug development process should give us a competitive advantage during
clinical trial and full scale manufacturing.
Leading Proprietary Technologies
In addition to our expertise in classical chemical transformation
technologies, we hold numerous licenses and patents in chiral process
chemistries, including an exclusive license with Harvard University for the
application of kinetic resolution. Based on industry estimates, more than two-
thirds of pharmaceuticals currently in development are chiral molecules. We
believe that utilizing our technologies, and in particular our chiral
technologies, in the production process may allow us to achieve higher margins
than possible with non-proprietary technologies. Also, we have found that our
customers value suppliers who invest in technology as such investment allows
customers to reduce their drug development time and provides unique solutions to
their process development challenges. In addition, we can leverage our
proprietary technologies to forge relationships for our high-margin,
manufacturing operations.
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6
World-Class Manufacturing Facilities
Since January 1, 1996, we have invested over $200 million to acquire
and upgrade our two world-class cGMP facilities. The manufacturing operations at
Dudley are flexibly designed so that they can be used for a large number of
products. The Annan facility is a modern state-of-the-art pharmaceutical
manufacturing facility with substantial space to expand future production.
Relationships with Industry Leaders
Our reputation for high quality manufacturing and process development
capabilities and innovative proprietary technologies have enabled us to
establish relationships with leading pharmaceutical and life science companies,
including Glaxo Wellcome, Sanofi, Rohm and Haas, Pharmacia & Upjohn, Astra and
SmithKline Beecham.
Barriers to Entry
We believe there are significant entry barriers to our industry, including:
. access to and expertise in leading manufacturing and process
technologies and the ability to manage the complex regulatory
regime governing new product development; and
. the significant cost and lead time necessary to construct state-of-
the-art pilot plant facilities and to qualify cGMP commercial scale
manufacturing facilities, such as our Annan and Dudley facilities.
In addition, world-class facilities typically require experienced management and
highly trained technical personnel familiar with specific production facilities
and processes. Pharmaceutical companies are generally reluctant to outsource
their needs to companies that do not have production facilities or a staff with
a proven track record. We believe that our management and technical personnel,
almost all of whom have substantial experience at FDA inspected cGMP facilities,
are experienced and highly trained to meet these needs.
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7
BUSINESS
We provide a broad range of outsourcing services to pharmaceutical and life
science companies, from the early stages of post-discovery drug development to
full scale manufacturing of active ingredients. By providing process development
expertise, pilot plant capacity and full scale manufacturing capabilities, we
are able to offer our customers a complete and integrated package of services
throughout the product life cycle. The diagram below sets forth the different
phases of drug discovery and development and indicates the various services
which we offer as our customers move through the drug development process:
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8
PRODUCT DEVELOPMENT LIFE CYCLE
<TABLE>
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Discovery Pre- IND Phase I Phase Phase NDA Commercialization
clinical II III
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<S> | <C> <C> <C> <C> | <C> <C> <C>
| CHIREX TECHNOLOGY CENTER |
| Process Research and Development |
| . Proprietary technology to speed process research |
| . Contract process development |
| . Technology licensing |
| . cGMP small scale capability (0.1-15 Kilograms) |
| . Analytical methods development |
| . Scale-up synthesis |
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| |
| CHIREX DEVELOPMENT CENTER |
| Scale-up Pilot Plant Production |
| . Process development for rapid scale-up |
| . Hazard evaluation |
| . cGMP pilot plant (10-1000 kilograms) |
| . Analytical validation for cGMP |
| . Drug master file capability |
| . In-house regulatory expertise |
| . Supply clinical trial quantities of |
| pharmaceutical active ingredients |
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|
| CHIREX MANUFACTURING OPERATIONS
| Commercial Scale Production
| . 2 large scale cGMP manufacturing
| facilities
| . Multi-hundred metric ton capability
| . Process and plant design
| . Multi-step complex organic synthesis
| at scale
| . Drug master file and support for new
| drug applications
---------------------------------------------------------
</TABLE>
Product Development Life Cycle
Discovery
The initial challenge in the drug development process is discovery of a
compound which may have a therapeutic effect for a particular disease. Our
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9
pharmaceutical and life science customers identify a lead compound which
interacts with certain biological targets, such as an enzyme or other protein,
which are associated with a disease. The discovery process involves screening or
testing multiple chemical compounds and their interactions with biological
targets to identify the most promising lead compounds for further study.
As pharmaceutical and life science companies face increasing pressure to
bring new drugs to market in the shortest period of time, our customers have
focused their efforts and resources on the discovery stage. As a result, these
customers have increasingly sought to outsource services in the subsequent
stages of the drug development process to companies such as ours to minimize
costs and development time.
Pre-Clinical
After a lead compound is identified and selected in the discovery phase,
the compound is evaluated for efficacy and safety during pre-clinical tests on
animal models.
While a product progresses through pre-clinical trials, customers require
process research and development services which will allow for a cost-effective,
safe and timely scale-up of a compound as it progresses from the laboratory to
pilot plant and ultimately to commercial scale manufacturing. Process research
and development seeks to provide a simple, economic and non-hazardous route to
production of a lead compound at the required scale. In addition, customers
often require small scale cGMP capabilities to produce quantities of a product
for clinical trials and analytical methods development for regulatory and
quality control purposes.
Customers are increasingly seeking outsourcing companies, such as
ours, which can provide seamless technology transfer throughout the
development process to push a product through the development life cycle as
rapidly as possible. As a result, process development and other related services
can be a valuable source for developing relationships with customers for pilot
plant production and ultimately commercial scale manufacturing. In addition,
once a company has received certification for a product by the applicable
regulatory authority, it is advantageous for the customer to maintain the
relationship with such company. Accordingly, expertise in process development
can solidify a relationship with a customer early in the product development
timeline and help secure longer term commercial-scale supply arrangements.
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10
IND/Phase I/Phase II/Phase III/NDA
An investigational new drug application ("IND") is one of the first steps
in the clinical trial phase of drug development. Clinical trials are divided
into three investigational phases which test the 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. Upon completion of the clinical trial phases, a
new drug application ("NDA") is prepared which bridges the development process
from clinical trial to full scale commercial manufacture.
As a drug proceeds through the clinical testing phases, it is crucial that
its production conform with appropriate cGMP standards. In addition, the process
developed in the laboratories needs to be validated at a larger scale to
establish that it can be consistently produced at the required specifications as
it is scaled-up to commercial quantities. These steps are often conducted in a
pilot plant environment which can provide hazard evaluation, analytical method
validation, identity and purity testing as well as significant regulatory
expertise and documentation services.
Commercialization
After a drug has been approved, commercial quantities of the drug are
manufactured and marketed for commercial sale. Pharmaceutical and life science
companies frequently outsource the manufacture of bulk intermediates and
pharmaceutical active ingredients. Companies which provide such services must
have facilities that conform to strict guidelines and can pass FDA inspections.
In addition, pharmaceutical fine chemical manufacturers require significant
expertise due to the high level of development engineering and synthesis design
required for these products.
Relationship with Glaxo Wellcome
In the fall of 1997, we purchased Glaxo Wellcome's pharmaceutical
production facility located in Annan, Scotland, for approximately (Pounds)41
million, (approximately $68 million, assuming an exchange rate of $1.66 per
(Pounds)1.00) including payment for certain working capital. We entered into a
supply agreement with Glaxo Wellcome to supply certain pharmaceutical
intermediates and active ingredients, which we estimate will provide for
approximately $450 million in aggregate sales volume over the life of the
contract. In connection with the Glaxo supply agreement, we invested
approximately (Pounds) 18 million (approximately $30 million) to remodel two of
the production buildings to accommodate multiple products. Prior to its
acquisition by us, the Annan facility was one of only four primary facilities
that Glaxo Wellcome operated in the United Kingdom. In connection with the
acquisition of the Annan facility, we hired most of the facility staff formerly
employed by Glaxo Wellcome.
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The Glaxo supply agreement provides for the purchase by Glaxo Wellcome from
us of intermediates and active ingredients for some of Glaxo Wellcome's most
important and innovative new drugs. In collaboration with Glaxo Wellcome, we
have undertaken to install production capacity for the main products covered by
the Glaxo supply agreement in excess of the contracted quantities.
Under the Glaxo supply agreement, Glaxo Wellcome agreed to purchase a
certain amount of products each year from us on a firm commitment basis. If
Glaxo Wellcome does not purchase such products from us in the amount of such
firm commitment (other than as a result of our default), it will pay to us the
Added Value of such products. As defined in the Glaxo supply agreement, "Added
Value" means the difference between the price at which we are to sell the
product to Glaxo Wellcome and the cost of the raw materials and variable costs
directly incurred in the manufacture, packaging and waste disposal processes.
The Glaxo supply agreement provides that if any amounts are owed by Glaxo
Wellcome under such provision, we will use reasonable endeavors to evaluate in
good faith the possibility of manufacturing additional products or volumes for
Glaxo Wellcome on the same terms.
In addition to products to be supplied by us on a firm commitment basis,
the Glaxo supply agreement provides that certain products will be purchased by
Glaxo Wellcome on an intended purchase basis. In the event that such products
cannot be purchased by Glaxo Wellcome in the volumes specified or at all due to
lack of regulatory approval or market uncertainties in relation to such
products, the Glaxo supply agreement provides that Glaxo Wellcome will use its
best endeavors to purchase certain specified replacement products in a volume
which will result in the equivalent Added Value to us.
The Glaxo supply agreement also contains certain profit sharing terms which
provide that if orders in excess of volumes of products to be supplied on a firm
commitment basis and an intended purchase basis are placed, then any Added Value
to which we shall be entitled shall be shared between us and Glaxo Wellcome in
accordance with the terms of the agreement.
We have agreed under the Glaxo supply agreement to have sufficient capacity
to manufacture at least 10% in excess of orders placed by Glaxo Wellcome under
the terms of the Glaxo supply agreement. The products to be supplied by us under
the Glaxo supply agreement may be manufactured at either the Dudley or Annan
facilities.
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The initial term of the Glaxo supply agreement is through December 31,
2002, and is automatically renewed for successive periods of twelve months
unless terminated by either party at the end of its initial term or at the end
of any renewal period by 24 months prior written notice. The Glaxo supply
agreement may also be terminated upon the occurrence of an insolvency event by
either party, a material breach of the terms of the agreement (subject to
certain cure periods), or upon 60 days notice by Glaxo Wellcome if at any time
prior to December 31, 2002, there occurs a Change of Control (as such term is
defined in the Glaxo supply agreement) of ChiRex (Annan) Limited.
SERVICES OFFERED
We believe that we are one of only a few companies to offer an integrated
package of services from post-discovery to full scale manufacturing of active
ingredients. Through the CTC, the Development Center and our world-class cGMP
manufacturing facilities, we offer a convenient and seamless solution to our
customers' outsourcing needs.
ChiRex Technology Center
We plan to commence operations at the CTC in April 1999. The CTC, which
will be located in Boston, Massachusetts, in close proximity to Harvard and MIT,
will consist of 11,000 square feet of laboratories which can accommodate up to
35 research scientists. Professor Eric Jacobsen, Professor of Chemistry and
Chemical Biology at Harvard University and inventor of some of our leading
proprietary technologies, will be the scientific director of the CTC. The CTC
will focus on the design, development and synthesis of molecules.
The CTC will offer various process development services under cGMP
guidelines, including: (i) contract process development; (ii) custom synthesis;
(iii) contract analytical development; and (iv) process research utilizing our
proprietary intellectual property. The CTC will also serve as a source of
licensing revenue for our technologies.
Process development and custom synthesis services offered by the CTC will
include:
. synthesis route selection;
. process research to make finished quality products;
. samples of material and supply of small quantities;
. development work to generate a technology package which will allow us
or the customer to manufacture at scale; and
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13
. transfer of technology by CTC personnel to the manufacturing
location.
Analytical development services offered by the CTC will include:
. test method development and validation;
. quality control and release testing;
. high performance liquid and/or gas chromatography for the separation
of enantiomers and identification of impurities; and
. nuclear magnetic resonance services.
Process research utilizing our proprietary technology will include:
. process development and sample quantities to qualify with customers;
. scale-up to 50 liter scale at the CTC or kilogram to ton production at
our cGMP manufacturing facilities; and
. validated scaled technology transfer package.
The state-of-the-art CTC laboratories will operate under cGMP using the
standard operating procedures developed at our large-scale manufacturing
facilities in Dudley and Annan and which have been refined over the last 30
years. The CTC equipment has been designed to mirror that of the Development
Center to aid in technology transfers. The CTC's state-of-the-art equipment will
include:
. GC-Mass Spectrometry, GC and HPLC Systems with autosamplers;
. 400 MHz JEOL multi-nuclear magnetic resonance spectrometer;
and
. an isolated 50 liter glassware facility to provide kilogram quantities
of materials.
Development Center
The Development Center primarily prepares chemical processes for commercial
manufacturing by conducting economic, hazard and engineering evaluations. Opened
at our Dudley facility in 1996, the Development Center consists of research and
development laboratories and an associated pilot plant. The Development Center
offers a variety of services, including: (i) process development based on either
customer technologies or our proprietary technologies; (ii) hazard evaluation;
(iii) impurity profile characterization and analytical
<PAGE>
14
method validation; (iv) supply of clinical trial material up to Phase III
clinical trials; and (v) state-of-the-art analytical structure elucidation.
The Development Center is staffed with over 50 scientists, including
experts in process development, analytical and hazard evaluation. These
Development Center scientists manage the product between laboratory production
and commercial scale manufacture. During this intermediate process and before
commencing commercial manufacture, each scientific team carefully considers the
safety, speed and cost of each project. The Development Center uses small-scale
(25L and 50L) equipment to pilot plant size reactors to replicate processes
which assists in evaluations and seamless technology transfer. With safety a
primary consideration, the hazard evaluation laboratory enables us to analyze
each process before it is scaled up in the pilot plant. Equipment in the hazard
evaluation laboratory includes RC1 calorimeters, ARC and vent sizing equipment,
DSC and other standard hazard evaluation equipment.
In addition to assisting customers with early-stage molecule design and
development, the Development Center can also produce clinical trial material
quantities. These quantities are produced in the Development Center's pilot
plant, which allows for rapid scale-up from 50-1000 kilograms under cGMP
conditions.
The following table sets forth the number of projects worked on in the
Development Center during the past three years and the number of those projects
which incorporated our proprietary technology:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Projects (1) 67 53 48
Projects with ChiRex
technologies (1) 18 22 24
Percentage of projects
with ChiRex
technologies (1) 26.9% 41.5% 50.0%
</TABLE>
_________
(1) A project can span more than one fiscal year.
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15
Of the projects that include our proprietary technologies, the following
table sets forth the number of projects sponsored by customers or by us:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Customer sponsored 10 15 12
ChiRex sponsored 8 7 12
---- ---- ----
Total projects with ChiRex
technologies 18 22 24
==== ==== ====
</TABLE>
The projects in the Development Center generated revenues for the years
ended December 31, 1996, 1997 and 1998 as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ---- -----
<S> <C> <C> <C>
Product development revenues $3,143 $10,566 $12,947
(1) (2)
Percentage of total revenues 3.5% 11.2% 10.8%
</TABLE>
_________
(1) The revenue on a particular project may be recognized over more than one
fiscal year.
(2) Excludes a product that was manufactured in our pilot plant but
in sufficient quantities to be treated as a commercial product.
Manufacturing Facilities
We have two cGMP facilities, one in Dudley, England, and the other in
Annan, Scotland. Our manufacturing facilities specialize in the scale-up and
commercial manufacture of intermediates and pharmaceutical active ingredients
under cGMP guidelines. Whether we design the initial synthesis or evaluate and
adapt a customer's process to our regulatory and efficiency standards, we
produce intermediates and pharmaceutical active ingredients in a highly-
regulated environment. Our facilities and processes used in the manufacture of
products for clinical use or for sale in the United States must be operated in
conformity with cGMP guidelines and must pass inspections by the FDA. We also
support the commercial production process with regulatory support, including NDA
and drug master file assistance.
<PAGE>
16
The Dudley facility specializes in the scale-up and commercial-scale
production of intermediates and final products. The facility is located on
45 acres and consists of a former Sterling Winthrop facility with a production
capacity of 650 cubic meters (over 160,000 gallons). 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 flexible, 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 that
was dedicated to the manufacture of acetaminophen and will be demolished to
allow for future capacity expansion.
The Annan facility, one of the world's best-equipped cGMP facilities,
specializes in the production of bulk pharmaceutical active ingredients. The
facility is located on a 154-acre site and was a former Glaxo Wellcome facility.
The site encompasses three main production buildings. Two of the production
buildings, operated as a unit since 1980 to produce large volumes of an anti-
hypertensive drug, have been extensively remodeled since acquired in the fall of
1997 at a cost of $30.0 million to accommodate multiple products. Special
features of these buildings include a computerized process control system, a
single fluid heat transfer system and a totally enclosed plant with bulk
handling systems (for both powders and liquids) to ensure safe processing of
chemicals and solvents. The third building, built in 1990 at a cost of $60.0
million, comprises nearly half the site capacity and is available for future
contract manufacturing demand.
PRODUCT PORTFOLIO
Commercial Products
We currently manufacture in excess of 50 products on a commercial scale.
Approximately 86% of our product portfolio is pharmaceutical products with the
remaining 14% consisting of fragrance and flavor, agrichemical and polymer
products. Nearly all of the products produced or under development by us are
governed by secrecy agreements which contain, among other things, restrictions
on the disclosure of the customer, the product and the therapeutic indication.
Our customers' pharmaceutical products are used in the treatment of, among
others, cancer, cardiovascular disease, AIDS, urinary tract infections and high
cholesterol.
<PAGE>
17
Development Products
We and our predecessors have over 30 years of experience collaborating with
pharmaceutical companies on the process development of new pharmaceutical
products. We manufacture development products upon the specific request of a
particular customer. Our work in the development stage of our 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 us on a commercial scale.
We provide development and pilot-scale manufacturing services for our
pharmaceutical customers. The following table sets forth 40 products in our
development pipeline which we believe have significant revenue potential.
Twenty-two of these products are produced at pilot-scale and had revenues
associated with them in the year ended December 31, 1998. Twenty-three of these
products incorporate chiral technologies, of which 21 use our proprietary
technologies. The remaining products are at an earlier stage in the development
cycle. We believe that the opening of the CTC will increase the number of
products under development.
<TABLE>
<CAPTION>
Number of
Development Phase of Company
Drug(a) Products Representative Indications
------- --------- --------------------------
<S> <C> <C>
Commercial(b)........ 19 AIDS, Hypertension, Central Nervous
System Disorder, Diabetes and Allergies
Phase III............ 7 Cancer, Pancreatitis, Asthma, Migraine
Phase II............. 8 Cancer and Antivirals
Preclinical/Phase I/
Unknown............ 6 Various
</TABLE>
_______________
(a) Based on customer provided or publicly available information.
(b) These products have either been approved or are being produced on a
commercial scale by manufacturers other than us.
MANUFACTURING AND PROCESS DEVELOPMENT TECHNOLOGY
We have developed expertise in the large-scale operation of many classical
chemical transformation technologies and have the exclusive right to use our
proprietary technologies in a defined field on a perpetual basis. Our
proprietary technologies consist of proprietary synthesis and separation
technologies used in the manufacture of single-isomer products. The cost and
time of pharmaceutical product development has become significantly greater for
compounds developed as racemic mixtures as compared to single-isomer chemicals,
creating a demand for new processes and process technologies that can produce
single-isomer drugs quickly, efficiently and economically.
<PAGE>
18
We have approximately 45 U.S. patents and several patent applications with
respect to our proprietary technologies. In addition, we have 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. Our expertise allows pharmaceutical 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.
Our proprietary technologies consist of a broad platform of asymmetric
synthesis and resolution technologies, which we believe provide multiple
manufacturing routes to produce single-isomer chiral pharmaceutical
intermediates and active ingredients. We select the most appropriate technology
for a particular application based on several factors, including the cost of any
required catalyst and the availability and cost of the starting materials. The
following table summarizes certain aspects of our proprietary technologies:
<TABLE>
<CAPTION>
METHOD OF
TECHNOLOGY USE PHASE MANUFACTURE
------------ ---- ------ -----------
<S> <C> <C> <C>
Kinetic Resolution........... Catalytic ring Commercial Asymmetic Synthesis
opening of epoxides
to make chiral
epoxides and diols
Asymmetric dihydroxylation... Catalytic Commercial Asymmetic Synthesis
asymmetric reaction
to make chiral
diols using
Sharpless catalyst
Asymmetric epoxidation....... Catalytic Commercial Asymmetric Synthesis
oxidation to make
chiral epoxides
using Jacobsen
catalyst
</TABLE>
<PAGE>
19
<TABLE>
<S> <C> <C> <C>
Enzymatic resolution........ Enzymatic Commercial Enzymatic Resolution
biotransformation
Diastereomeric
crystallization........... Resolution by Commercial Chemical Resolution
crystallization
Asymmetric reduction........ Catalytic reduction Laboratory Asymmetric Synthesis
to make chiral
alcohols
Metal-Catalyzed Aromatic Manufacture of Laboratory Aromatic Coupling
Carbon-Heteroatom aromatic amines,
Bonding-Forming indoles and
Technologies (ABT)........ diphenyl ethers
</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 potential higher attainable yields. Due to the
technical challenges of developing a cost-effective process, however, there are
few asymmetric synthesis processes used at commercial scale.
We continue to improve our technology position through significant research
and development expenditures, licensing third party technology and by
maintaining close relationships with our Scientific Advisory Board and
institutional research partners.
On January 1997, we entered into an exclusive license agreement with
Harvard University for the application of kinetic resolution technology to a
wide range of pharmaceutical products. Kinetic resolution is a new technology
developed by Professor Eric N. Jacobsen, a member of our Board of Directors and
Scientific Advisory Board, which enables us to produce single-isomer
pharmaceutical chiral intermediates using more cost-effective processes than
others currently available. We believe that this technology has significant
commercial potential, including the production of drugs for the treatment of
asthma, arthritis, cardiovascular disease, AIDS, cancer and hepatitis. In May
1998, we also entered into an exclusive license agreement with the MIT for the
metal-catalyzed aromatic carbon-heteroatom bond forming technologies discovered
by Professor Stephen Buchwald of MIT. We believe that these technologies can
reduce the complexity and cost of manufacturing certain aryl and heterocyclic
intermediates, which are core building blocks for both existing and emerging
pharmaceuticals, and thus extend the range of products we can manufacture at a
competitive advantage.
<PAGE>
20
In support of our technologies, we maintain 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, we have 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.
PATENTS AND PROPRIETARY TECHNOLOGY
Our proprietary rights with respect to our products and processes are
generally protected only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets. We
currently have the perpetual, exclusive and royalty-free right and license to
use and practice our proprietary technologies on a worldwide basis in a defined
field. Our principal patents expire at various times beginning in 2005. Some of
our technology remains uncovered by any patent or patent application. In
addition, we have ongoing research efforts and expect to seek additional patents
in the future covering patentable results of such research. We cannot assure you
that any pending patent applications we file will result in patents being
issued, or that any patents or licenses:
. will protect us against competitors with similar technologies;
. will not be infringed upon or designed around by others;
. will not be challenged by others and held to be invalid or
unenforceable; or
. will not be terminated by a licensor pursuant to various terms in
such licenses or due to any breach.
In the absence of patent protection, our business may be adversely affected
by competitors who independently develop substantially equivalent technology.
There may be third-party patents relating to technology we use. We may need
to acquire licenses to, or to contest the validity of, any such patents.
Defending any claim that we are infringing a third-party patent would most
likely prove costly, and any such claim could adversely affect us until the
claim is resolved. Furthermore, any such dispute could result in a rejection of
our patent applications or the invalidation of our patents. We cannot assure you
that we could obtain any licenses required under such patents on acceptable
terms or that we
<PAGE>
21
would prevail in any litigation involving such patents. Any of the foregoing
negative results could have a material adverse effect on us and our results of
operations.
We use our own proprietary technology, including technology that may not be
patented or patentable. We seek to protect our proprietary technology through,
among other things, confidentiality agreements and, if applicable, inventors'
rights agreements with our collaborators, advisors, employees and consultants.
We cannot assure you that these agreements will not be breached, that we will
have adequate remedies for any breach or that our trade secrets will not
otherwise be disclosed to, or discovered by, our competitors. In addition, we
cannot assure you that these collaborators, advisors, employees and consultants
will not claim rights to intellectual property arising out of their research.
SALES AND MARKETING, CUSTOMERS
We market the majority of our products directly to pharmaceutical and other
life science companies. An important component of our strategy is to pursue
long-term supply relationships with selected major customers. We employ sales
and marketing personnel who possess the requisite technical backgrounds to
communicate effectively with both prospective customers and our research and
development personnel.
We have initiated the implementation of a new product management approach
by shifting from a departmental to a product management philosophy. This
approach is a departure from the traditional plant management focus and involves
organizing the our activities around products instead of facilities. First, this
new approach will improve accountability to customers by vesting ultimate
authority for every product with a single person, or product manager, at our
company. Second, we will realign our product strategy to parallel our customers'
business activities, thus facilitating communication and cooperation during the
production process, and thereby reducing a particular product's time to market.
Third, we will reduce overall product complexity by focusing on products that
play to our chemistry strengths, such as complex multi-stage synthesis of
complex molecules. Fourth, we will select products based on the potential for
application of our proprietary process technologies. To facilitate this focus on
product management, we are implementing a more formalized product evaluation
process, including a review of potential new products by a committee involving
senior marketing, manufacturing and technology staff.
As part of our ongoing commercial development efforts, we maintain a
presence at important international trade shows and host a bi-annual
international technical symposium to which selected senior representatives and
executives of the research
<PAGE>
22
and development organizations of major pharmaceutical companies are invited. In
addition, our technical and marketing personnel present papers at symposia on a
regular basis.
We are dependent on a small number of customers. In 1998, our three largest
customers accounted for approximately 85% of total revenues. Glaxo Wellcome p1c,
Sanofi S.A. and Rohm and Haas Company accounted for approximately 57%, 16% and
12%, respectively, of our 1998 revenues. We will continue to rely on a limited
number of customers, particularly Glaxo Wellcome, as well as a limited number of
products for a great deal of our revenues. In addition, we expect that over the
next five years an even higher percentage of our total revenues will come from
our sales to Glaxo Wellcome under our supply agreement with Glaxo Wellcome. The
loss of one or more of these customers could have a material adverse effect on
our business. In particular, while our supply agreement with Glaxo Wellcome
contains certain provisions for renewal, we cannot assure you that the contract
will be renewed. Our customers may also be susceptible to adverse effects on
their own businesses due to changes in government regulation, including those
regarding he alth care reform.
CONTRACTS
We conduct business on both a purchase order basis and a formal contract
basis. Where we conduct business on a formal contract basis, we have entered
into a variety of contractual arrangements with our customers, on both a fixed
price and a cost plus basis. In cases where the contracts are fixed price, we
bear the cost of overruns but benefit if the costs are lower than anticipated.
In cases where the contracts are on a cost plus basis, we are guaranteed
reimbursement for our actual costs of performance and an agreed upon profit,
with certain exceptions.
Contracts may have terms ranging from a few months to several years
depending upon the nature of the work being performed and the approval status of
the product in question. Some of our contracts are terminable by our customer
upon notice. Contracts may also be terminated for a variety of reasons including
unexpected or undesired results of the product, the failure of a product to
satisfy safety requirements, the failure of a product to gain regulatory
approval or a party's failure to properly discharge its obligations under such
agreement.
ENVIRONMENTAL REGULATION
Our manufacturing and research and development processes involve the
controlled use of hazardous materials. We are subject to laws and regulations
governing the use, manufacture, storage, handling and disposal of such materials
and waste products in the United Kingdom and United States. In the event of
contamination or injury from hazardous materials, we could be held liable for
any resulting damages and any such liability could exceed our resources.
<PAGE>
23
Dudley, England Facility
Our manufacturing plant in Dudley, England, is subject to the U.K.
Environmental Protection Act 1990 ("EPA 1990"), which requires
authorizations for any industrial air and certain 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. Our
IPC authorizations for the Dudley facility are administered by the U.K.'s
Environment Agency ("EA"). In addition, the Dudley plant is also subject to
the U.K. Water Resources Act 1991 ("WRA") governing the discharge of liquid
waste, and the U.K. Water Industry Act 1991 ("WIA") governing discharges to
sewers.
We believe we are in compliance in all material respects with our IPC
authorization conditions, limitations and compliance schedules for Dudley.
We possess "envelope" authorizations for our air pollutant emissions, which
enable us to alter our production lines and processes to a degree without
seeking additional authorizations. We have committed ourselves in a plan
submitted to the EA to implement certain air pollution emission reduction
programs.
We have a consent to discharge our process waste water in Dudley,
following treatment in our 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 ("NW") is the local sewer operator
and the EA is the governmental regulatory body responsible for the
regulation of NW and the country's rivers. In the past, we have had
periodic difficulties in meeting our consent limits and ends for suspended
solids in waste water. During 1996, we reached agreement with NW which
resulted in a relaxation of the consent limit for suspended solids. We also
made certain capital improvements to our biological waste water treatment
plant, and it is now consistently 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 initial public offering, we have reached agreement with NW
and the EA on a set of contingency measures that would be taken in the
event our biological pretreatment plant in Dudley 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 us to continue our production operations, which
in the absence of such agreed procedures, would have been subject to
potential shutdown.
The Environment Act 1995 ("1995 Act") imposes strict, retroactive
cleanup 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. We believe that the limited areas of subsurface
contamination presently known to exist at the Dudley site are confined and
will not give rise to liability under the 1995 Act.
Annan, Scotland Facility
Our manufacturing plant in Annan, Scotland, is also subject to the EPA
1990 and the 1995 Act. Our IPC authorizations for Annan are administered by
the Scottish Environmental Protection Agency ("SEPA"). In addition, the
facility is also subject to the Sewerage (Scotland) Act 1968 and the
Control of Pollution Act 1974 providing for the regulation of trade or
sewage effluent to streams and other inland waters, as well as certain
provisions of The Rivers (Prevention of Pollution) (Scotland) Acts 1951 and
1965.
<PAGE>
24
We possess certain IPC authorizations covering existing products at
the Annan site. In addition we are in the process of obtaining from SEPA
additional IPC Envelope authorizations which will give us the flexibility
to introduce new products in the future without the need to seek further
authorizations. The first of these authorizations has been granted, the
second will be granted by end of the first quarter in 1999 and the last is
scheduled to be in place by end of the third quarter in 1999. Phase I of
the environmental improvement program for the site incinerator, involving
burner modifications, was completed during the fourth quarter of 1998.
Phase II, involving installation of a bag-house filter to manage
particulate emissions, is underway and scheduled for completion by the end
of the second quarter 1999. The program to reduce volatile organic compound
emissions by installing new vacuum pumps and scrubbers is also underway and
scheduled for completion by end of the second quarter in 1999.
An oil spill following the off-loading of a road tanker occurred on
the Annan site in 1992 when Glaxo Wellcome plc owned the facility. Actions
to control the oil spill were taken at such time. However, sporadic
problems have been encountered since such spill, involving the appearance
of fuel in the site's drainage system. To address this issue, we have
applied for permission to install a land drainage interceptor to capture
minor residual oil before it can enter any waterways or the land drainage
system. Under the Asset Purchase Agreement between us and Glaxo Wellcome,
Glaxo is responsible for remediation costs relating to such oil spill and
has agreed to provide us with certain indemnities in the event of
governmental and other claims. Installation of the interceptor is expected
to be complete by end of the third quarter in 1999.
We cannot assure you that we will not be required to incur future
expenditures for environmental compliance and control at our facilities. Such
costs, and other unanticipated costs of compliance with environmental laws and
regulations in the future, could have a material adverse effect on our results
of operations.
OTHER GOVERNMENTAL REGULATION
Our operations, as well as those of our customers, are subject to extensive
regulation by numerous governmental authorities in the United States, the United
Kingdom and other countries. In particular, we are required to adhere to
applicable FDA regulations for cGMP, including extensive record keeping and
reporting and periodic inspections of our manufacturing facilities. Similar
requirements are imposed by governmental agencies in other countries. The
concept of cGMP encompasses all aspects of the production process and involves
changing and evolving standards. Consequently, continuing compliance with cGMP
is a particularly difficult part of regulatory compliance, especially since the
FCA and certain other analogous international governmental agencies have
increased the number of regular inspections to determine compliance. 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.
<PAGE>
25
Continuing studies of the proper utilization, safety and efficacy of
pharmaceutical products are being conducted by government agencies, industry and
others. Such studies, which increasingly employ sophisticated methods and
techniques, can call into question the utilization, safety and efficacy of
previously marketed products and in some cases have resulted, and may in the
future result, in the discontinuance of their marketing and, in certain
countries, give rise to claims for damages for persons who allege they have been
injured as a result of their use.
We are subject to environmental, labor, health and workplace safety
regulation pursuant to a variety of national and local legislation in the United
Kingdom, including the Health and Safety at Work Act 1974, which requires
management to take all reasonably practicable steps to ensure the safety of its
employees, visitors and other parties who may be affected by acts and omissions
of its employees. We are 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 our company.
The evolving and complex nature of regulatory requirements, the broad
authority and discretion of governmental agencies, continuing studies involving
the safety of currently marketed pharmaceutical products and the generally high
level of regulatory oversight results in a continuing possibility that from time
to time we will be adversely affected by regulatory actions despite our ongoing
efforts and commitment to achieve and maintain compliance with regulatory
requirements.
In addition, compliance with governmental laws and regulations, including
environmental laws and regulations, requires us 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. We cannot assure you that we 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 our facilities, the imposition of significant fines or require us to
incur significant expenditures to comply with the law.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Substantially all of our operations are conducted outside the United
States. We operate two manufacturing facilities in the United Kingdom, where
substantially all of our employees are located. For 1996, 1997 and 1998, net
sales of our products outside the United States totaled approximately $73
million, $93 million and $119 million, representing 98%,
<PAGE>
26
99% and 99%, respectively, of our net sales for those periods. As a result of
our international operations, we are subject to risks associated with operating
in foreign countries, including devaluations and fluctuations in currency
exchange rates, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, trade barriers,
political risks and imposition or increase of investment and other restrictions
by foreign governments. Because substantially all of our revenues and expenses
are denominated in Pounds Sterling, our 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. These risks could have a material
adverse effect on our business and operating results.
EMPLOYEES
As of December 31, 1998, we had 630 full-time employees. Three hundred and
eighty-six of our full time employees are unionized. We believe our labor
relations are satisfactory.
LEGAL PROCEEDINGS
We are 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, we believe that the outcome of such proceedings will not have
a material adverse effect on our financial position or results of operations.
RISK FACTORS
The following is a description of certain risks that our company faces. This
list is not exhaustive: additional risks not presently known to us or that we
currently deem immaterial may also impair our business operations.
Product Development Risks; Dependence on Others
Part of our business strategy involves collaborating with our customers in
the early stage of product development. This enables us to establish long-term
relationships for the manufacture of these products upon their
commercialization. We currently collaborate with customers on a substantial
number of development products, the majority of which are currently in clinical
trials. Our success depends in large part on the following factors:
. the commercial viability of new pharmaceutical and life science
products being developed by our customers
. our customers' willingness to attempt to commercialize such products
<PAGE>
27
. the ability of our pharmaceutical and life science customers 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 FDA approvals and will require similar approvals in
foreign countries. To obtain such approvals, the safety and efficacy of these
products must be demonstrated through human clinical trials which, if permitted,
can take several years. We cannot assure you that any of these products will be
safe or efficacious. Each stage in the development of these products can require
substantial investment and take a long time without any assurance as to the
commercial viability of these products, the absence of competing drugs or
alternative therapies. We cannot assure you that our 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 our customers will commercialize such products.
Dependence on Key Customers and Products
We are dependent on a small number of customers. In 1998, our three largest
customers accounted for approximately 85% of total revenues. Glaxo Wellcome plc,
Sanofi S.A. and Rohm and Haas Company accounted for approximately 57%, 16% and
12%, respectively, of our 1998 revenues. We will continue to rely on a limited
number of customers, particularly Glaxo Wellcome, as well as a limited number of
products for a great deal of our revenues. In addition, we expect that over the
next five years an even higher percentage of our total revenues will come from
our sales to Glaxo Wellcome under our supply agreement with Glaxo Wellcome. The
loss of one or more of these customers could have a material adverse effect on
our business. In particular, while our supply agreement with Glaxo Wellcome
contains provisions for renewal, we cannot assure you that the contract will be
renewed. Our customers may also be susceptible to adverse effects on their own
businesses due to changes in government regulation, including those regarding
health care reform. See "Business--Relationship with Glaxo Wellcome."
Risks Associated With Operating Facilities
Many factors, such as production disruptions, industrial accidents,
environmental hazards, technical difficulties or equipment failures, labor
disputes, late delivery of supplies, and periodic or extended interruptions due
to inclement or hazardous weather conditions, fires, explosions or other
accidents or acts of force majeure, could cause serious operational problems at
the Annan and Dudley Facilities and at the CTC. These events could damage or
destroy the Annan or Dudley facility or the CTC, cause personal injury,
environmental damage, delays in productions, or result in financial losses and
legal liability. Any prolonged downtime or shutdowns of the Annan or Dudley
facilities or the CTC could have a material adverse effect on our business,
results of operations, financial conditions or prospects.
<PAGE>
28
Competition
We operate in an extremely competitive environment. Many of our
competitors are major chemical, pharmaceutical, and process research and
development companies, including a number of our own customers, that have much
greater financial resources, technical skills and marketing experience than we
do. Our competitive market is characterized by extensive research efforts and
rapid technological progress. We expect new developments to continue, and we
cannot assure you that discoveries by our competitors will not render our
research and development, our technologies or our potential products obsolete or
noncompetitive. Competition may grow more intense as industry-wide
technological progress accelerates and more money is invested in these fields.
Competition in our market is based upon reputation, service, manufacturing
capability and expertise, price and reliability of supply. We cannot assure you
that we will be successful in obtaining customer contracts on commercially
favorable terms, if at all. Furthermore, our success depends to a significant
extent on our ability to provide manufacturing services to potential customers
at an early stage of product development. We cannot assure you that we will be
successful in such efforts. In addition, we may not be able to attract and
retain experienced management and technical personnel.
Dependence on Key Personnel
We are highly dependent on some of the key members of our senior management
and scientific staff, including, in particular, Michael A. Griffith, Chairman of
the Board and Chief Executive Officer, Frank J. Wright, Executive Vice
President, Corporate Development, and Eric N. Jacobson, the Scientific Director
of the CTC on a consultancy basis and a member of the Board of Directors. We
cannot assure you that we will be able to retain such personnel. The loss of
one or more members of our senior management or scientific staff could have a
material adverse effect on our business, results of operations, financial
conditions or prospects.
Environmental Risks; Hazardous Materials
Our manufacturing and research and development processes involve the
controlled use of hazardous materials. We are subject to laws and regulations in
the United Kingdom and the United States governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products. In
the event of contamination or injury from hazardous materials, we could be held
liable for any damages that result. Our liability for these damages could exceed
our resources. In addition, we may have to incur significant costs to comply
with environmental laws and regulations in the future. Any environmental
regulatory action taken by U.K. or U.S. environmental authorities causing the
temporary cessation of production
<PAGE>
29
operations at the Dudley or Annan facilities or at the CTC could have a material
adverse effect on our results of operations. Maintaining our permitted effluent
discharge limits and implementing air emission improvement programs acceptable
to the regulatory authorities may also prove costly. These programs may require
significant ongoing capital expenditures in an amount greater than we currently
anticipate, which could have a material adverse effect on our results of
operations.
Comprehensive Governmental Regulation
Our operations, as well as those of our customers, are subject to extensive
regulation by numerous governmental authorities in the United States, the United
Kingdom and other countries. In particular, we are required to adhere to
applicable FDA regulations for cGMP, including extensive record keeping and
reporting and periodic inspections of our manufacturing facilities. Similar
requirements are imposed by governmental agencies in other countries. The
concept of cGMP encompasses all aspects of the production process and involves
changing and evolving standards. Consequently, continuing compliance with cGMP
is a particularly difficult part of regulatory compliance. 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. We are 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 our operations.
Governmental laws and regulations, including environmental laws and
regulations, require us to obtain permits from appropriate regulatory agencies
to continue to operate our manufacturing facilities. These permits generally
require periodic renewal or review of their conditions, and public comment may
be solicited in the permitting process. We cannot assure you that we 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 our facilities or the imposition of significant
fines, each of which would have a material adverse effect on our business and
results of operations. See "--Environmental Risks; Hazardous Materials,"
"Environmental Regulation" and "Other Governmental
Regulation."
<PAGE>
30
Patents and Proprietary Technology
Our proprietary rights with respect to our products and processes are
generally protected only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets. We
currently have the perpetual, exclusive and royalty-free right and license to
use and practice the our proprietary technologies on a worldwide basis in a
defined field. Our principal patents expire at various times beginning in 2005.
Some of our technology remains uncovered by any patent or patent application. In
addition, we have ongoing research efforts and expect to seek additional patents
in the future covering patentable results of such research. We cannot assure you
that any pending patent applications we file will result in patents being
issued, or that any patents or licenses:
. will protect us against competitors with similar technologies;
. will not be infringed upon or designed around by others;
. will not be challenged by others and held to be invalid or
unenforceable; or
. will not be terminated by a licensor pursuant to various terms in
such licenses or due to any breach.
In the absence of patent protection, our business may be adversely affected
by competitors who independently develop substantially equivalent technology.
There may be third-party patents relating to technology we use. We may need
to acquire licenses to, or to contest the validity of, any such patents.
Defending any claim that we are infringing a third-party patent would most
likely prove costly, and any such claim could adversely affect us until the
claim is resolved. Furthermore, any such dispute could result in a rejection of
our patent applications or the invalidation of our patents. We cannot assure you
that we could obtain any licenses required under such patents on acceptable
terms or that we would prevail in any litigation involving such patents. Any of
the foregoing negative results could have a material adverse effect on us and
our results of operations.
We use our own proprietary technology, including technology that may not be
patented or patentable. We seek to protect our proprietary technology through,
among other things, confidentiality agreements and, if applicable, inventors'
rights agreements with our collaborators, advisors, employees and consultants.
We cannot assure you that these agreements will not be breached, that we will
have adequate remedies for any breach or that our trade secrets will not
otherwise be
<PAGE>
31
disclosed to, or discovered by, our competitors. In addition, we cannot assure
you that these collaborators, advisors, employees and consultants will not claim
rights to intellectual property arising out of their research.
Product Liability Risks; Lack of Insurance
Our business exposes us to product liability risks inherent in the testing,
manufacturing and marketing of pharmaceuticals and life science products. We
have limited product liability insurance coverage, and we cannot assure you that
we will be able to obtain further product liability insurance on acceptable
terms or that our current or future insurance will provide adequate coverage
against any or all potential claims. In addition, we have no clinical trial
liability insurance.
Significant Risks Relating to International Operations; Currency Fluctuations;
Introduction of the Euro
Substantially all of our operations are conducted outside the United
States. We operate two manufacturing facilities in the United Kingdom, where
substantially all of our employees are located. For 1996, 1997 and 1998, net
sales of our products outside the United States totaled approximately $73
million, $93 million and $119 million, representing 98%, 99% and 99%,
respectively, of our net sales for those periods. As a result of our
international operations, we are subject to risks associated with operating in
foreign countries, including devaluations and fluctuations in currency exchange
rates, imposition or increase of withholding and other taxes on remittances and
other payments by foreign subsidiaries, trade barriers, political risks and
imposition or increase of investment and other restrictions by foreign
governments. Because substantially all of our revenues and expenses are
denominated in Pounds Sterling, our 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. These risks could have a material
adverse effect on our business and operating results.
As of January 1, 1999 the Euro replaced some of the currencies of the
member states of the European Union, including countries in which we market our
products. We cannot assure you that the introduction of the Euro will not
increase the volatility of Pounds Sterling exchange rates or result in the
future appreciation of Pounds Sterling, which could, in either case, adversely
affect our results of operations. It is possible that under certain
circumstances the United Kingdom may participate in the European Monetary Union
at a later date. If the United Kingdom were to participate in the European
monetary union, the Pound Sterling will be replaced by the Euro.
<PAGE>
32
Year 2000 Issue
We have worked internally to identify and resolve any "year 2000"
compliance issues. We have also engaged external resources, including hiring an
independent consulting firm. We intend to purchase necessary computer software
and upgrades to become year 2000 compliant.
To ensure year 2000 compliance, we will develop comprehensive testing
procedures once necessary software and equipment have been installed. We are
implementing a year 2000 compliant management information system at our Annan
facility in connection with our business plans for this location. We plan to
implement these systems at our other locations, including the Dudley facility,
in 1999. We expect to spend approximately $7.1 million on year 2000 compliant
systems and equipment, and will expense these costs in accordance with current
accounting guidance.
We believe that the management information systems at two of the three
production facilities at Annan are year 2000 compliant. At present, we do not
utilize the third production facility at Annan. If we do begin operations at
this third facility, we expect to spend approximately $1.0 million upgrading the
facility's computer systems and applications. We will expense these costs in
accordance with current accounting guidance.
We have contingency plans in place for all our major computer systems and
applications. These plans include manual capability of certain business areas,
if necessary, and the controlled shutdown and start-up of the manufacturing
plant for a minimum period of days during the date change. The approach,
methodology, plan and contingencies for our internal processes have been
reviewed by our independent computer consultant and are subject to further
development and testing. Our contingency plans for external factors, such as
supply of raw materials, access to funds and potential utility disruption, are
at a preliminary stage and require further development.
However, we cannot assure you that all year 2000 compliance issues will be
resolved without any future disruption or that we will not incur significant
additional expense. In addition, if some of our major suppliers and customers
fail to address their own year 2000 compliance issues, their non-compliance
could have a material adverse effect on us and our operations.
<PAGE>
33
Anti-Takeover Effects of Certain Charter and by-Law Provisions and Delaware Law;
Rights Plan
Certain provisions of our 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 our company, which
could adversely affect the market price of our Common Stock. These provisions
include:
(1) a board divided into three classes, each of which serves for a
staggered three-year term;
(2) provisions restricting the removal of directors, the filling of
board vacancies and the taking of stockholder action;
(3) advance notice provisions with respect to shareholder proposals;
and
(4) the authority of our 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 our 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. We are 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, which may
render an unsolicited takeover of our company more difficult or less likely to
occur or might prevent such a takeover, even though such takeover may offer our
stockholders the opportunity to sell their stock at a price above the prevailing
market rate and may be favored by a majority of our stockholders. The Rights
Plan could adversely affect the market price of the Common Stock.
Potential Volatility of Stock Price
The market price of the shares of our 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 us or our competitors, disclosure of results of clinical
testing or regulatory proceedings, developments in our relationships with our
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 us and general market conditions may have
a significant effect on the market price of our 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 our Common
Stock.
<PAGE>
34
ITEM 2. PROPERTIES
Our corporate offices are located in Stamford, Connecticut, and our new
Technology Center is located in Boston, Massachusetts. Our production
facilities are located in the United Kingdom.
<TABLE>
<CAPTION>
LAND SIZE
LOCATION TILE (ACRES) (SQ.FT.) USE
- -------- ---- ------- -------- ---
<S> <C> <C> <C> <C>
Stamford, CT Leased -- 4,500 Corporate Office
Boston, MA Leased -- 11,000 Technology Center
Dudley, England Owned 45 443,108 Manufacturing, Warehousing,
Offices
Annan, Scotland Owned 154 158,446 Manufacturing, Warehousing,
Offices
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings incidental to the conduct of
our business. While it is not possible to determine the ultimate disposition of
these proceedings, we believe that the outcome of such proceedings will not have
a material adverse effect on our financial position or results of operation.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 SM ("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>
1997: HIGH LOW
- ----- ---- ---
<S> <C> <C>
First Quarter............................................... $13.25 $ 9.50
Second Quarter.............................................. 12.75 9.88
Third Quarter............................................... 25.50 11.63
Fourth Quarter.............................................. 26.25 16.63
1998: HIGH LOW
- ----- ---- ---
First Quarter............................................... $19.31 $11.63
Second Quarter.............................................. 23.25 14.19
Third Quarter............................................... 19.00 9.75
Fourth Quarter.............................................. 21.38 10.50
</TABLE>
On February 23, 1999, the last reported sale price of the Common Stock as
reported by Nasdaq was $22.00. As of February 23, 1999, there were
approximately 5,900 holders of record of the Common Stock.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings for use in our business and,
therefore, do not anticipate paying cash dividends in the foreseeable future.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of our company as of
December 31, 1994 and 1995 and for the years then ended have been derived from
the financial statements of our company which have been audited by Coopers &
Lybrand L.L.P., independent public accountants. The selected historical
financial data for our company as of December 31, 1996, 1997 and 1998 and for
the years then ended, have been derived from the financial statements of our
company which are incorporated by reference elsewhere in this document and which
have been audited by
<PAGE>
36
Arthur Andersen LLP, independent public accountants. This information should be
read in conjunction with "Item 8. Financial Statements and Supplementary Data"
and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CHIREX INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $ 1,810 $ 2,754 $ 74,615 $ 94,100 $119,663
Cost and expenses: Cost of goods sold.............................. 814 1,715 56,508 71,440 87,876
Research and development........................................... 2,343 595 3,517 3,937 4,389
Selling, general and administrative................................ 1,964 2,099 7,952 9,423 12,622
Goodwill amortization.............................................. - - 924 1,164 1,164
Restructuring and other expense, net of proceeds
from disposition of acetaminophen business in 1997.............. - - 5,611 8,069 3,242
Write-off of in-process research and development................... - - 5,790 - -
------- ------- -------- -------- --------
Total operating expenses........................................ 5,121 4,409 80,302 94,033 109,293
------- ------- -------- -------- --------
Operating income (loss)............................................ (3,311) (1,655) (5,687) 67 10,370
Interest expense, net.............................................. - - 755 1,052 5,829
Other expenses..................................................... - 797 - - -
------- ------- -------- -------- --------
Income (loss) before income taxes.................................. (3,311) (2,452) (6,442) (985) 4,541
(Provision) benefit for income taxes............................... - - (1,867) 335 (2,373)
------- ------- -------- -------- --------
Net income (loss)............................................... $(3,3ll) $(2,452) $ (8,309) $ (650) $ 2,168
======= ======= ======== ======== ========
Basic and diluted income
(loss) per common share.......................................... $ (0.94) $ (0.70) $ (0.88) $ (0.06) $ 0.18
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AS OF
DECEMBER 31):
Cash............................................................... $ - $ 1 $ 291 $ 5,347 $ 128
Total assets....................................................... 1,873 2,692 130,806 203,067 238,538
Long-term debt..................................................... - - 3,933 69,675 76,544
Stockholders' equity............................................... 1,873 2,692 90,068 93,095 97,213
</TABLE>
<PAGE>
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's discussion and analysis of results of operations and financial
condition as set forth on pages 16 through 22 of the Registrant's 1998 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
10-K and have issued our report thereon dated February 19, 1999. Our audits
were 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 immediately below, 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 audits 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 in relation to the
basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1999
Financial statements and supplementary data as set forth on pages 23
through 45 of the Registrant's 1998 Annual Report to Stockholders is
incorporated herein by reference. In addition, the following is included herein
as Schedule II:
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
CHARGED BALANCE
BALANCE (CREDITED)TO AT END
BEGINNING STATEMENTS OF OF
OF PERIOD OPERATIONS DEDUCTIONS PERIOD
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
1996................... $ 70,000 $ 434,000 $(204,000) $ 300,000
1997................... 300,000 (236,000) (42,000) 22,000
1998................... 22,000 -- (3,000) 19,000
Restructuring reserves
1997................... $ -- $1,272,150 $ -- $1,272,150
1998................... 1,272,150 -- (172,150) 1,100,000
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information is hereby incorporated by reference from our Proxy
Statement for the 1999 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before March 19, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The required information is hereby incorporated by reference from our Proxy
Statement for the 1999 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before March 19, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information is hereby incorporated by reference from the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before March 19, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is hereby incorporated by reference from the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before March 19, 1999.
<PAGE>
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON Form 8-K
(a) (1) Financial Statements. The following financial statements as set forth
on pages 23 through 45 of the Registrant's 1998 Annual Report to Stockholders
are incorporated herein by reference:
- Reports of Independent Public Accountants;
- Consolidated Balance Sheets as of December 31, 1997 and 1998;
- Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998;
- Consolidated Statements of Comprehensive Operations for the years
ended December 31, 1996, 1997 and 1998;
- Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998;
- Consolidated Statements of Stockholders' equity for the years ended
December 31, 1996, 1997 and 1998; and
- Notes to Consolidated Financial Statements.
(a) (2) Financial Statement Schedule. Schedules have been omitted as they are
not applicable or the required information is shown in the financial statements
or notes thereto.
(a) (3) Exhibits. The Exhibits listed on the accompanying Index to Exhibits are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K. In 1998 we filed the following Reports on Form 8-K:
- On July 7, 1998, announcing the retirement of Alan R. Clark, as
Chairman and Chief Executive Officer, and other management changes.
- On September 1, 1998, announcing the appointment of Michael A.
Griffith, as Chairman and Chief Executive Officer, and other
management changes.
<PAGE>
40
CHIREX INC.
INDEX TO EXHIBITS
ITEM 14 (A) (3)
EXHIBIT NO. DESCRIPTION
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 1 attached thereto, dated February 7, 1996.
2.3* Agreement and Plan of Merger by and among the Registrant,
SepraChem, Sepracor, SepraChem. Merger Corporation, Roger B.
Pettman and Certain Trusts Affiliated with Victor H. Wooley,
dated as of February 6, 1996, as amended.
2.4+**** Asset Purchase Agreement between ChiRex Limited, ChiRex Inc. and
Rhone Poulenc Chimie S.A.
2.5+***** Asset Purchase Agreement between ChiRex Inc. and Glaxo Wellcome
plc
3.1* Certificate of Incorporation of the Registrant.
3.2*** Amended and Restated By-Laws of the Registrant.
4.1* Specimen Certificate for Shares of Common Stock, $.01 par value,
of the Registrant.
4.2***** Facilities Agreement between ChiRex (Holdings) Limited and
Bankers Trust Company.
4.3***** Pledge Agreement between ChiRex Inc. and Bankers Trust Company.
4.4 Deeds of Accession to the Facilities Agreement by ChiRex America,
Inc. and ChiRex Technologies Center, Inc., as Guarantors.
4.5 Amendment No. 3 dated February 19, 1999, to the Facilities
Agreement.
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 Michael A. Griffith dated as of
September 1, 1998.
10.5 Amended and Restated Employment Agreement with Frank J. Wright
dated as of June 24, 1998 and Amendment No. 1 dated December 16,
1998.
10.6 Amended and Restated Employment Agreement with Jon E. Tropsa
dated as of April 15, 1998.
10.7 Employment Agreement with Ian D. Shott dated as of June 9, 1998.
10.8 Employment Agreement with Roger B. Pettman dated as of April 15,
1998.
10.9 Amended and Restated Employment Agreement with David F. Raynor
dated as of July 1, 1998.
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 February 3, 1997, between ChiRex
Inc. and President and Fellows of Harvard College.
10.13* Contract Research Agreement by and between the Registrant and
Sepracor, dated December 21, 1995.
10.14* Contract Manufacturing Agreement by and between the Registrant
and Sepracor, dated December 21, 1995.
10.15* Technology Transfer and License Agreement by and between the
Registrant and Sepracor, dated as of January 1, 1995.
10.16* Corporate Services Agreement by and between the Registrant and
Sepracor, dated December 21, 1995.
10.17* Supply Agreement by and between the Registrant and Sepracor,
dated December 21, 1995.
<PAGE>
41
EXHIBIT DESCRIPTION
- ------- -----------
10.18* Technology Development Agreement by and between SepraChem and
Sandoz PhaLma Ltd., dated October 1, 1995.
10.19* License Agreement by and between Sepracor and Massachusetts
Institute of Technology, dated May 5, 1989.
10.20* License Agreement by and between Sepracor and Massachusetts
Institute of Technology, dated June 21, 1991.
10.21* License Agreement by and between Sepracor and Research
Corporation Technologies, Inc., dated March 13, 1991.
10.22* License Agreement by and between Sepracor and Research
Corporation Technologies, Inc., dated September 10, 1992.
10.23* License Agreement by and between Sepracor and Tanabe Seiyaku Co.,
Ltd., dated October 30, 1990.
10.24* Toll Manufacturing Agreement by and between Sterling Organics and
Rohm and Haas (UK) Limited, dated July 4, 1991.
10.25* Toll Manufacturing Agreement by and between Sterling Organics and
Rohm and Haas (UK) Limited, dated August 27, 1987.
10.26* Supply Agreement by and between Sterling Organics and Sanofi
Winthrop Limited and Sterling Winthrop, Inc. dated June 17, 1994.
10.27* Supply Agreement by and between Sterling Organics 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, executed as of August 10,
1995.
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 and AEEU, dated
February 1976.
10.32* Procedural Agreement by and between Sterling Organics and EESA,
dated November 3, 1977.
10.33* Agreement by and between Sterling Organics and ACTS, dated July
19, 1978.
10.34* Escrow Agreement by and between the Registrant, Roger B. Pettman
and Broomes Secretarial Services Limited.
10.35* 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. Routiedge and Broomes
Secretarial Services Limited
10.36+***** Supply Agreement between ChiRex Inc. and Glaxo Wellcome p1c.
10.37 Exclusive Licensing Agreement with Massachusetts Institute of
Technology dated May 22, 1998.
10.38 Consulting Agreement with Eric N. Jacobsen dated as of October 1,
1998.
10.39 Compromise Agreement with Alan R. Clark dated July 3, 1998.
10.40 Compromise Agreement with John Graham Thorpe dated June 24, 1998.
10.41 Compromise Agreement with John E. Weir dated July 1998.
10.42 Consulting Agreements dated as of April 18, 1998, with Elizabeth
M. Greetham and W. Dieter Zander.
10.43 Assignment Agreements to ChiRex America, Inc. dated as of May 19,
1998, of the License Agreements listed under Exhibits 10.19,
10.20 and 10.22.
10.44 Amendment No. 3 dated as of May 19, 1998, to the Technology and
Transfer Agreement.
10.45 Lease Agreement dated November 1, 1998, and Amendment to the
Lease Agreement.
13 ChiRex Inc. 1998 Annual Report.
16** Letter re Change in Certifying Accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
<PAGE>
42
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
- ----------
* 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.
*** Incorporated by reference to the corresponding exhibits in the
Registration Statement on Form S-1 previously filed by the Registrant on
February 26, 1997 (File no. 333-22401).
**** Incorporated by reference to the Form 8-K previously filed by the
Registrant on April 11, 1997.
***** Incorporated by reference to the Form 8-K previously filed by the
Registrant on November 17, 1997.
# Previously filed by the Registrant on the Company's 1996 Annual Report on
Form 10-K and is incorporated by reference.
+ Confidential treatment received as to certain portions.
<PAGE>
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Stamford, Connecticut on this 24th day of
February, 1999.
CHIREX INC.
By /s/ Michael A. Griffith
------------------------------
Michael A. Griffith
Chairman and Chief Executive
Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been
signed below by the following persons in the capacities indicated below on this
24th day of February, 1999.
SIGNATURE TITLE
/s/ Michael A. Griffith Chairman of the Board of Directors
--------------------------- and Chief Executive Officer
Michael A. Griffith (Principal Executive Officer)
/s/ Jon E. Tropsa Vice President, Finance, and
--------------------------- Secretary Elect (Principal Financial
Jon E. Tropsa Officer)
/s/ Eric Jacobsen Director
---------------------------
Eric Jacobsen
/s/ Dirk Detert Director
---------------------------
Dirk Detert
/s/ W. Dieter Zander Director
---------------------------
W. Dieter Zander
<PAGE>
EXHIBIT 4.4
DEED OF ACCESSION
dated 7 December 1998
CHIREX AMERICA INC
as Guarantor
CHIREX (HOLDINGS) LIMITED
as Borrower
BANKERS TRUST COMPANY
as Agent
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
Tel: (-44) 171 456 2000
Ref. RL?
<PAGE>
2
THIS DEED is made this 7th day of December 1998 by ChiRex America Inc, as
Guarantor, IN FAVOUR OF:
(1) CHIREX (HOLDINGS) LIMITED (the "Borrower")
(2) BANKERS TRUST INTERNATIONAL PLC AND MIDLAND BANK PLC as Joint Arrangers;
(3) BANKERS TRUST COMPANY, as Agent (the "Agent")
(4) BANKERS TRUST COMPANY, as Security Agent;
(5) THE LENDERS PARTY TO THE FACILITIES AGREEMENT DESCRIBED BELOW; and
(6) THE OBLIGORS PARTY TO THE FACILITIES AGREEMENT DESCRIBED BELOW.
WHEREAS
A This Deed is supplemental to a facilities agreement dated 30 October, 1997
made among the parties referred to in paragraphs (1) to (6) above as amended
by the First and Second Amendments dated 30 July 1998 and 16 November 1998
respectively, (the "Facilities Agreement" which expression includes any
amendments or supplements thereto or restatements thereof).
B It is a term of the Second Amendment that each of the Borrower and the
Guarantors procure that ChiRex America Inc accede to the Facilities Agreement
as a Guarantor.
C ChiRex America Inc wishes to accede to the Facilities Agreement as a
Guarantor.
NOW THIS DEED WITNESSETH AS FOLLOWS:
1 Words and expressions defined in the Facilities Agreement shall have the same
meanings when used herein.
2 ChiRex America Inc hereby:
(a) agrees to be bound by all the terms and conditions of the Facilities
Agreement insofar as they relate to a Guarantor (including without
limitation Clause 15 (Guarantee) and Clause 30 (Jurisdiction) of the
Facilities Agreement) as if it were a party to the Facilities Agreement in
such capacity; and
(b) represents and warrants to the Agent and the other Finance Parties in the
terms of the Facilities Agreement.
<PAGE>
3
3 The undersigned Guarantor agrees to be bound by all the terms and conditions
of the Facilities Agreement insofar as they relate to an Obligor as if it were
a party to the Facilities Agreement in such capacity.
4 The undersigned Guarantor confirms that its address for the purposes of Clause
27 (Notices) of the Facilities Agreement is set out under its name as follows:
ChiRex America Inc
300 Atlantic Street
Suite 402
Stamford
CT 06901
USA
Attention: M A Griffith
Facsimile: 001 203 425 9996
5 Each of the undersigned hereby agrees that ChiRex America Inc shall, from the
date of the later of (i) the execution by the Agent of this Deed and (ii) the
execution by Borrower of this Deed, accede to the Facilities Agreement as if
it were a Guarantor and an Obligor named therein and a party thereto.
6 This Deed may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
7 This Deed shall be governed by and constructed in accordance with the laws of
England.
IN WITNESS WHEREOF the undersigned have caused this Deed to be duly executed
and delivered the day and year first above written.
EXECUTED and DELIVERED )
as a deed )
for and on behalf of )
ChiRex America Inc )
by )
in the presence of )
EXECUTED and DELIVERED )
as a deed )
for and on behalf of )
ChiRex (Holdings) Limited )
as Borrower )
by )
in the presence of )
<PAGE>
4
SIGNED by
for and on behalf of
BANKERS TRUST COMPANY,
as Agent
Date:
<PAGE>
DEED OF ACCESSION
dated 7 December 1998
CHIREX TECHNOLOGY CENTRE INC
as Guarantor
CHIREX (HOLDINGS) LIMITED
as Borrower
BANKERS TRUST COMPANY
as Agent
LINKLATERS & PAINES
One Silk Street
London EC2Y 8HQ
Tel: (-44) 171 456 2000
<PAGE>
2
THIS DEED is made this 7th day of December 1998 by ChiRex Technology Centre
Inc, as Guarantor, IN FAVOR OF:
(1) CHIREX (HOLDINGS) LIMITED (the "Borrower")
(2) BANKERS TRUST INTERNATIONAL PLC AND MIDLAND BANK PLC as Joint Arrangers;
(3) BANKERS TRUST COMPANY, as Agent (the "Agent")
(4) BANKERS TRUST COMPANY, as Security Agent;
(5) THE LENDERS PARTY TO THE FACILITIES AGREEMENT DESCRIBED BELOW; and
(6) THE OBLIGORS PARTY TO THE FACILITIES AGREEMENT DESCRIBED BELOW.
WHEREAS
A This Deed is supplemental to a facilities agreement dated 30 October, 1997
made among the parties referred to in paragraph (1) to (6) above as amended by
the First and Second Amendments dated 30 July 1998 and 16 November 1998
respectively (the "Facilities Agreement" which expression includes any
amendments or supplements thereto or restatements thereof).
B It is a term of the Second Amendment that each of the Borrower and the
Guarantors procure that ChiRex Technology Centre Inc accede to the Facilities
Agreement as a Guarantor.
C ChiRex Technology Centre Inc wishes to accede to the Facilities Agreement as a
Guarantor.
NOW THIS DEED WITNESSETH AS FOLLOWS:
1 Words and expressions defined in the Facilities Agreement shall have the same
meanings when used herein.
2 ChiRex Technology Centre Inc hereby:
(a) agrees to be bound by all the terms and conditions of the Facilities
Agreement insofar as they relate to a Guarantor (including without
limitation Clause 15 (Guarantee) and Clause 30 (Jurisdiction) of the
Facilities Agreement) as if it were a party to the Facilities Agreement in
such capacity, and
(b) represents and warrants to the Agent and the other Finance Parties in the
terms of the Facilities Agreement.
<PAGE>
3
3 The undersigned Guarantor agrees to be bound by all the terms and conditions
of the Facilities Agreement insofar as they relate to an Obligor as if it were
a party to the Facilities Agreement in such capacity.
4 The undersigned Guarantor confirms that its address for the purposes of Clause
21 (Notices) of the Facilities Agreement is set out under its name as follows:
ChiRex Technology Centre Inc
300 Atlantic Street
Suite 402
Stamford
CT 06901
USA
Attention: M A Griffith
Facsimile: 001 203 425 9996
5 Each of the undersigned hereby agrees that ChiRex Technology Centre Inc shall,
from the date of the later of (i) the execution by the Agent of this Deed and
(ii) the execution by Borrower of this Deed, accede to the Facilities
Agreement as if it were a Guarantor and an Obligor named therein and a party
thereto.
6 This Deed may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
7 This Deed shall be governed by and constructed in accordance with the laws of
England.
IN WITNESS WHEREOF the undersigned have caused this Deed to be duly executed
and delivered the day and year first above written.
EXECUTED and DELIVERED )
as a deed )
for and on behalf of )
ChiRex Technology Centre Inc )
By )
in the presence of )
EXECUTED and DELIVERED )
as a deed )
for and on behalf of )
ChiRex (Holdings) Limited )
as Borrower )
by )
in the presence of )
<PAGE>
4
SIGNED by
for and on behalf of
BANKERS TRUST COMPANY,
as Agent
Date:
<PAGE>
Exhibit 4.5
THIRD AMENDMENT DATED 19 FEBRUARY 1999
TO
FACILITIES AGREEMENT DATED 30 OCTOBER 1997
THIS THIRD AMENDMENT (this "Amendment") is dated . February 1999 and
entered into by and among:
(1) CHIREX (HOLDINGS) LIMITED, a limited company organised under the laws
of England with registered number 3080257 with its registered office
at Dudley, Cramlington, Northumberland NE23 7QG (the "Borrower")
(2) BANKERS TRUST INTERNATIONAL PLC and MIDLAND BANK PLC, as Joint
Arrangers ("Joint Arrangers")
(3) BANKERS TRUST COMPANY, as Agent ("Agent")
(4) BANKERS TRUST COMPANY, as Security Agent ("Security Agent")
(5) the Lenders referred to in the Facilities Agreement, as defined below
(the "Lenders"); and
(6) for purposes of Section 5 hereof, CHIREX INC., a corporation organised
under the laws of the State of Delaware with its principal office at
300 Atlantic Street, Suite 402, Stamford, CT 06901, U.S.A., CHIREX
(DUDLEY) LIMITED, a limited company organised under the laws of
England with registered number 857670 with its registered office at
Dudley, Cramington, Northumberland NE23 7QG, CHIREX (ANNAN) LIMITED, a
limited company organised under the laws of England with registered
number 3417229 with its registered office at Dudley, Cramlington,
Northumberland NE23 7QG, CHIREX TECHNOLOGY CENTER INC, a corporation
organised under the laws of the State of Delaware with its principal
office at 300 Atlantic Street, Suite 402, Stamford, CT06901, U.S.A.,
CHIREX AMERICA INC, a corporation organised under the laws of the
State of Delaware with its principal office at 300 Atlantic Street,
Suite 402, Stamford, CT06901, U.S.A. each as Guarantors
("Guarantors").
RECITALS
WHEREAS, the parties listed above, among others, are parties to that
certain GBP 62,000,000 Facilities Agreement dated 30th October 1997 as
amended by the First Amendment dated 30th July, 1998 and by the Second
Amendment dated 16 November 1998 (as such facilities Agreement may be
amended, novated
1
<PAGE>
or supplemented from time to time, the "Facilities Agreement").
Capitalised terms used in this Amendment without definition shall have the
same meanings herein as set forth in the Facilities Agreement;
WHEREAS, the Borrower has requested that the Lenders amend certain
provisions of the Facilities Agreement;
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants contained herein and the receipt of #1, the
adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
1 AMENDMENT
1.1 Clause 13.4.1 (a) of the Facilities Agreement is hereby amended by
deleting the clause in its entirety and substituting the following
therefor:
(a) Maximum Total Debt/EBITDA Ratio
-------------------------------
ChiRex Inc. shall maintain, as of the end of each Accounting Quarter
to occur during the periods shown below a Total Debt/EBITDA Ratio of
not more than the maximum Total/Debt/EBITDA Ratio shown below:
- --------------------------------------------------------------------------
Period Maximum Total
Debt/EBITDA Ratio
==========================================================================
1 April 1998 to 30 June 1998 4.75:1
- -----------------------------------------------------------------------
1 July 1998 to 30 September 1998 4.75:1
- -----------------------------------------------------------------------
1 October 1998 to 31 December 1998 4.0:1
- -----------------------------------------------------------------------
1 January 1999 to 31 March 1999 2.87:1
- -----------------------------------------------------------------------
Thereafter 2.5:1
- -----------------------------------------------------------------------
2 REPRESENTATIONS AND WARRANTIES
Each of the Borrower and the Guarantors hereby represents and warrants to
the Agent and the Lenders that:
2.1 as of the date hereof, assuming that the amendments contained herein have
been effected there exists no Event of Default or Potential Event of
Default under the Facilities Agreement, and after giving effect to this
Amendment, there will exist no Event of Default or Potential Event of
Default under the Facilities Agreement;
2.2 all representations and warranties contained in the Facilities Agreement
and the other Finance Documents are true, correct and complete in all
material respects on and as of the date hereof except to the extent such
representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects
on and as of such earlier date;
2.3 as of the date hereof, the Borrower has performed all agreements to be
performed on its part as set forth in the Facilities Agreement;
2.4 it is duly organised and validly existing under the laws of the
jurisdiction of its organisation, and has all necessary power and
authority to execute and deliver this Amendment and to consummate the
transactions contemplated hereby;
2.5 neither the execution and delivery of this Amendment, nor the
consummation of the transactions contemplated hereby, violates (i) any
law, regulation, decree or other legal restriction applicable to it, (ii)
2
<PAGE>
its charter, by-laws or other constitutional documents or (iii) any
instrument or agreement to which it or any of its assets is subject or by
which it is bound;
2.6 there is no legal requirement of any governmental authority (including
any requirement to make any declaration, filing or registration or to
obtain any consent, approval, license or order) which is necessary to be
met by it in connection with its execution, delivery or performance of
this Amendment; and
2.7 this Amendment has been duly authorised, executed and delivered on its
behalf and this Amendment, the Facilities Agreement, as amended by this
Amendment, and the other Finance Documents to which it is a party
constitute its legal, valid and binding obligation, enforceable against it
in accordance with their terms, except as limited by the Reservations.
3 COUNTERPARTS; EFFECTIVENESS
3.1 This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are
physically attached to the same document.
3.2 This Amendment shall become effective on the date (the "Third
Amendment Effective Date") when the conditions have been satisfied that
(i) each of the Borrower, the Guarantors, the Agent, the Security Agent
and the Lenders shall have signed a counterpart hereof (whether the same
or different counterparts) and shall have delivered (including by way of
facsimile transmission) the same to the Agent, (ii) the Borrower shall
have delivered to the Agent favourable opinions of Cravath, Swaine &
Moore, U.S. legal advisers to the ChiRex Group, and Dibb Lupton Alsop,
English legal advisers to the ChiRex Group, in each case addressed to the
Agent and the Lenders, dated the effective date of this Amendment and in
form and substance satisfactory to the Agent.
3.3 On and after the Third Amendment Effective Date, each reference in the
Facilities Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import referring to the Facilities Agreement, and each
reference in the other Finance Documents to the "Facilities Agreement",
"thereunder", "thereof" or words of like import referring to the
Facilities Agreement shall mean and be a reference to the Facilities
Agreement as amended by the First Amendment Agreement, the Second
Amendment Agreement and by this Amendment.
3.4 This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the
Facilities Agreement, any provision of any other Finance Document or any
right, power or remedy of the Agent or any Lender under the Facilities
Agreement shall remain in full force and effect and is hereby ratified and
confirmed.
3.5 Clause headings in this Amendment are included herein for convenience
of reference only and shall not constitute a part of this Amendment for
any other purposes or be given any substantive effect.
4 GOVERNING LAW; JURISDICTION
4.1 This Amendment and the rights and obligations of the parties hereunder
shall be governed by, and shall be construed and enforced in accordance
with, the laws of England.
4.2 Each Guarantor and Borrower hereby ratifies and confirms the
application of the provisions of Clause 30 of the Facilities Agreement to
this Amendment.
3
<PAGE>
5 ACKNOWLEDGEMENT AND CONSENT BY GUARANTORS
Each of the Guarantors hereby acknowledges that it has read this Amendment
and consents to the terms thereof and further hereby confirms and agrees
that, notwithstanding the effectiveness of this Amendment, the obligations
of such Guarantor under its respective Guarantee shall not be impaired or
affected and such Guarantee is, and shall continue to be, in full force
and effect and is hereby confirmed and ratified in all respects.
6 WAIVER
6.1 Permanent Waiver
Subject to the other terms and conditions set forth herein and in reliance
on the representations and warranties of the Borrower herein contained,
Lenders hereby waive, with effect solely from the Third Amendment
Effective Date and in perpetuity thereafter, any Event of Default under
Clause 14.1.2 of the Facilities Agreement to the extent, and only the
extent, resulting from (a) ChiRex Inc.'s failure to procure that the
Capital Expenditures of the ChiRex Group for the Accounting Reference
Period ending on 31st December 1998 did not exceed the agreed limit and
(b) the breach of Clause 13.2.11 of the Facilities Agreement caused by
ChiRex Dudley Limited entering into a finance lease with United Dominion
Leasings Limited on 22 January 1999 in relation to which the maximum
aggregate liability on termination of such lease exceeded the limit of GBP
1,000,000 (or its equivalent) provided for in the definition of Permitted
Indebtedness in the Facilities Agreement.
6.2 Limitation Of Waiver
Without limiting the generality of the provisions of Clauses 22 or 26 of
the Facilities Agreement, the waiver set forth above and the waiver in
Clause 10.1 below shall be limited precisely as written, and nothing in
this Clause 6 or Clause 10.1 shall be deemed to:
6.2.1 constitute a waiver of any other term, provision or condition of
the Facilities Agreement or any other instrument or agreement
referred to therein or otherwise; or
6.2.2 prejudice any right or remedy that Agent or any Lender may now have
or may have in the future under or in connection with the
Facilities Agreement or any other instrument or agreement referred
to therein.
Except as expressly set forth therein, the terms, provisions and
conditions of the Facilities Agreement and the other Finance
Documents shall remain in full force and effect and in all other
respects are hereby ratified and confirmed.
6.3 Finance Party Expenses; Certain Agency Matters
6.3.1 Without limitation to Clauses 11 (Fees, Expenses and Stamp Duties)
and 27 (Indemnities) of the Facilities Agreement but without
duplication, the Borrower hereby agrees that it will on demand pay
and reimburse, on the basis of a full indemnity, all reasonable
costs and expenses (including reasonable accounting, legal and
engineering consultancy fees and expenses, recordation fees and
other out-of-pocket expenses, including for the avoidance of doubt
the reasonable professional fees of Ernst & Young and Linklaters &
Paines, and any VAT or other similar Tax on any of the foregoing)
incurred by the Agent, the Security Agent or NatWest in connection
with:-
(a) this Amendment and any subsequent variation, recordation,
amendment, supplement, restatement, waiver, consent or suspension
of rights (or any proposal for any of the same or negotiations in
connection with the same) relating to any of the Finance Documents
(and documents, matters or things referred to therein); and
4
<PAGE>
(b) the investigation of the prospects, financial condition, business,
assets and/or revenues of the Borrower, its subsidiaries and its
affiliates.
6.3.2 Each Lender reaffirms the appointment of NatWest to act as its
representative in assisting the Agent and otherwise in
investigating the prospects, financial condition, business, assets
and revenues of the Borrower, its subsidiaries and its affiliates,
and agrees that NatWest shall be entitled in such capacity to the
benefits of Clause 16 (including without limitation the indemnities
therein and exculpatory provisions thereof) of the Facilities
Agreement as if references to the Agent therein were also to
NatWest, mutatis mutandis.
7 FEES
In consideration of the amendments to the Facilities Agreement made
pursuant to Clause 1 above and the waiver and modification agreed by the
Lenders pursuant to Clause 6.1 above and Clause 10.1 below, the Borrower
agrees to pay to the Agent for the account of each Lender, the following
(together the "Third Amendment Fees"):
7.1 an amendment fee of #186,000, such payment to be due on the Third
Amendment Effective Date but payment to be deferred until 30 June 1999.
Notwithstanding the above, the Borrower hereby confirms that the Fees
Letter from the Agent to the Borrower dated 23 October, 1998 (the "Waiver
Fees Letter"), remains in full force and effect, except that for the
purposes of the Waiver Fees Letter and from the Third Amendment Effective
Date, the references to
(i) "Limited Waiver" therein shall also refer to this Amendment and
(ii) the Facility Agreement dated 30 October 1997 as amended by the
First Amendment dated 30 July 1998 and the Second Amendment
dated 17 November 1998 shall refer to the Facilities Agreement
as further amended by this Amendment.
8 UNDERTAKINGS
8.1 The Borrower undertakes to pay any sums due or owing or incurred
pursuant to this agreement, including but not limited to those sums
becoming due under Clauses 6.3 and 7 above, on the due date for payment.
8.2 Any failure by the Borrower to fulfil its undertakings under this
Clause and Clause 10 in full and at or by the times indicated shall
constitute an Event of Default.
9 AGENTS APPLICATION OF FEES
If any fees are paid to the Agent by the Borrower in accordance with
Clause 7 above, the Agent agrees to pay such sums as are for the account
of each Lender to that Lender within 2 business days of receipt by the
Agent of such fees.
10 SECURITY ISSUES
10.1 Clause 10.2 of the Second Amendment provided that each of the
Borrowers and the Guarantors would procure that (unless they were able to
satisfy the Agent and NatWest acting reasonably on the instructions of the
Majority Lenders that there were valid legal and or commercial reasons for
not doing so) within 21 days of the Second Amendment Effective Date ChiRex
America Inc would provide security in respect of any Intellectual Property
owned by it, in form and substance acceptable to the Security Agent and
NatWest. The Agent and NatWest (acting on the instructions of the Majority
Lenders) have satisfied
5
<PAGE>
themselves that there are valid legal and or commercial reasons for not
taking such security and ChiRex Inc has offered to provide the security
referred to in Clause 10.2 of this Third Amendment instead. The Lenders
therefore hereby waive with effect solely from the Second Amendment
Effective Date and in perpetuity thereafter, any Event of Default arising
as a result of the failure by ChiRex America Inc to provide security over
Intellectual Property owned by it pursuant to Clause 10.2 of the Second
Amendment.
10.2 Each of the Borrower and the Guarantors undertake that, within such
time period as the Agent and NatWest may reasonably specify by notice in
writing be to served on or after the Third Amendment Effective Date, they
will procure that ChiRex Inc will provide security in respect of the
"ChiRex" trademark owned by it in form and substance acceptable to the
Security Agent and NatWest.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorised as of the date first written above.
6
<PAGE>
CHIREX (HOLDINGS) LIMITED, in its capacity as the Borrower
By: (s)
Print Name:
Title:
CHIREX INC., in its capacity as a Guarantor
By: (s)
Print Name:
Title:
CHIREX (DUDLEY) LIMITED, in its capacity as a Guarantor
By: (s)
Print Name:
Title:
CHIREX (ANNAN) LIMITED, in its capacity as a Guarantor
By: (s)
Print Name:
Title:
CHIREX AMERICA INC., in its capacity as a Guarantor
By: (s)
Print Name:
Title:
CHIREX TECHNOLOGY CENTER INC., in its capacity as a Guarantor
By: (s)
Print Name:
Title:
7
<PAGE>
BANKERS TRUST INTERNATIONAL PLC, in its capacity as a Joint Arranger
By: (s)
Print Name:
Title:
MIDLAND BANK PLC, in its capacity as a Joint Arranger and a Lender
By: (s)
Print Name:
Title:
BANKERS TRUST COMPANY, in its capacities as a Lender, Agent and Security
Agent
By: (s)
Print Name:
Title:
THE GOVERNOR AND COMPANY OF
BANK OF IRELAND, in its capacity as a Lender
By: (s)
Print Name:
Title:
BANQUE ET CAISSE D'EPARGNE DE L'ETAT, in its capacity as a Lender
By: (s)
Print Name:
Title:
By: (s)
Print Name:
Title:
DE NATIONALE INVESTERINGSBANK N.V., in its capacity as a Lender
By: (s)
Print Name:
Title:
IKB DEUTSCHE INDUSTRIEBANK AG, in its capacity as a Lender
By: (s)
Print Name:
Title:
By: (s)
Print Name:
Title:
8
<PAGE>
By: (s)
Print Name:
Title:
AIB CAPITAL MARKETS PLC, in its capacity as a Lender
By: (s)
Print Name:
Title:
MITSUBISHI TRUST & BANKING CORPORATION, in its capacity as a Lender
By: (s)
Print Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE, in its capacity as a
Lender
By: (s)
Print Name:
Title:
By: (s)
Print Name:
Title:
NATIONAL WESTMINSTER BANK PLC, in its capacity as a Lender
By: (s)
Print Name:
Title:
9
<PAGE>
10.4
EXECUTION COPY
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of September 1,
1998, between CHIREX INC., a Delaware corporation (the "Company"), and Michael
-------
A. Griffith ("Executive").
RECITALS
--------
Executive was formerly the Chief Financial Officer of the Company and
previously entered into an Employment Agreement dated as of April 15, 1998.
Effective August 26, 1998, Mr. Griffith was promoted to the position of Chief
Executive Officer of the Company. The parties hereto desire to set forth in
writing the terms of Executive's employment relationship with the Company in
light of his new position.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT.
----------
(a) The Company hereby agrees to continue its employment of Executive
to render exclusive and full time services to the Company as its Chief Executive
Officer and to perform such other duties commensurate with such office as he
shall reasonably be directed by the Board of Directors of the Company.
(b) Executive hereby accepts such employment and agrees to render the
services described above to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. Executive further agrees to
accept election and to serve during all or any part of the term of this
Agreement as an officer or director of the Company and of any subsidiary or
affiliate of the Company, without any compensation therefor, other than that
specified in this Agreement or as otherwise determined by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
(c) The duties to be performed by Executive hereunder shall be
performed primarily at the principal office of the Company at 300 Atlantic
Street, Stamford, Connecticut, subject to reasonable travel requirements on
behalf of the Company.
2. TERM OF EMPLOYMENT. The employment period of Executive by the
------------------
Company shall commence on September 1, 1998 and end on December 31, 2001 (the
"Initial Term") unless further extended or sooner terminated as hereinafter
provided. Executive may terminate his employment during the Initial Term with
six months written notice to the Company. Commencing on December 31, 2001, and
each December 31 thereafter, the term of Executive's employment shall
automatically be extended for one additional year to, respectively, December 31,
2002, and each December 31 thereafter, unless, not later than six months prior
to the end of any renewal term, either party hereunder shall have given notice
to the other party that it does not wish to extend this Agreement. If the
Company gives Executive notice that it does not wish to extend this Agreement
during the Initial Term or any renewal term, Executive shall be entitled to the
severance payments
1
<PAGE>
provided in Section 4(d) hereof As used herein the "Employment Period" shall
-----------------
refer to the Initial Term and any renewal term of Executive's employment with
the Company.
3. BASE SALARY AND BENEFITS.
------------------------
(a) During the Employment Period, Executive's base salary shall be
$300,000 per annum or such higher rate as the Company may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
-----------
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employee benefit
programs for which senior executive employees of the Company and its
subsidiaries are generally eligible.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, Executive shall be eligible to
receive a bonus payable at the end of each fiscal year during the Employment
Period, which bonus shall be based upon the Company's operating results during
such year and upon Executive achieving defined specific goals and objectives
during the twelve months prior to review. Notwithstanding the foregoing, in no
event shall the bonus paid to Executive for each calendar year during the
Initial Term and any renewal term be less than fifty percent (50%) of
Executive's then effective Base Salary. Such 50% bonus shall be considered
guaranteed.
(d) Executive may be awarded, from time to time, additional
compensation (such as stock options, stock appreciation rights, performance
shares, restricted stock or unrestricted stock) pursuant to the Company's 1997
Stock Incentive Plan or any additional or replacement incentive compensation
program established for the key employees of the Company. Any awards under such
programs shall be at such levels or in Such amounts as the Board of Directors
deems, in its sole discretion, appropriate for the position occupied by
Executive and his performance therein. Subject to Section 4 herein, the terms,
conditions and rights with respect to any such grants will be subject to the
actual provisions and conditions applicable to such plans.
4. TERMINATION AND CHANGE OF CONTROL.
---------------------------------
(a) If the Executive shall die during the Employment Period, this
Agreement shall terminate, except that Executive's surviving spouse or, if
none, his estate, shall be entitled to receive Executive's compensation
(including bonus) to the last day of the third calendar month following the date
of his death; and (ii) such termination shall not affect any rights which
Executive may have at the time of his death pursuant to any insurance or other
death benefit, retirement, stock option or other plans or arrangements of the
Company or of any subsidiary or affiliate of the Company, which rights shall
continue to be governed by the provisions of such plans and arrangements.
(b) At the sole discretion of the Board of Directors, Executive may be
terminated if the Executive is disabled (as defined below) and shall have been
absent from his duties with the Company on a full time basis for one hundred and
eighty (180) consecutive days, and, within thirty (30) days after written notice
by the Company to do so, the Executive shall not have returned to the
performance of his duties hereunder on a full time basis. In the event of such
termination, the Company shall make to Executive the payments specified in
Section 4(d). As used herein, the term
2
<PAGE>
"disabled" shall (i) mean that Executive is unable, as a result of a medically
determinable physical or mental impairment, to perform the duties and services
of his position, or (have the meaning specified in any disability insurance
policy maintained by the Company, whichever is more favorable to the Executive.
(c) The Company may, by notice to Executive, terminate Executive's
employment hereunder for cause. As used herein, "cause" shall mean (i) the
conviction of Executive of a felony or conviction of a misdemeanor if such
misdemeanor involves moral turpitude, or (ii) Executive's voluntary engagement
in conduct constituting larceny, embezzlement, conversion or any other act
involving the misappropriation of Company funds in the course of his employment,
or (iii) the willful refusal to carry out specific directions of the Board of
Directors, which directions shall be consistent with the provisions hereof-, or
(iv) Executive's committing any act of gross negligence or intentional
misconduct in the performance or non-performance of his duties as an employee of
the Company; or (v) any material breach by the Executive of any material
provision of his Agreement (other than for reasons related only to the business
performance of the Company or business results achieved by Executive). For
purposes of this Section 4(c), no act or failure to act on Executive's part
shall be considered to be reason for termination for cause if done, or omitted
to be done, by Executive in good faith and with the reasonable belief that the
action or omission was in the best interests of the Company.
(d) Executive's employment may be terminated at any time by the
Company without cause; provided, however, that in such event Executive shall be
entitled to receive (so long as he executes and delivers the Company's standard
form of release), (1) 250% of Executive's then effective annual Base Salary, and
(ii) a cash allowance for out placement pursuant to the Company's US Out
placement Policy. The foregoing amounts shall be payable in one lump sum payment
within ten (10) days after Executive's last day of active employment. In
addition, Executive shall be entitled to continue participation in the Company's
health and other welfare benefit plans for a period of up to one year or until
Executive is covered by a successor employer's benefit plans, whichever is
sooner.
(e) If (i) Executive's employment Ii s terminated pursuant to
subsections (a), (b), (d), (e) or (g) of this Section 4; or (ii) a "Change in
Control" of the Company (as defined in Section 4(f) below) occurs; in either
case, all stock options, restricted stock, deferred compensation and similar
benefits which have not yet become vested on the date of termination or the date
of a Change in Control, as the case shall be, will become vested upon such
event, and Executive shall be permitted to exercise all such rights in
accordance with the administrative provisions of those plans, and in the case of
a Change of Control, whether or not Executive remains employed with the Company
or terminates his employment in accordance with this subsection (e). If a Change
in Control event involves a tender offer for all or part of the Company's
shares, the vesting date for stock options and restricted stock pursuant to this
subsection (e) shall be a date which permits Executive to participate in such
tender offer with such stock options or restricted shares. In addition, if a
Change in Control occurs, Executive may, after such Change in Control, terminate
his employment with the Company for any reason after the expiry of ninety (90)
days immediately following the effective date of such Change in Control, in
which event Executive shall be entitled to the payments specified in Section
4(d) above and to the other rights described elsewhere in this Agreement.
(f) For purposes of this Agreement, a "Change in Control" of the
Company shall be deemed to have occurred if (i) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934)
becomes the beneficial owner, directly or indirectly, of Company securities
representing 30% or more of the capital stock of the Company; or
3
<PAGE>
(ii) individuals who constitute the Company's Board of Directors as of the date
of this Agreement (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided, however, that any person becoming a director
subsequent to the date of this Agreement whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least 5 1 %
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be, for the
purpose of this clause (ii), considered as though such person were a member of
the Incumbent Board; or (iii) the Company's shareholders approve a merger or
consolidation (where in either case the Company is not tile survivor thereof) in
which shareholders of the Company cease to own at least 80% of the surviving
entity's voting power, OF a sale or disposition of all or substantially all of
the Company's assets or a plan of partial or complete liquidation of the
Company.
(g) Executive's employment may be terminated by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the
assignment to Executive of any duties inconsistent in any respect with
Executive's position (including status, offices, titles, and reporting
requirements), authority, duties or responsibilities as contemplated by Section
1(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive; (ii) any failure by the Company to comply with any of the
provisions of Section 3) hereof" other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by Executive; (iii) the
Company's requiring Executive to be based at any office or location other than
as provided in Section I (c) hereof, (iv) any purported termination by the
Company of Executive's employment otherwise than as expressly permitted by this
Agreement; or (v) any failure by the Company to obtain an express assumption of
this Agreement by a successor as required pursuant to Section 15 hereof. For
purposes of this Section 4(g), any good faith determination of "Good Reason"
made by Executive shall be conclusive. Upon any termination pursuant to this
subsection (g), Executive shall be entitled to the payment specified in Section
4(d) hereof and to the other rights described therein (subject to his compliance
therewith).
(h) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
subsection (h)) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any interest or penalties are incurred by Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties are
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive at the time specified in subparagraph (k) below an additional
amount (a "Gross-Up Payment") such that the net amount retained by Executive,
after deduction of any Excise Tax on a Payment and any federal (and state and
local) income tax (and any interest and penalties imposed with respect thereto),
employment tax and Excise Tax on a Payment, shall be equal to the amount of all
the Payments.
(i) For purposes of the foregoing subparagraph (h), the proper
amounts, if any, of the Excise Tax and the Gross-Up Payment shall be determined
in the first instance by the Company. Such determination by the Company shall be
communicated in writing by the Company to Executive at least fourteen (14) days
prior to the occurrence of a Change of Control. Within ten (10) days of being
provided with written notice of any such determination, Executive may provide
4
<PAGE>
written notice to the Chairperson of the Compensation Committee of the Board of
Directors of the Company of any disagreement, in which event the amounts, if
any, of the Excise Tax and the Gross-Up Payment shall be determined by tax
counsel mutually selected by the Company and Executive. The determination of the
Company (or in the event of disagreement, the tax counsel selected) shall be
final and nonreviewable.
(j) For purposes of determining whether any of the Payments will be
Subject to the Excise Tax and the amount of such Excise Tax under subparagraph
(h), the following principles will be applicable:
(A) Any payments or benefits received or to be received by Executive
in connection with a termination of employment shall be treated
as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(i) of the Code shall be treated as
subject to the Excise Tax unless in the opinion of tax counsel
mutually selected by the parties pursuant to subsection (i)
above, such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute
payments (in whole or in part) represents reasonable compensation
for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 28OG(b)(3) of the Code, or are otherwise
subject to the Excise Tax; and
(B) The value of any non-cash benefits or any deferred payment or
benefit shall be determined in accordance with Section 28OG(d)(3)
and (4) of the Code. For purposes of determining the amount of
the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest marginal rate of tax in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of tax in the
state and locality of Executive's residence on the date of
termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local
taxes.
(k) The Payments provided for in subparagraph (h) shall be made in a
cash, lumpsum payment, net of any required tax withholdings, upon the later of
(i) the fifth business day following the effective date of termination, or (ii)
the calculation of the amount of the Gross-Up Payment under subparagraph (i).
Any Payment required hereunder that is not made in a timely manner shall bear
interest at a rate equal to one-hundred twenty percent (120%) of the monthly
compounded applicable federal rate, as in effect under Section 1274(d) of the
Code for the month in which Payment is otherwise required to be made.
5. CONFIDENTIAL INFORMATION.
------------------------
(a) Executive acknowledges and agrees that the information,
observations and data obtained by him while employed by the Company and its
subsidiaries concerning the business or affairs of the Company or any other
subsidiary ("Confidential Information") are the property of the Company or such
------------------------
subsidiary. Therefore, Executive agrees to keep secret and retain in the
strictest confidence all Confidential Information, including without limitation,
trade "know-how" secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects and other
business affairs of the Company, learned by him prior to or after the date of
this Agreement, and not to disclose them to anyone outside the Company, either
during or after
5
<PAGE>
his employment with the Company, except (i) in the course of performing his
duties hereunder; (ii) with the Company's express written consent; (iii) to the
extent that the Confidential Information becomes generally known to and
available for use by the public other than as a result of Executive's acts or
omissions; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 48 hours after learning of such subpoena,
court order or other governmental process, shall notify the Company, by personal
delivery or fax (pursuant to Section 10 hereof), and, at the Company's expense,
shall take all reasonably necessary steps requested by the Company to defend
against the enforcement of such subpoena, court order or other governmental
process and permit the Company to intervene and participate with counsel of its
own choice in any related proceeding.
(b) Executive shall deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. INVENTIONS AND PATENTS. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company or its predecessor and its subsidiaries ("Work Product") belong
------------
to the Company or such subsidiary. Executive shall promptly disclose such Work
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after his employment) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. INDEMNIFICATION. The Company will indemnify Executive and his
---------------
legal representatives, to the fullest extent permitted by the laws of the State
of Delaware and the existing by-laws of the Company or any other applicable laws
or the provisions of any other corporate document of the Company, and Executive
shall be entitled to the protection of any insurance policies the Company may
elect to obtain generally for the benefit of its directors and officers, against
all costs, charges and expenses whatsoever incurred or Sustained by him or his
legal representatives in connection with any action, suit or proceeding to which
he or his legal representatives may be made a party by reason of him being or
having been a director or officer of the Company or of any of its subsidiaries
or affiliates or actions taken purportedly on behalf of the Company or of any of
its subsidiaries or affiliates.
8. NON-COMPETE, NON-SOLICITATION. (a) In further consideration of
-----------------------------
the compensation to be paid to Executive hereunder, Executive acknowledges that
during his employment with the Company he has become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its predecessors and its subsidiaries and that his services have been and shall
be of special, unique and extraordinary value to the Company and its
subsidiaries. Therefore, Executive agrees that, during the Employment Period and
for one year thereafter (the "Noncompete Period"), he shall not, directly or
indirectly, own any interest in, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of the Company or its subsidiaries, as such businesses exist or are
in process on the date of the termination of Executive's employment. Nothing
herein shall prohibit Executive from being a passive owner of not more than 2%
of the outstanding stock of any
6
<PAGE>
class of a corporation which is publicly traded, so long as Executive has no
active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not, directly or
indirectly, through another entity (i) induce or attempt to induce any employee
or director of the Company or any Subsidiary to leave the employ or board of the
Company or such subsidiary, or in any way interfere with the relationship
between the Company or any subsidiary and any employee or director thereof, (ii)
induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any subsidiary to cease
doing business with the Company or such subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee or business
relation and the Company or any subsidiary (including, without limitation,
making any negative statements or communications about the Company or its
subsidiaries).
(c) If, at the time of enforcement of this Section 8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this Section 8 are reasonable.
(d) In the event of the breach or a threatened breach by Executive of
any of the provisions of this Section 8, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by Executive of this
Section 8, the Noncompete Period shall be extended until such breach or
violation has been duly cured.
9. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
---------------------------
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order,'Judgment or
decree to which Executive is a party or by which he is bound, and (ii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
10. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail or equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
Notices to Executive: Michael A. Griffith
--------------------
[DELETED]
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
7
<PAGE>
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: Legal Department
11. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other Jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. COMPLETE AGREEMENT. This Agreement constitutes the complete
------------------
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. NO STRICT CONSTRUCTION. The language used in this Agreement
----------------------
shalt be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company. The Company will require any successor to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
16. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. ARBITRATION. Any controversy or claim arising out of or relating
-----------
to this Agreement, the making, interpretation or the breach thereof, other than
(a) a claim solely for injunctive relief for any alleged breach of the
provisions of Sections 5 and/or 8 as to which the parties shall have the right
to apply for specific performance to any court having equity jurisdiction; and
(b) the determination of Excise Tax and Gross-Up Payment pursuant to Section 4
herein; shall be settled by arbitration in New York City by one arbitrator in
accordance with the Commercial
8
<PAGE>
Arbitration Rules of the American Arbitration Association and Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof and any party to the arbitration may, if he elects, institute
proceedings in any court having jurisdiction for the specific performance of any
such award. The powers of the arbitrator shall include, but not be limited to,
the awarding of injunctive relief.
19. LEGAL FEES AND EXPENSES. The Company shall reimburse Executive
-----------------------
for all reasonable legal fees and expenses incurred by Executive in connection
with (a) review and/or any claims made regarding the Company's determination of
Excise Tax and Gross-Up Amount pursuant to Section 4 herein, or (b) any
arbitration proceeding brought under this Agreement pursuant to Section 18.
20. NO MITIGATION OR SET-OFF. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to require that Executive mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Executive as a result of his
employment by another employer or otherwise. The Company's obligations to make
the payments to Executive required under this Agreement, and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHIREX INC.
By Its Compensation Committee of the Board
Of Directors
/s/ Eric N. Jacobsen
----------------------
ERIC N. JACOBSEN
/s/ W. Dieter Zander
---------------------
W. DIETER ZANDER
/s/ Michael A. Griffith
------------------------
MICHAEL A. GRIFFITH
9
<PAGE>
10.5
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made as of June 24, 1998, between CHIREX INC., a Delaware corporation
("ChiRex"), its wholly owned subsidiary, CHIREX (HOLDINGS) LTD., a U.K. company
("Holdings"; collectively ChiRex and Holdings shall be referred to herein as the
"Company"), and Francis Jackson Wright ("Executive").
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RECITALS
--------
Executive is presently Vice President, Annan Operations and previously entered
into a Service Agreement dated November 1, 1997 with a subsidiary of the Company
known as ChiRex (Annan) Limited (the "Original Agreement"). Effective as of June
16, 1998, Executive has also taken on additional responsibility and the title of
Vice President Operations. The parties hereto desire to set forth in writing the
terms of Executive's employment relationship with the Company in light of his
new responsibilities.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. (a) The Company hereby agrees continue to employ
----------
Executive to render exclusive and full-time services to the Company as its Vice
President Operations, and to perform such other duties commensurate with such
office as he shall reasonably be directed by the Chief Executive Officer and/or
Board of Directors of the Company, for the period specified in Section 2.
(b) Executive hereby accepts such employment and agrees to render the
services described above to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. Executive further agrees to
accept election and to serve during all or any part of the term of this
Agreement as an officer or director of the Company and of any subsidiary or
affiliate of the Company, without any compensation therefor, other than that
specified in this Agreement or as otherwise determined by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
(c) The duties to be performed by Executive hereunder shall be
performed within the Company's U.K. facilities. Executive agrees that he shall
also travel and work outside the U.K. during the Employment Period as may be
required by the Company from time to time.
2. TERM OF EMPLOYMENT. The Employment Period of Executive by the
------------------
Company shall commence as of June 24, 1998 and subject to Section 4, shall
continue until terminated by at least six (6) months written notice given by
either party to the other. If the Company gives Executive notice that it does
not wish to extend this Agreement during its term, Executive shall be entitled
to the severance payments provided in Section 4(d) hereof As used herein, the
"Employment Period" shall refer to the term of Executive's employment with the
-----------------
Company commencing June 24, 1998.
1
<PAGE>
3. BASE SALARY AND BENEFITS. (a) During the Employment Period,
------------------------
Executive's base salary shall be f 95,000 per annum or such higher rate as the
Board may designate from time to time (the "Base Salary"), which salary shall be
-----------
payable in regular installments in accordance with the Company's general payroll
practices and shall be subject to customary withholding. Executive's Base Salary
shall be subject to review by the Board on an annual basis. During the
Employment Period, Executive shall be entitled to participate in all of the
Company's employee benefit programs for which senior executive employees based
in the U.K. of the Company and its subsidiaries are generally eligible.
Executive agrees that the Company may pay all or any part of Executive's Base
Salary or benefits through one or more of its affiliated companies.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, Executive shall be entitled to a
bonus following the end of each fiscal year during the Employment Period, which
bonus shall be based upon the Company's operating results during such year and
upon Executive achieving defined specific goals and objectives during the twelve
months prior to review. The bonus shall be on the basis that the Executive is
entitled, subject to achievement of such goals and objectives, to a payment of a
sum equivalent to an additional 30% of his Base Salary beginning for calendar
year 1998.
(d) Executive may be awarded, from time to time, additional
compensation (such as stock options, stock appreciation rights, performance
shares, restricted stock or unrestricted stock) pursuant to the Company's 1995
or 1997 Stock Incentive Plan or any additional or replacement incentive
compensation program established for the key employees of the Company. Any
awards under such programs shall be at such levels or in such amounts as the
Board of Directors deems, in its sole discretion, appropriate for the position
occupied by Executive and his performance therein. Subject to Section 4 herein,
the terms, conditions and rights with respect to any such grants will be subject
to the actual provisions and conditions applicable to such plans.
(e) Executive shall continue to receive a motor car (together with
petrol and running cost benefits) as specified in the Company's U.K. car policy.
(f) Executive shall continue to be entitled to be a member of the
ChiRex U.K. Pension Plan subject to and in accordance with its terms and
conditions as amended from time to time. The current terms and conditions
include the right of the Company to discontinue such plan.
(g) Executive shall be entitled to benefits under the Company's U.K.
Private Health Care Scheme or to a scheme offering broadly equivalent benefits
to the Executive as the Company shall determine. In addition, the Executive
shall be entitled to an annual private medical examination at the cost of the
Company.
(h) Executive shall be entitled to a mobile phone including payment of
the cost of all charges relating to the rental or use thereof
(i) 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
2
<PAGE>
prior consent of the Board. In the event Executive's employment terminates for
any reason other than cause, the Executive shall be entitled to a ratable
proportion of his annual holiday entitlement.
(j) Executive acknowledges and agrees that in the event his position
is moved to a fixed location outside the U.K., he will not be entitled to the
U.K. benefits enumerated herein and will instead receive benefits appropriate to
the location where he is assigned.
4. TERMINATION AND CHANGE OF CONTROL. (a) If Executive shall die
---------------------------------
during the Employment Period, this Agreement shall terminate, except that (i)
Executive's surviving spouse or, if none, his estate, shall be entitled to
receive Executive's compensation (including bonus) to the last day of the third
calendar month following the date of his death; and (ii) such termination shall
not affect any rights which Executive may have at the time of his death pursuant
to any insurance or other death benefit, retirement, stock option or other plans
or arrangements of the Company or of any subsidiary or affiliate of the Company,
which rights shall continue to be governed by the provisions of such plans and
arrangements.
(b) At the sole discretion of the Board of Directors, Executive may be
terminated if the Executive is disabled (as defined below) and shall have been
absent from his duties with the Company on a full time basis for one hundred and
eighty (180) consecutive days, and within thirty (30) days after written notice
by the Company to do so, the Executive shall not have returned to the
performance of his duties hereunder on a full time basis. In the event of such
termination, the Company shall make to Executive the payments specified in
Section 4(d). As used herein, the term "disabled" shall (i) mean that Executive
--------
is unable, as a result of a medically determinable physical or mental
impairment, to perform the duties and services of his position, or (ii) have the
meaning specified in any disability insurance policy maintained by the Company,
whichever is more favorable to the Executive.
(c) The Company may, by written notice to Executive, terminate
Executive's employment hereunder for cause, which termination shall be effective
as of the date of receipt of such notice by Executive. In the event of a
termination for cause, the Company shall not be required to give any prior
notice per Section 2 herein, and Executive shall receive no severance benefits
whatsoever. As used herein, "cause" shall mean (i) the conviction of Executive
-----
of a felony or conviction of a misdemeanor if such misdemeanor involves moral
turpitude; or (ii) Executive's voluntary engagement in conduct constituting
larceny, embezzlement, conversion or any other act involving the
misappropriation of Company funds in the course of his employment; or (iii) the
willful refusal to carry out specific directions of the Board of Directors,
which directions shall be consistent with the provisions hereof, or (iv)
Executive's committing any act of gross negligence or intentional misconduct in
the performance or non-performance of his duties as an employee of the Company;
or (v) any material breach by the Executive of any material provision of this
Agreement (other than for reasons related only to the business performance of
the Company or business results achieved by the Executive). For purposes of this
Section 4(c), no act or failure to act on Executive's part shall be considered
to be reason for termination for cause if done, or omitted to be done, by
Executive in good faith and with the reasonable belief that the action or
omission was in the best interests of the Company.
(d) Executive's employment may be terminated at any time by the
Company without cause; provided, however, that in such event Executive shall be
entitled to receive (so long as he executes and delivers the Company's standard
form of release),
(i) in the event Executive is terminated on or before December
31, 1999, 250% of Executive's then effective annual Base
Salary;
3
<PAGE>
(ii) in the event Executive is terminated after December 31,
1999, 130% of Executive's then effective annual Base Salary.
In either case, amounts paid under subsection (i) or (ii) above shall be payable
in one lump sum payment within five (5) days after Executive's last day of
active employment. In addition, Executive shall be entitled to continue
participation in the Company's health and other welfare benefit plans for a
period of up to one (1) year or until Executive is covered by a successor
employer's benefit plans, whichever is sooner.
(e) If a "Change in Control" of the Company (as defined in Section
4(f) below) occurs or if Executive is terminated without cause before December
31, 1999, all stock options, restricted stock, deferred compensation and similar
benefits which have not yet become vested on the date of a Change in Control or
the aforementioned termination shall become vested upon such event, and
Executive shall be permitted to exercise all such rights in accordance with the
administrative provisions of those plans, whether or not Executive remains
employed with the Company or terminates his employment in accordance with this
subsection (e) in a Change of Control situation. If a Change in Control event
involves a tender offer for all or part of the Company's shares, the vesting
date for stock options and restricted stock pursuant to this subsection (e)
shall be a date which permits Executive to participate in such tender offer with
such stock options or restricted shares.
(f) For purposes of this Agreement, a "Change in Control" of the
-----------------
Company shall be deemed to have occurred if: (i) any person (as such term is
used in Sections 13 )(d) and 14(d)(2) of the Securities and Exchange Act of
1934) becomes the beneficial owner, directly or indirectly, of Company
securities representing 30% or more of the capital stock of the Company; or (ii)
individuals who constitute the Company's Board of Directors as of the date of
this Agreement (the "Incumbent Board") cease for any reason to constitute at
---------------
least a majority thereof, provided, however, that any person becoming a director
subsequent to the date of this Agreement whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least 5 1 %
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be, for the
purpose of this clause (ii), considered as though such person were a member of
the Incumbent Board; or (iii) the Company's shareholders approve a merger or
consolidation (where in either case the Company is not the survivor thereof) in
which shareholders of the Company cease to own at least 80% of the surviving
entity's voting power, or a sale or disposition of all or substantially all of
the Company's assets or a plan of partial or complete liquidation of the
Company.
(g) Executive's employment may be terminated by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the
assignment to Executive of any duties inconsistent in any respect with
Executive's position (including status, offices, titles, and reporting
requirements), authority, duties or responsibilities as contemplated by Section
1(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive; (ii) any failure by the Company to comply with any of the
provisions of Section 3 hereof, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by Executive; (iii) the
Company's requiring Executive to be based at any office or location other than
as provided in Section 1(c) hereof, (iv) any purported termination by the
Company of Executive's employment otherwise than as expressly permitted by this
Agreement; or (v) any failure by the
4
<PAGE>
Company to obtain an express assumption of this Agreement by a successor as
required pursuant to Section 15 hereof. For purposes of this Section 4(g), any
good faith determination of "Good Reason" made by Executive shall be conclusive.
Upon any termination pursuant to this subsection (g), Executive shall be
entitled to the payment specified in Section 4(d) hereof and to the other rights
described therein (subject to his compliance therewith).
5. CONFIDENTIAL INFORMATION. (a) Executive acknowledges and agrees
------------------------
that the information, observations and data obtained by him while employed by
the Company and its subsidiaries concerning the business or affairs of the
Company or any other subsidiary ("Confidential Information") are the property of
------------------------
the Company or such subsidiary. Therefore, Executive agrees to keep secret and
retain in the strictest confidence all Confidential Information, including
without limitation, trade "know-how" secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects and other business affairs of the Company, learned by him prior to or
after the date of this Agreement, and not to disclose them to anyone outside the
Company, either during or after his employment with the Company, except (i) in
the course of performing his duties hereunder; (ii) with the Company's express
written consent; (iii) to the extent that the Confidential Information becomes
generally known to and available for use by the public other than as a result of
Executive's acts or omissions; or (iv) where required to be disclosed by court
order, subpoena or other government process. If Executive shall be required to
make disclosure pursuant to the provisions of clause (iv) of the preceding
sentence, Executive promptly, but in no event more than 48 hours after learning
of such subpoena, court order or other governmental process, shall notify the
Company, by personal delivery or fax (pursuant to Section 10 hereof), and, at
the Company's expense, shall take all reasonably necessary steps requested by
the Company to defend against the enforcement of such subpoena, court order or
other governmental process and permit the Company to intervene and participate
with counsel of its own choice in any related proceeding.
(b) Executive shall deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. INVENTIONS AND PATENTS. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company or its predecessor and its subsidiaries ("Work Product") belong
------------
to the Company or such subsidiary. Executive shall promptly disclose such Work
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after his employment) to establish and confirm such-ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. ORIGINAL AGREEMENT. Clauses 3.3, 3.4, 9.1, 9.2, 9.3, 9.4, 9.5,
------------------
9.6, and 9.7 of the Original Agreement shall continue as therein written in full
force and effect.
8. INDEMNIFICATION. The Company will indemnify Executive and his
---------------
legal representatives, to the fullest extent permitted by the laws of the State
of Delaware and the existing by-laws of the Company or any other applicable laws
or the provisions of any other corporate document of the Company, and Executive
shall be entitled to the protection of any insurance policies
5
<PAGE>
the Company may elect to obtain generally for the benefit of its directors and
officers, against all costs, charges and expenses whatsoever incurred or
sustained by him or his legal representatives in connection with any action,
suit or proceeding to which he or his legal representatives may be made a party
by reason of his being or having been a director or officer of the Company or of
any of its subsidiaries or affiliates or actions taken purportedly on behalf of
the Company or of any of its subsidiaries or affiliates.
9. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
---------------------------
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, and (b) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he fully
understands the terms and conditions contained in this Agreement.
10. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail or equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
Notices to Executive: Francis Jackson Wright
--------------------
[DELETED]
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: General Counsel
11. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. COMPLETE AGREEMENT. Except as set forth in Section 7 herein,
------------------
this Agreement constitutes the complete agreement and understanding among the
parties and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way, including without limitation, the
Original Agreement.
13. NO STRICT CONSTRUCTION. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
6
<PAGE>
14. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company. The Company will require any successor to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
16. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. ARBITRATION. Any controversy or claim arising out of or relating
-----------
to this Agreement, the making, interpretation or the breach thereof, other than
a claim solely for injunctive relief for any alleged breach of the provisions of
Section 5 as to which the parties shall have the right to apply for specific
performance to any court having equity jurisdiction, shall be settled by
arbitration in London, England by one arbitrator in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgement upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof (in the U.S. and in the U.K.) and any party to the
arbitration may, if he elects, institute proceedings in any court having
jurisdiction for the specific performance of any such award. The powers of the
arbitrator shall include, but not be limited to, the awarding of injunctive
relief The Company shall reimburse Executive for all expenses incurred by
Executive in connection with any arbitration, including reasonable attorney's
fees, to the extent the arbitration is concluded in Executive's favor.
19. NO MITIGATION OR SET-OFF. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to require that Executive mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Executive as a result of his
employment by another employer or otherwise. The Company's obligations to make
the payments to Executive required under this Agreement, and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive.
* * * * * * * * * * * * * * * * *
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHIREX INC. and its subsidiary
CHIREX (HOLDINGS) LTD.
/s/ Michael A. Griffith
----------------------------------------
MICHAEL A. GRIFFITH
DIRECTOR AND CHIEF FINANCIAL OFFICER
/s/ Francis Jackson Wright
----------------------------------------
FRANCIS JACKSON WRIGHT
8
<PAGE>
SCHEDULE 1
----------
WRITTEN STATEMENT OF MAIN TERMS AND CONDITIONS OF EMPLOYMENT AS REQUIRED BY THE
- -------------------------------------------------------------------------------
EMPLOYMENT RIGHTS ACT 1996
--------------------------
1. Parties: The names and addresses of the Company and Executive are set out on
-------
page I of this Agreement and in Section 10 of this Agreement.
2. Commencement of Continuity of Employment. The Executive's continuous period
----------------------------------------
commenced on 1 November 1997. No 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 set out on page I of this
---------
Agreement.
4. Place of Work. The Executive's place of work is set out in Section 1(c) of
-------------
this Agreement.
5. Remuneration. See Section 3 of this Agreement.
------------
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 Section 3(i) of this Agreement.
--------
8. Notice Period. See Section 2 of this Agreement.
-------------
9. Sick Pay. See Section 4(b) of this Agreement.
--------
10. Retirement. The normal age of retirement is 65.
----------
11. Pensions. See Section 4(f) 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.
13. Disciplinary Rules. Any appeal against disciplinary action will be dealt
------------------
with by the Board.
14. Miscellaneous. There are no collective agreements in force which affect the
-------------
terms and conditions of Executive's employment.
9
<PAGE>
10.5
EXECUTION COPY
AMENDMENT NO. 1 TO
------------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
BETWEEN CHIREX INC. AND FRANCIS JACKSON WRIGHT
----------------------------------------------
This Amendment No. I (the "Amendment") to the Amended and Restated
Employment Agreement dated June 24, 1998 (the "Agreement") between ChiRex Inc.,
a Delaware corporation ("ChiRex"), its wholly owned subsidiary, ChiRex
(Holdings) Ltd., a U.K. company ("Holdings"; collectively ChiRex and Holdings
shall be referred to herein as the "Company") and Francis Jackson Wright
("Executive"), is made as of December 15, 1998.
Recitals
--------
WHEREAS, Executive has been promoted to the position of Executive Vice
President and will relocate from the Company's Annan, Scotland location to its
corporate office in Stamford, Connecticut USA; and
WHEREAS, this Amendment contains those changes to the Agreement which
shall be in effect as of January 1, 1999 which reflect Executive's new position
and location.
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Section 1. Section I (a) of the Agreement is amended so that Executive's
---------
title is changed from Vice President Operations to Executive Vice
President. Section 1(c) of the Agreement is amended so that Executive shall
perform his duties at the Company's U.S. facilities rather than its U.K.
facilities.
2. Section 3. Section 3(a) of the Agreement is amended, effective January 1,
---------
1999 as follows: (a) Executive's base salary shall be U.S. $160,000 per
annum, (b) Executive shall also receive a cost-of-living adjustment in the
amount of $50,000 per annum, paid monthly per usual U.S. payroll practices
with tax withholding, it being understood that if Executive is relocated
outside the U.S., such amount shall no longer be paid to Executive, (c)
Executive shall be paid, no later than January 31, 1999, a one-time payment
of $24,000 to cover moving expenses per the ChiRex Relocation Policy, and
(d) Executive shall be entitled to participate in the Company's UK benefit
programs only to the extent permitted by the ChiRex Relocation Policy.
Section 3(c) of the Agreement is amended, effective January 1, 1999 to
delete the last sentence of such section, it being understood that
Executive will be eligible for a bonus when and if the Company puts in
place a new bonus plan. Section 3(e) is deleted in its
<PAGE>
2
entirety. Section 3(g) is amended so that Executive shall be entitled to
participate in the Company's U.S. and U.K. health plans.
3. Section 10. Notices shall be sent to Executive at his new home address in
----------
Connecticut.
4. Section 18. Arbitration, if necessary, shall be in New York, NY, and not
----------
London, England.
5. Agreement Continuation. Except as amended as set forth herein, the
----------------------
Agreement shall continue in full force and effect.
ChiRex Inc. and its subsidiary
ChiRex (Holdings) Ltd.
/s/ Michael A. Griffith
- ----------------------------
Michael A. Griffith
Chairman & Chief Executive Officer
/s/ Francis Jackson Wright
- ----------------------------
Francis Jackson Wright
<PAGE>
10.6
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made as of April 15, 1998, between CHIREX INC., a Delaware corporation (the
"Company"), and Jon E. Tropsa ("Executive").
------- ---------
RECITALS
--------
Executive is presently the Corporate Controller of the Company and
previously entered into an Employment Agreement dated as of January 1, 1998. The
parties hereto desire to set forth in writing the current terms of the
Executive's employment relationship with the Company.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT.
----------
(a) The Company hereby agrees to continue its employment of Executive
to render exclusive and full time services to the Company as its Corporate
Controller and to perform such other duties commensurate with such office as he
shall reasonably be directed by the senior management and/or Board of Directors
of the Company, for the period specified in Section 2.
(b) Executive hereby accepts such employment and agrees to render the
services described above to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. Executive further agrees to
accept election and to serve during all or any part of the term of this
Agreement as an officer or director of the Company and of any subsidiary or
affiliate of the Company, without any compensation therefor, other than that
specified in this Agreement or as otherwise determined by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
(c) The duties to be performed by Executive hereunder shall be
performed primarily at the principal office of the Company at 300 Atlantic
Street, Stamford, Connecticut, subject to reasonable travel requirements on
behalf of the Company.
2. TERM OF EMPLOYMENT. The employment period of Executive by the
------------------
Company shall commence on April 15, 1998 and end on December 31, 2000 (the
"Initial Term") unless further extended or sooner terminated as hereinafter
provided. Executive may terminate his employment during the Initial Term with
six months written notice to the Company. Commencing on December 31, 2000, and
each December 31 thereafter, the term of Executive's employment shall
automatically be extended for one additional year to, respectively, December 31,
2001, and each December 31 thereafter, unless, not later than six months prior
to the end of any renewal term, either party hereunder shall have given notice
to the other party that it does not wish to extend this Agreement. If the
Company gives Executive notice that it does not wish to extend this Agreement
during the Initial Term or any renewal term, Executive shall be entitled to the
severance payments provided in Section 4(d) hereof. As used herein the
"Employment Period" shall refer to the Initial Term and any renewal term of
Executive's employment with the Company.
1
<PAGE>
3. BASE SALARY AND BENEFITS.
------------------------
(a) During the Employment Period, Executive's base salary shall be $
125,000 per annum or such higher rate as the Company may designate from time to
time (the "Base Salary"), which salary shall be payable in regular installments
-----------
in accordance with the Company's general payroll practices and shall be subject
to customary withholding. In addition, during the Employment Period, Executive
shall be entitled to participate in all of the Company's employee benefit
programs for which senior executive employees of the Company and its
subsidiaries are generally eligible.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, Executive shall be eligible to
receive a bonus payable at the end of each fiscal year during the Employment
Period, which bonus shall be based upon the Company's operating results during
such year and upon Executive achieving defined specific goals and objectives
during the twelve months prior to review. Notwithstanding the foregoing, in no
event shall the bonus paid to Executive for each calendar year during the
Initial Term and any renewal term be less than twenty percent (20%) of
Executive's then effective Base Salary. Such 20% bonus shall be considered
guaranteed.
(d) Executive may be awarded, from time to time, additional
compensation (such as stock options, stock appreciation rights, performance
shares, restricted stock or unrestricted stock) pursuant to the Company's 1997
Stock Incentive Plan or any additional or replacement incentive compensation
program established for the key employees of the Company. Any awards under such
programs shall be at such levels or in such amounts as the Board of Directors
deems, in its sole discretion, appropriate for the position occupied by
Executive and his performance therein. Subject to Section 4 herein, the terms,
conditions and rights with respect to any such grants will be subject to the
actual provisions and conditions applicable to such plans.
4. TERMINATION AND CHANGE OF CONTROL.
---------------------------------
(a) If the Executive shall die during the Employment Period, this
Agreement shall terminate, except that (i) Executive's surviving spouse or, if
none, his estate, shall be entitled to receive Executive's compensation
(including bonus) to the last day of the third calendar month following the date
of his death; and (ii) such termination shall not affect any rights which
Executive may have at the time of his death pursuant to any insurance or other
death benefit, retirement, stock option or other plans or arrangements of the
Company or of any subsidiary or affiliate of the Company, which rights shall
continue to be governed by the provisions of such plans and arrangements.
(b) At the sole discretion of the Board of Directors, Executive may
be terminated if the Executive is disabled (as defined below) and shall have
been absent from his duties with the Company on a full time basis for one
hundred and eighty (180) consecutive days, and , within thirty (30) days after
written notice by the Company to do so, the Executive shall not have returned to
the performance of his duties hereunder on a full time basis. In the event of
such termination, the Company shall make to Executive the payments specified in
Section 4(d). As used herein, the term "disabled" shall (i) mean that Executive
--------
is unable, as a result of a medically determinable physical or mental
impairment, to perform the duties and services of his position, or (ii) have the
meaning specified in any disability insurance policy maintained by the Company,
whichever is more favorable to the Executive.
2
<PAGE>
(c) The Company may, by notice to Executive, terminate Executive's
employment hereunder for cause. As used herein, "cause" shall mean (i) the
-----
conviction of Executive of a felony or conviction of a misdemeanor if such
misdemeanor involves moral turpitude; or (ii) Executive's voluntary engagement
in conduct constituting larceny, embezzlement, conversion or any other act
involving the misappropriation of Company funds in the course of his employment;
or (iii) the willful refusal to carry out specific directions of the Board of
Directors, which directions shall be consistent with the provisions hereof; or
(iv) Executive's committing any act of gross negligence or intentional
misconduct in the performance or non-performance of his duties as an employee of
the Company; or (v) any material breach by the Executive of any material
provision of his Agreement (other than for reasons related only to the business
performance of the Company or business results achieved by Executive). For
purposes of this Section 4(c), no act or failure to act on Executive's part
shall be considered to be reason for termination for cause if done, or omitted
to be done, by Executive in good faith and with the reasonable belief that the
action or omission was in the best interests of the Company.
(d) Executive's employment may be terminated at any time by the
Company without cause; provided, however, that in such event Executive shall be
entitled to receive (so long as he executes and delivers the Company's standard
form of release), (i) 120% of Executive's then effective annual Base Salary, and
(ii) a cash allowance for outplacement pursuant to the Company's U.S
Outplacement Policy. The foregoing amounts shall be payable in one lump sum
payment within five (5) days after Executive's last day of active employment. In
addition, Executive shall be entitled to continue participation in the Company's
health and other welfare benefit plans for a period of up to one year or until
Executive is covered by a successor employer's benefit plans, whichever is
sooner.
(e) If (i) Executive's employment is terminated pursuant to
subsections (a), (b), (d), (e) or (g) of this Section 4; or (ii) a "Change in
Control" of the Company (as defined in Section 4(f) below) occurs; in either
case, all stock options, restricted stock, deferred compensation and similar
benefits which have not yet become vested on the date of termination or the date
of a Change in Control, as the case shall be, will become vested upon such
event, and Executive shall be permitted to exercise all such rights in
accordance with the administrative provisions of those plans, and in the case of
a Change of Control, whether or not Executive remains employed with the Company
or terminates his employment in accordance with this subsection (e). If a Change
in Control event involves a tender offer for all or part of the Company's
shares, the vesting date for stock options and restricted stock pursuant to this
subsection (e) shall be a date which permits Executive to participate in such
tender offer with such stock options or restricted shares. In addition, if a
Change in Control occurs, Executive may, after such Change in Control, terminate
his employment with the Company for any reason after the expiry of ninety (90)
days immediately following the effective date of such Change in Control, in
which event Executive shall be entitled to the payments specified in Section
4(d) above and to the other rights described elsewhere in this Agreement.
(f) For purposes of this Agreement, a "Change in Control" of the
-----------------
Company shall be deemed to have occurred if: (i) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934)
becomes the beneficial owner, directly or indirectly, of Company securities
representing 30% or more of the capital stock of the Company; or (ii)
individuals who constitute the Company's Board of Directors as of the date of
this Agreement (the "Incumbent Board") cease for any reason to constitute at
--------- -----
least a majority thereof, provided, however, that any person becoming a director
subsequent to the date of this Agreement whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least 51%
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be, for the
purpose of this clause (ii), considered as though such
3
<PAGE>
person were a member of the Incumbent Board; or (iii) the Company's shareholders
approve a merger or consolidation (where in either case the Company is not the
survivor thereof) in which shareholders of the Company cease to own at least 80%
of the surviving entity's voting power, or a sale or disposition of all or
substantially all of the Company's assets or a plan of partial or complete
liquidation of the Company.
(g) Executive's employment may be terminated by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the
assignment to Executive of any duties inconsistent in any respect with
Executive's position (including status, offices, titles, and reporting
requirements), authority, duties or responsibilities as contemplated by Section
1(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive; (ii) any failure by the Company to comply with any of the
provisions of Section 3 hereof, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by Executive; (iii) the
Company's requiring Executive to be based at any office or location other than
as provided in Section 1(c) hereof; (iv) any purported termination by the
Company of Executive's employment otherwise than as expressly permitted by this
Agreement; or (v) any failure by the Company to obtain an express assumption of
this Agreement by a successor as required pursuant to Section 14 hereof. For
purposes of this Section 4(g), any good faith determination of "Good Reason"
made by Executive shall be conclusive. Upon any termination pursuant to this
subsection (g), Executive shall be entitled to the payment specified in Section
4(d) hereof and to the other rights described therein (subject to his compliance
therewith).
(h) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
subsection (h)) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any interest or penalties are incurred by Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties are
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive at the time specified in subparagraph (k) below an additional
amount (a "Gross-Up Payment") such that the net amount retained by Executive,
after deduction of any Excise Tax on a Payment and any federal (and state and
local) income tax (and any interest and penalties imposed with respect thereto),
employment tax and Excise Tax on a Payment, shall be equal to the amount of all
the Payments.
(i) For purposes of the foregoing subparagraph (h), the proper
amounts, if any, of the Excise Tax and the Gross-Up Payment shall be determined
in the first instance by the Company. Such determination by the Company shall be
communicated in writing by the Company to Executive at least fourteen (14) days
prior to the occurrence of a Change of Control. Within ten (10) days of being
provided with written notice of any such determination, Executive may provide
written notice to the Chairperson of the Compensation Committee of the Board of
Directors of the Company of any disagreement, in which event the amounts, if
any, of the Excise Tax and the Gross-Up Payment shall be determined by tax
counsel mutually selected by the Company and Executive. The determination of the
Company (or in the event of disagreement, the tax counsel selected) shall be
final and nonreviewable.
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<PAGE>
(j) For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax under subparagraph
(h), the following principles will be applicable:
(A) Any payments or benefits received or to be received by Executive
in connection with a termination of employment shall be treated
as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax unless in the opinion of tax counsel
mutually selected by the parties pursuant to subsection (i)
above, such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute
payments (in whole or in part) represents reasonable compensation
for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise
subject to the Excise Tax; and
(B) The value of any non-cash benefits or any deferred payment or
benefit shall be determined in accordance with Section 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of
the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest marginal rate of tax in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of tax in the
state and locality of Executive's residence on the date of
termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local
taxes.
(k) The Payments provided for in subparagraph (h) shall be made in a
cash, lump-sum payment, net of any required tax withholdings, upon the later of
(i) the fifth business day following the effective date of termination, or (ii)
the calculation of the amount of the Gross-Up Payment under subparagraph (i).
Any Payment required hereunder that is not made in a timely manner shall bear
interest at a rate equal to one-hundred twenty percent (120%) of the monthly
compounded applicable federal rate, as in effect under Section 1274(d) of the
Code for the month in which Payment is otherwise required to be made.
5 CONFIDENTIAL INFORMATION.
------------------------
(a) Executive acknowledges and agrees that the information,
observations and data obtained by him while employed by the Company and its
subsidiaries concerning the business or affairs of the Company or any other
subsidiary ("Confidential Information") are the property of the Company or such
------------------------
subsidiary. Therefore, Executive agrees to keep secret and retain in the
strictest confidence all Confidential Information, including without limitation,
trade "know-how" secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects and other
business affairs of the Company, learned by him prior to or after the date of
this Agreement, and not to disclose them to anyone outside the Company, either
during or after his employment with the Company, except (i) in the course of
performing his duties hereunder; (ii) with the Company's express written
consent; (iii) to the extent that the Confidential Information becomes generally
known to and available for use by the public other than as a result of
Executive's acts or omissions; or (iv) where required to be disclosed by court
order, subpoena or other government process. If Executive shall be required to
make disclosure pursuant to the provisions of clause (iv) of the preceding
sentence, Executive promptly, but in no event more than 48 hours after learning
of such subpoena, court order or other governmental process, shall notify the
Company, by personal delivery or fax (pursuant to Section 9 hereof), and, at the
Company's expense,
5
<PAGE>
shall take all reasonably necessary steps requested by the Company to defend
against the enforcement of such subpoena, court order or other governmental
process and permit the Company to intervene and participate with counsel of its
own choice in any related proceeding.
(b) Executive shall deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. INVENTIONS AND PATENTS. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company or its predecessor and its subsidiaries ("Work Product") belong
------------
to the Company or such subsidiary. Executive shall promptly disclose such Work
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after his employment) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. INDEMNIFICATION. The Company will indemnify Executive and his
---------------
legal representatives, to the fullest extent permitted by the laws of the State
of Delaware and the existing by-laws of the Company or any other applicable laws
or the provisions of any other corporate document of the Company, and Executive
shall be entitled to the protection of any insurance policies the Company may
elect to obtain generally for the benefit of its directors and officers, against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives in connection with any action, suit or proceeding to which
he or his legal representatives may be made a party by reason of him being or
having been a director or officer of the Company or of any of its subsidiaries
or affiliates or actions taken purportedly on behalf of the Company or of any of
its subsidiaries or affiliates.
8. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
---------------------------
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, and (ii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
9. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail or equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
Notices to Executive: Jon E. Tropsa
--------------------
[DELETED]
6
<PAGE>
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: General Counsel
10. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
11. COMPLETE AGREEMENT. This Agreement constitutes the complete
------------------
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
12. NO STRICT CONSTRUCTION. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
13. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
14. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company. The Company will require any successor to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
15. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
16. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
17. ARBITRATION. Any controversy or claim arising out of or
-----------
relating to this Agreement, the making, interpretation or the breach thereof,
other than (a) a claim solely for injunctive relief for any alleged breach of
the provisions of Section 5 as to which the parties shall have the right to
apply for specific performance to any court having equity jurisdiction; and (b)
the determination of Excise Tax and Gross-Up Payment pursuant to Section 4
herein; shall be settled
7
<PAGE>
by arbitration in New York City by one arbitrator in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgement upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof and any party to the arbitration may, if he elects,
institute proceedings in any court having jurisdiction for the specific
performance of any such award. The powers of the arbitrator shall include, but
not be limited to, the awarding of injunctive relief.
18. LEGAL FEES AND EXPENSES. The Company shall reimburse Executive
-----------------------
for all reasonable legal fees and expenses incurred by Executive in connection
with (a) review and/or any claims made regarding the Company's determination of
Excise Tax and Gross-Up Amount pursuant to Section 4 herein, or (b) any
arbitration proceeding brought under this Agreement pursuant to Section 17,
where the arbitration is concluded in Executive's favor.
19. NO MITIGATION OR SET-OFF. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to require that Executive mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Executive as a result of his
employment by another employer or otherwise. The Company's obligations to make
the payments to Executive required under this Agreement, and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive.
* * * * * * * * * * * * * * * *
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHIREX INC.
/s/ Michael A. Griffith
-------------------------------
By: Michael A. Griffith
Chief Financial Officer
/s/ Jon E. Tropsa
-------------------------------
JON E. TROPSA
9
<PAGE>
10.7
Execution Copy
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made as of June 9, 1998, between CHIREX
INC., a Delaware corporation ("ChiRex"), its wholly owned subsidiary, CHIREX
(HOLDINGS) LTD., a U.K. company ("Holdings"; collectively ChiRex and Holdings
shall be referred to herein as the "Company"), and Ian D. Shott ("Executive").
------- ---------
RECITALS
Company wishes to hire Executive as its Chief Operating Officer and
Executive wishes to accept such position. The parties hereto desire to set
forth in writing the terms of Executive's employment relationship with the
Company.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. (a) The Company hereby agrees to hire Executive to
----------
render exclusive and full-time services to the Company as its Chief Operating
Officer, and to perform such other duties commensurate with such office as he
shall reasonably be directed by the Chief Executive Officer and/or Board of
Directors of the Company, for the period specified in Section 2.
(b) Executive hereby accepts such employment and agrees to render the
services described above to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. Executive further agrees to
accept election and to serve during all or any part of the term of this
Agreement as an officer or director of the Company and of any subsidiary or
affiliate of the Company, without any compensation therefor, other than that
specified in this Agreement or as otherwise determined by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
(c) The duties to be performed by Executive hereunder shall be
performed for up to the first twelve months of this Agreement primarily at the
principal office of the Company within the U.K. and after that at a designated
location chosen per Section 3(b) herein. Executive agrees that he shall also
travel and work outside the U.K. during the Employment Period as may be required
by the Company from time to time.
(d) Executive shall be invited to attend meetings of the Board of
Directors of the Company.
2. TERM OF EMPLOYMENT. The Employment Period of Executive by the
------------------
Company shall commence no later than December 1, 1998 and end on December 31,
2001 (the "Initial Term") unless further extended or sooner terminated as
------------
hereinafter provided. Executive may terminate his employment at any time with
six months written notice to the Company. Commencing on December 31, 2001, and
each December 31 thereafter, the term of Executive's employment shall
automatically be extended for one additional year to, respectively, December 31,
2002, and each December 31 thereafter, unless, not later than six months prior
to the end of any renewal term, the Company shall have given notice to Executive
that it does not wish to extend this Agreement. If the Company gives Executive
notice that it does not wish to extend this Agreement during the Initial Term or
any renewal
<PAGE>
term, Executive shall be entitled to the severance payments provided in Section
4(d) hereof. As used herein, the "Employment Period" shall refer to the Initial
-----------------
Term and any renewal term of Executive's employment with the Company. In the
event Executive cannot begin work with the Company on or before December 1,
1998, this Agreement shall immediately terminate and be void and neither party
shall have any further rights or obligations toward one another, except that the
Confidentiality Agreement dated March 19, 1998 between the parties shall
automatically be reinstated and be binding on both parties in accordance with
its terms.
3. BASE SALARY AND BENEFITS. (a) During the Employment Period,
------------------------
Executive's base salary shall be (Pounds)150,000 per annum or such higher rate
as the Board may designate from time to time (the "Base Salary"), which salary
-----------
shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding.
Executive's Base Salary shall be subject to review by the Board on an annual
basis. During the Employment Period, Executive shall be entitled to participate
in all of the Company's employee benefit programs for which senior executive
employees based in the U.K. of the Company and its subsidiaries are generally
eligible. Executive agrees that the Company may pay all or any part of
Executive's Base Salary or benefits through one or more of its overseas
affiliated companies.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses. It has been agreed by the parties that Executive shall not be
required to permanently relocate during the first year of this Agreement.
During the first year of this Agreement, the Company shall pay Executive a
housing allowance of (Pounds)1000 per month for accommodations near the
Company's Dudley U.K. facility, and shall pay for two round-trip airline tickets
each month from the U.K. to Executive's home in France. When a decision is made
by the Company as to the appropriate fixed location for Executive's position,
the Company shall reimburse Executive for reasonable relocation expenses to the
chosen location. Such relocation benefit shall consist of payment by the
Company of (i) actual costs of a moving company for transport of Executive's
furnishings and personal belongings; (ii) up to two trips (airfare, hotel,
meals) of one week each to the fixed location by Executive and his family for
househunting activities; (iii) real estate broker fees; and (iv) reasonable
legal fees. In the event Executive leaves the employ of the Company within two
years of his start date, Executive shall be obligated to reimburse the Company
for all relocation costs incurred by Company.
(c) In addition to the Base Salary, Executive shall be entitled to a
bonus following the end of each fiscal year during the Employment Period, which
bonus shall be based upon the Company's operating results during such year and
upon Executive achieving defined specific goals and objectives during the
twelve months prior to review. The bonus shall be on the basis that the
Executive is entitled, subject to achievement of such goals and objectives, to a
payment of a sum equivalent to an additional 40% of his Base Salary beginning
for calendar year 1999. Executive shall receive a guaranteed bonus for 1998 of
(Pounds)30,000.
(d) Executive shall be granted, at the end of his first day of active
employment with the Company, options to purchase 75,000 shares of the Company's
Common Stock, $.01 par value at the fair market value on the date of grant under
the ChiRex
2
<PAGE>
Inc. 1997 Stock Incentive Plan (the "Plan"). 50,000 of the 75,000 options shall
vest over five years and have such usual terms as set forth in the Plan. The
remaining 25,000 options shall have a one year vesting from date of grant, but
such vesting shall be contingent upon Executive achieving certain goals which
shall be set forth in writing and appended to this Agreement within thirty (30)
days from the date of execution of this Agreement. If the aforementioned goals
are not met, the options shall terminate upon the one-year anniversary of the
grant date. In addition, Executive may be awarded, from time to time, additional
compensation (such as stock options, stock appreciation rights, performance
shares, restricted stock or unrestricted stock) pursuant to the Plan or any
additional or replacement incentive compensation program established for the key
employees of the Company. Any awards under such programs shall be at such levels
or in such amounts as the Board of Directors deems, in its sole discretion,
appropriate for the position occupied by Executive and his performance therein.
Subject to Section 4 herein, the terms, conditions and rights with respect to
any such grants will be subject to the actual provisions and conditions
applicable to such plans.
(e) Executive shall receive a motor car (together with petrol and
running cost benefits) as specified in the Company's U.K. Car Policy or, if
Executive chooses, he may receive a cash car allowance of (Pounds)6000 per annum
in lieu of the Company Car Policy benefit.
(f) Executive shall be entitled to participate in the ChiRex U.K.
Pension Plan in accordance with the terms applicable therein. For 1998, the
Company shall pay for up to (Pounds)2000 of professional advice for Executive in
the area of pension and income tax.
(g) Executive shall be entitled to benefits under the Company's U.K.
Private Health Care Scheme or to a scheme offering broadly equivalent benefits
to the Executive as the Company shall determine. In addition, the Executive
shall be entitled to an annual private medical examination at the cost of the
Company.
(h) Executive shall be entitled to a mobile phone including payment
of the cost of all charges relating to the rental or use thereof.
(i) 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 Board. In the event Executive's employment terminates for any
reason other than cause, the Executive shall be entitled to a ratable proportion
of his annual holiday entitlement.
(j) Executive acknowledges and agrees that in the event his position
is moved to a fixed location outside the U.K., he will not be entitled to the
U.K. benefits enumerated herein and will instead receive benefits appropriate to
the location where he is assigned.
4. TERMINATION AND CHANGE OF CONTROL. (a) If Executive shall die
---------------------------------
during the Employment Period, this Agreement shall terminate, except that (i)
Executive's surviving spouse or, if none, his estate, shall be entitled to
receive Executive's compensation (including bonus) to the last day of the third
calendar month following the date of his death; and (ii) such termination shall
not affect any rights which Executive may have at the time of
3
<PAGE>
his death pursuant to any insurance or other death benefit, retirement, stock
option or other plans or arrangements of the Company or of any subsidiary or
affiliate of the Company, which rights shall continue to be governed by the
provisions of such plans and arrangements.
(b) At the sole discretion of the Board of Directors, Executive may
be terminated if the Executive is disabled (as defined below) and shall have
been absent from his duties with the Company on a full time basis for one
hundred and eighty (180) consecutive days, and within thirty (30) days after
written notice by the Company to do so, the Executive shall not have returned to
the performance of his duties hereunder on a full time basis. In the event of
such termination, the Company shall make to Executive the payments specified in
Section 4(d). As used herein, the term "disabled" shall (i) mean that Executive
--------
is unable, as a result of a medically determinable physical or mental
impairment, to perform the duties and services of his position, or (ii) have the
meaning specified in any disability insurance policy maintained by the Company,
whichever is more favorable to the Executive.
(c) The Company may, by written notice to Executive, terminate
Executive's employment hereunder for cause, which termination shall be effective
as of the date of receipt of such notice by Executive. In the event of a
termination for cause, Executive shall receive no severance benefits whatsoever.
As used herein, "cause" shall mean (i) the conviction of Executive of a felony
-----
or conviction of a misdemeanor if such misdemeanor involves moral turpitude; or
(ii) Executive's voluntary engagement in conduct constituting larceny,
embezzlement, conversion or any other act involving the misappropriation of
Company funds in the course of his employment; or (iii) the willful refusal to
carry out specific directions of the Board of Directors, which directions shall
be consistent with the provisions hereof; or (iv) Executive's committing any act
of gross negligence or intentional misconduct in the performance or non-
performance of his duties as an employee of the Company; or (v) any material
breach by the Executive of any material provision of this Agreement (other than
for reasons related only to the business performance of the Company or business
results achieved by the Executive). For purposes of this Section 4(c), no act
or failure to act on Executive's part shall be considered to be reason for
termination for cause if done, or omitted to be done, by Executive in good faith
and with the reasonable belief that the action or omission was in the best
interests of the Company.
(d) Executive's employment may be terminated at any time by the
Company without cause; provided, however, that in such event Executive shall be
entitled to receive (so long as he executes and delivers the Company's standard
form of release), 140% of Executive's then effective annual Base Salary. The
foregoing amount shall be payable in one lump sum payment within five (5) days
after Executive's last day of active employment. In addition, Executive shall
be entitled to continue participation in the Company's health and other welfare
benefit plans for a period of up to one (1) year or until Executive is covered
by a successor employer's benefit plans, whichever is sooner.
(e) If a "Change in Control" of the Company (as defined in Section
4(f) below) occurs, all stock options, restricted stock, deferred compensation
and similar benefits which have not yet become vested on the date of a Change in
Control shall become vested upon such event, and Executive shall be permitted to
exercise all such rights in accordance with the administrative provisions of
those plans, whether or not Executive remains employed with the Company or
terminates his employment in accordance with this subsection (e). If a Change
in Control event involves a tender offer for all or part of the Company's
shares, the vesting date for stock options and restricted stock pursuant to this
4
<PAGE>
subsection (e) shall be a date which permits Executive to participate in such
tender offer with such stock options or restricted shares.
(f) For purposes of this Agreement, a "Change in Control" of the
-----------------
Company shall be deemed to have occurred if: (i) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934)
becomes the beneficial owner, directly or indirectly, of Company securities
representing 30% or more of the capital stock of the Company; or (ii)
individuals who constitute the Company's Board of Directors as of the date of
this Agreement (the "Incumbent Board") cease for any reason to constitute at
--------- -----
least a majority thereof, provided, however, that any person becoming a director
subsequent to the date of this Agreement whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least 51%
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be, for the
purpose of this clause (ii), considered as though such person were a member of
the Incumbent Board; or (iii) the Company's shareholders approve a merger or
consolidation (where in either case the Company is not the survivor thereof) in
which shareholders of the Company cease to own at least 80% of the surviving
entity's voting power, or a sale or disposition of all or substantially all of
the Company's assets or a plan of partial or complete liquidation of the
Company.
(g) Executive's employment may be terminated by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the
assignment to Executive of any duties inconsistent in any respect with
Executive's position (including status, offices, titles, and reporting
requirements), authority, duties or responsibilities as contemplated by Section
1(a) hereof, or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive; (ii) any failure by the Company to comply with any of the
provisions of Section 3 hereof, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by Executive; (iii) the
Company's requiring Executive to be based at any office or location other than
as provided in Section 1(c) hereof; (iv) any purported termination by the
Company of Executive's employment otherwise than as expressly permitted by this
Agreement; or (v) any failure by the Company to obtain an express assumption of
this Agreement by a successor as required pursuant to Section 15 hereof. For
purposes of this Section 4(g), any good faith determination of "Good Reason"
made by Executive shall be conclusive. Upon any termination pursuant to this
subsection (g), Executive shall be entitled to the payment specified in Section
4(d) hereof and to the other rights described therein (subject to his compliance
therewith).
5. CONFIDENTIAL INFORMATION. (a) Executive acknowledges and agrees
------------------------
that the information, observations and data obtained by him while employed by
the Company and its subsidiaries concerning the business or affairs of the
Company or any other subsidiary ("Confidential Information") are the property of
------------------------
the Company or such subsidiary. Therefore, Executive agrees to keep secret and
retain in the strictest confidence all Confidential Information, including
without limitation, trade "know-how" secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects and other business affairs of the Company, learned by him prior to or
after the date of this Agreement, and not to disclose them to anyone outside the
Company, either during or after
5
<PAGE>
his employment with the Company, except (i) in the course of performing his
duties hereunder; (ii) with the Company's express written consent; (iii) to the
extent that the Confidential Information becomes generally known to and
available for use by the public other than as a result of Executive's acts or
omissions; or (iv) where required to be disclosed by court order, subpoena or
other government process. If Executive shall be required to make disclosure
pursuant to the provisions of clause (iv) of the preceding sentence, Executive
promptly, but in no event more than 48 hours after learning of such subpoena,
court order or other governmental process, shall notify the Company, by personal
delivery or fax (pursuant to Section 10 hereof), and, at the Company's expense,
shall take all reasonably necessary steps requested by the Company to defend
against the enforcement of such subpoena, court order or other governmental
process and permit the Company to intervene and participate with counsel of its
own choice in any related proceeding.
(b) Executive shall deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. INVENTIONS AND PATENTS. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company or its predecessor and its subsidiaries ("Work Product") belong
------------
to the Company or such subsidiary. Executive shall promptly disclose such Work
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after his employment) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. NON-COMPETE, NON-SOLICITATION. (a) In further consideration of
-----------------------------
the compensation to be paid to Executive hereunder, Executive acknowledges that
during his employment with the Company he will become familiar with the
Company's trade secrets and with other Confidential Information concerning the
Company and its predecessors and its subsidiaries and that his services shall be
of special, unique and extraordinary value to the Company and its subsidiaries.
Therefore, Executive agrees that, during the Employment Period and for one year
thereafter (the "Noncompete Period"), he shall not, directly or indirectly, own
-----------------
any interest in, manage, control, participate in, consult with, render services
for, or in any manner engage in any business competing with the businesses of
the Company or its subsidiaries, as such businesses exist or are in process on
the date of the termination of Executive's employment. Nothing herein shall
prohibit Executive from being a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not, directly or
indirectly, through another entity (i) induce or attempt to induce any employee
of the Company or any subsidiary to leave the employ of the Company or such
subsidiary, or in any way interfere with the relationship between the Company or
any subsidiary and any employee thereof, (ii) induce or attempt to induce any
customer, supplier, licensee, licensor,
6
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franchisee or other business relation of the Company or any subsidiary to cease
doing business with the Company or such subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee or business
relation and the Company or any subsidiary (including, without limitation,
making any negative statements or communications about the Company or its
subsidiaries).
(c) If, at the time of enforcement of this Section 7, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this Section 7 are reasonable.
(d) In the event of the breach or a threatened breach by Executive of
any of the provisions of this Section 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an alleged breach or violation by Executive of this
Section 7, the Noncompete Period shall be extended until such breach or
violation has been duly cured.
8. INDEMNIFICATION. The Company will indemnify Executive and his
---------------
legal representatives, to the fullest extent permitted by the laws of the State
of Delaware and the existing by-laws of the Company or any other applicable laws
or the provisions of any other corporate document of the Company, and Executive
shall be entitled to the protection of any insurance policies the Company may
elect to obtain generally for the benefit of its directors and officers, against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives in connection with any action, suit or proceeding to which
he or his legal representatives may be made a party by reason of his being or
having been a director or officer of the Company or of any of its subsidiaries
or affiliates or actions taken purportedly on behalf of the Company or of any of
its subsidiaries or affiliates.
9. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
---------------------------
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, and (b) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he fully
understands the terms and conditions contained in this Agreement.
10. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail or equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
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Notices to Executive: Ian D. Shott
--------------------
[DELETED]
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: General Counsel
11. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. COMPLETE AGREEMENT. This Agreement constitutes the complete
------------------
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way,
including without limitation, the Confidentiality Agreement between Executive
and the Company dated March 19, 1998.
13. NO STRICT CONSTRUCTION. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company. The Company will require any successor to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
16. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
8
<PAGE>
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. ARBITRATION. Any controversy or claim arising out of or relating
-----------
to this Agreement, the making, interpretation or the breach thereof, other than
a claim solely for injunctive relief for any alleged breach of the provisions of
Section 5 as to which the parties shall have the right to apply for specific
performance to any court having equity jurisdiction, shall be settled by
arbitration in London, England by one arbitrator in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof (in the U.S and in the U.K.) and any party to the
arbitration may, if he elects, institute proceedings in any court having
jurisdiction for the specific performance of any such award. The powers of the
arbitrator shall include, but not be limited to, the awarding of injunctive
relief. The Company shall reimburse Executive for all expenses incurred by
Executive in connection with any arbitration, including reasonable attorney's
fees, to the extent the arbitration is concluded in Executive's favor.
19. NO MITIGATION OR SET-OFF. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to require that Executive mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Executive as a result of his
employment by another employer or otherwise. The Company's obligations to make
the payments to Executive required under this Agreement, and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive.
* * * * * * * * * * * * * * * *
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHIREX INC. and its subsidiary
CHIREX (HOLDINGS) LTD.
By the Compensation Committee of the
Board Of Directors of ChiRex Inc.:
/s/ Elizabeth M. Greetham
----------------------------------------
ELIZABETH M. GREETHAM
/s/ W. Dieter Zander
----------------------------------------
W. DIETER ZANDER
/s/ Ian D. Shott
----------------------------------------
IAN D. SHOTT
10
<PAGE>
10.8
EXECUTION COPY
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of April 15,
1998, between CHIREX INC., a Delaware corporation (the "Company"), and Roger B.
-------
Pettman ("Executive").
---------
RECITALS
--------
Executive is presently the Vice President, Sales and Marketing of the
Company. The parties hereto desire to set forth in writing the current terms of
the Executive's employment relationship with the Company.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT.
----------
(a) The Company hereby agrees to continue its employment of Executive
to render exclusive and full time services to the Company as its Vice President,
Sales and Marketing and to perform such other duties commensurate with such
office as he shall reasonably be directed by the senior management and/or Board
of Directors of the Company, for the period specified in Section 2.
(b) Executive hereby accepts such employment and agrees to render the
services described above to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. Executive further agrees to
accept election and to serve during all or any part of the term of this
Agreement as an officer or director of the Company and of any subsidiary or
affiliate of the Company, without any compensation therefor, other than that
specified in this Agreement or as otherwise determined by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
2. Term of Employment. The employment period of Executive by the
------------------
Company shall commence on April 15, 1998 and end on December 31, 2000 (the
"Initial Term") unless further extended or sooner terminated as hereinafter
provided. Executive may terminate his employment during the Initial Term with
six months written notice to the Company. Commencing on December 31, 2000, and
each December 31 thereafter, the term of Executive's employment shall
automatically be extended for one additional year to, respectively, December 31,
2001, and each December 31 thereafter, unless, not later than six months prior
to the end of any renewal term, either party hereunder shall have given notice
to the other party that it does not wish to extend this Agreement. If the
Company gives Executive notice that it does not wish to extend this Agreement
during the Initial Term or any renewal term, Executive shall be entitled to the
severance payments provided in Section 4(d) hereof. As used herein the
"Employment Period" shall refer to the Initial Term and any renewal term of
Executive's employment with the Company.
3. BASE SALARY AND BENEFITS.
------------------------
(a) During the Employment Period, Executive's base salary shall be
$150,000 per annum or such higher rate as the Company may designate from time to
time (the "Base Salary"),
-----------
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<PAGE>
which salary shall be payable in regular installments in accordance with the
Company's general payroll practices and shall be subject to customary
withholding. In addition, during the Employment Period, Executive shall be
entitled to participate in all of the Company's employee benefit programs for
which senior executive employees of the Company and its subsidiaries are
generally eligible.
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the Base Salary, Executive shall be eligible to
receive a bonus payable at the end of each fiscal year during the Employment
Period, which bonus shall be based upon the Company's operating results during
such year and upon Executive achieving defined specific goals and objectives
during the twelve months prior to review.
(d) Executive may be awarded, from time to time, additional
compensation (such as stock options, stock appreciation rights, performance
shares, restricted stock or unrestricted stock) pursuant to the Company's 1997
Stock Incentive Plan or any additional or replacement incentive compensation
program established for the key employees of the Company. Any awards under such
programs shall be at such levels or in such amounts as the Board of Directors
deems, in its sole discretion, appropriate for the position occupied by
Executive and his performance therein. Subject to Section 4 herein, the terms,
conditions and rights with respect to any such grants will be subject to the
actual provisions and conditions applicable to such plans.
4. TERMINATION AND CHANGE OF CONTROL
---------------------------------
(a) If the Executive shall die during the Employment Period, this
Agreement shall terminate, except that (i) Executive's surviving spouse or, if
none, his estate, shall be entitled to receive Executive's compensation
(including bonus) to the last day of the third calendar month following the date
of his death; and (ii) such termination shall not affect any rights which
Executive may have at the time of his death pursuant to any insurance or other
death benefit, retirement, stock option or other plans or arrangements of the
Company or of any subsidiary or affiliate of the Company, which rights shall
continue to be governed by the provisions of such plans and arrangements.
(b) At the sole discretion of the Board of Directors, Executive may be
terminated if the Executive is disabled (as defined below) and shall have been
absent from his duties with the Company on a full time basis for one hundred and
eighty (180) consecutive days, and , within thirty (30) days after written
notice by the Company to do so, the Executive shall not have returned to the
performance of his duties hereunder on a full time basis. In the event of such
termination, the Company shall make to Executive the payments specified in
Section 4(d). As used herein, the term "disabled" shall (i) mean that Executive
--------
is unable, as a result of a medically determinable physical or mental
impairment, to perform the duties and services of his position, or (ii) have the
meaning specified in any disability insurance policy maintained by the Company,
whichever is more favorable to the Executive.
(c) The Company may, by notice to Executive, terminate Executive's
employment hereunder for cause. As used herein, "cause" shall mean (i) the
-----
conviction of Executive of a felony or conviction of a misdemeanor if such
misdemeanor involves moral turpitude; or (ii) Executive's voluntary engagement
in conduct constituting larceny, embezzlement, conversion or any other act
involving the misappropriation of Company funds in the course of his employment;
or (iii) the willful refusal to carry out specific directions of the Board of
Directors, which directions shall be consistent with the provisions hereof; or
(iv) Executive's committing any act of gross
2
<PAGE>
negligence or intentional misconduct in the performance or non-performance of
his duties as an employee of the Company; or (v) any material breach by the
Executive of any material provision of his Agreement (other than for reasons
related only to the business performance of the Company or business results
achieved by Executive). For purposes of this Section 4(c), no act or failure to
act on Executive's part shall be considered to be reason for termination for
cause if done, or omitted to be done, by Executive in good faith and with the
reasonable belief that the action or omission was in the best interests of the
Company.
(d) Executive's employment may be terminated at any time by the
Company without cause; provided, however, that in such event Executive shall be
entitled to receive (so long as he executes and delivers the Company's standard
form of release), (i) 120% of Executive's then effective annual Base Salary, and
(ii) a cash allowance for outplacement pursuant to the Company's U.S.
Outplacement Policy. The foregoing amounts shall be payable in one lump sum
payment within five (5) days after Executive's last day of active employment. In
addition, Executive shall be entitled to continue participation in the Company's
health and other welfare benefit plans for a period of up to one year or until
Executive is covered by a successor employer's benefit plans, whichever is
sooner.
(e) If (i) Executive's employment is terminated pursuant to
subsections (a), (b), (d), (e) or (g) of this Section 4; or (ii) a "Change in
Control" of the Company (as defined in Section 4(f) below) occurs; in either
case, all stock options, restricted stock, deferred compensation and similar
benefits which have not yet become vested on the date of termination or the date
of a Change in Control, as the case shall be, will become vested upon such
event, and Executive shall be permitted to exercise all such rights in
accordance with the administrative provisions of those plans, and in the case of
a Change of Control, whether or not Executive remains employed with the Company
or terminates his employment in accordance with this subsection (e). If a Change
in Control event involves a tender offer for all or part of the Company's
shares, the vesting date for stock options and restricted stock pursuant to this
subsection (e) shall be a date which permits Executive to participate in such
tender offer with such stock options or restricted shares. In addition, if a
Change in Control occurs, Executive may, after such Change in Control, terminate
his employment with the Company for any reason after the expiry of ninety (90)
days immediately following the effective date of such Change in Control, in
which event Executive shall be entitled to the payments specified in Section
4(d) above and to the other rights described elsewhere in this Agreement.
(f) For purposes of this Agreement, a "Change in Control" of the
-----------------
Company shall be deemed to have occurred if: (i) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934)
becomes the beneficial owner, directly or indirectly, of Company securities
representing 30% or more of the capital stock of the Company; or (ii)
individuals who constitute the Company's Board of Directors as of the date of
this Agreement (the "Incumbent Board") cease for any reason to constitute at
--------- -----
least a majority thereof, provided, however, that any person becoming a director
subsequent to the date of this Agreement whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least 51%
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director, without objection to such nomination) shall be, for the
purpose of this clause (ii), considered as though such person were a member of
the Incumbent Board; or (iii) the Company's shareholders approve a merger or
consolidation (where in either case the Company is not the survivor thereof) in
which shareholders of the Company cease to own at least 80% of the surviving
entity's voting power, or a sale or disposition of all or substantially all of
the Company's assets or a plan of partial or complete liquidation of the
Company.
(g) Executive's employment may be terminated by the Executive for Good
Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the
assignment to Executive
3
<PAGE>
of any duties inconsistent in any respect with Executive's position (including
status, offices, titles, and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1(a) hereof, or any other action by
the Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by Executive; (ii) any failure by
the Company to comply with any of the provisions of Section 3 hereof, other than
an isolated, insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of notice thereof
given by Executive; (iii) any purported termination by the Company of
Executive's employment otherwise than as expressly permitted by this Agreement;
or (iv) any failure by the Company to obtain an express assumption of this
Agreement by a successor as required pursuant to Section 15 hereof. For purposes
of this Section 4(g), any good faith determination of "Good Reason" made by
Executive shall be conclusive. Upon any termination pursuant to this subsection
(g), Executive shall be entitled to the payment specified in Section 4(d) hereof
and to the other rights described therein (subject to his compliance therewith).
(h) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
subsection (h)) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any interest or penalties are incurred by Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties are
hereinafter collectively referred to as the "Excise Tax"), the Company shall pay
to Executive at the time specified in subparagraph (k) below an additional
amount (a "Gross-Up Payment") such that the net amount retained by Executive,
after deduction of any Excise Tax on a Payment and any federal (and state and
local) income tax (and any interest and penalties imposed with respect thereto),
employment tax and Excise Tax on a Payment, shall be equal to the amount of all
the Payments.
(i) For purposes of the foregoing subparagraph (h), the proper
amounts, if any, of the Excise Tax and the Gross-Up Payment shall be determined
in the first instance by the Company. Such determination by the Company shall be
communicated in writing by the Company to Executive at least fourteen (14) days
prior to the occurrence of a Change of Control. Within ten (10) days of being
provided with written notice of any such determination, Executive may provide
written notice to the Chairperson of the Compensation Committee of the Board of
Directors of the Company of any disagreement, in which event the amounts, if
any, of the Excise Tax and the Gross-Up Payment shall be determined by tax
counsel mutually selected by the Company and Executive. The determination of the
Company (or in the event of disagreement, the tax counsel selected) shall be
final and nonreviewable.
(j) For purposes of determining whether any of the Payments will be
subject to the Excise Tax and the amount of such Excise Tax under subparagraph
(h), the following principles will be applicable:
(A) Any payments or benefits received or to be received by Executive
in connection with a termination of employment shall be treated
as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax unless in the opinion of tax counsel
mutually selected by the parties pursuant to subsection (i)
above, such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute
payments (in whole or in part) represents reasonable compensation
for services actually rendered within the
4
<PAGE>
meaning of Section 280G(b)(4) of the Code in excess of the base
amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise subject to the Excise Tax; and
(b) The value of any non-cash benefits or any deferred payment or
benefit shall be determined in accordance with Section 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of
the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest marginal rate of tax in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of tax in the
state and locality of Executive's residence on the date of
termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local
taxes.
(k) The Payments provided for in subparagraph (h) shall be made in a
cash, lump-sum payment, net of any required tax withholdings, upon the later of
(i) the fifth business day following the effective date of termination, or (ii)
the calculation of the amount of the Gross-Up Payment under subparagraph (i).
Any Payment required hereunder that is not made in a timely manner shall bear
interest at a rate equal to one-hundred twenty percent (120%) of the monthly
compounded applicable federal rate, as in effect under Section 1274(d) of the
Code for the month in which Payment is otherwise required to be made.
5. CONFIDENTIAL INFORMATION.
------------------------
(a) Executive acknowledges and agrees that the information,
observations and data obtained by him while employed by the Company and its
subsidiaries concerning the business or affairs of the Company or any other
subsidiary ("Confidential Information") are the property of the Company or such
------------------------
subsidiary. Therefore, Executive agrees to keep secret and retain in the
strictest confidence all Confidential Information, including without limitation,
trade "know-how" secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects and other
business affairs of the Company, learned by him prior to or after the date of
this Agreement, and not to disclose them to anyone outside the Company, either
during or after his employment with the Company, except (i) in the course of
performing his duties hereunder; (ii) with the Company's express written
consent; (iii) to the extent that the Confidential Information becomes generally
known to and available for use by the public other than as a result of
Executive's acts or omissions; or (iv) where required to be disclosed by court
order, subpoena or other government process. If Executive shall be required to
make disclosure pursuant to the provisions of clause (iv) of the preceding
sentence, Executive promptly, but in no event more than 48 hours after learning
of such subpoena, court order or other governmental process, shall notify the
Company, by personal delivery or fax (pursuant to Section 10 hereof), and, at
the Company's expense, shall take all reasonably necessary steps requested by
the Company to defend against the enforcement of such subpoena, court order or
other governmental process and permit the Company to intervene and participate
with counsel of its own choice in any related proceeding.
(b) Executive shall deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. INVENTIONS AND PATENTS. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its subsidiaries' actual or
anticipated business, research and development or existing or future
5
<PAGE>
products or services and which are conceived, developed or made by Executive
while employed by the Company or its predecessor and its subsidiaries ("Work
----
Product") belong to the Company or such subsidiary. Executive shall promptly
- -------
disclose such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after his employment) to establish and
confirm such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
7. INDEMNIFICATION. The Company will indemnify Executive and his
---------------
legal representatives, to the fullest extent permitted by the laws of the State
of Delaware and the existing by-laws of the Company or any other applicable laws
or the provisions of any other corporate document of the Company, and Executive
shall be entitled to the protection of any insurance policies the Company may
elect to obtain generally for the benefit of its directors and officers, against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives in connection with any action, suit or proceeding to which
he or his legal representatives may be made a party by reason of him being or
having been a director or officer of the Company or of any of its subsidiaries
or affiliates or actions taken purportedly on behalf of the Company or of any of
its subsidiaries or affiliates.
8. NON-COMPETE, NON-SOLICITATION. In further consideration of the
-----------------------------
compensation to be paid to Executive hereunder, Executive acknowledges that
during his employment with the Company he has become familiar with the Company's
trade secrets and with other Confidential Information concerning the Company and
its predecessors and its subsidiaries and that his services have been and shall
be of special, unique and extraordinary value to the Company and its
subsidiaries. Therefore, Executive agrees that, during the Employment Period and
for six months thereafter (the "Noncompete Period"), he shall not, directly or
-----------------
indirectly, own any interest in, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of the Company or its subsidiaries, as such businesses exist or are
in process on the date of the termination of Executive's employment. Nothing
herein shall prohibit Executive from being a passive owner of not more than 2%
of the outstanding stock of any class of a corporation which is publicly traded,
so long as Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, Executive shall not, directly or
indirectly, through another entity (i) induce or attempt to induce any employee
or director of the Company or any subsidiary to leave the employ or board of the
Company or such subsidiary, or in any way interfere with the relationship
between the Company or any subsidiary and any employee or director thereof, (ii)
induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any subsidiary to cease
doing business with the Company or such subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee or business
relation and the Company or any subsidiary (including, without limitation,
making any negative statements or communications about the Company or its
subsidiaries).
(c) If, at the time of enforcement of this Section 8, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Executive agrees that the restrictions
contained in this Section 8 are reasonable.
(d) In the event of the breach or a threatened breach by Executive of
any of the provisions of this Section 8, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security). In
addition, in the event of an
6
<PAGE>
alleged breach or violation by Executive of this Section 8, the Noncompete
Period shall be extended until such breach or violation has been duly cured.
9. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
---------------------------
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, and (ii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he has consulted
with independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
10. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail or equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
Notices to Executive: Roger Pettman
--------------------
[DELETED]
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: General Counsel
11. SEVERABILITY. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. COMPLETE AGREEMENT. This Agreement constitutes the complete
------------------
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. NO STRICT CONSTRUCTION. The language used in this Agreement shall
----------------------
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and
7
<PAGE>
assigns, except that Executive may not assign his rights or delegate his
obligations hereunder without the prior written consent of the Company. The
Company will require any successor to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
16. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. ARBITRATION. Any controversy or claim arising out of or relating
-----------
to this Agreement, the making, interpretation or the breach thereof, other than
(a) a claim solely for injunctive relief for any alleged breach of the
provisions of Sections 5 and/or 8 as to which the parties shall have the right
to apply for specific performance to any court having equity jurisdiction; and
(b) the determination of Excise Tax and Gross-Up Payment pursuant to Section 4
herein; shall be settled by arbitration in New York City by one arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgement upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof and any party to the
arbitration may, if he elects, institute proceedings in any court having
jurisdiction for the specific performance of any such award. The powers of the
arbitrator shall include, but not be limited to, the awarding of injunctive
relief.
19. LEGAL FEES AND EXPENSES. The Company shall reimburse Executive
-----------------------
for all reasonable legal fees and expenses incurred by Executive in connection
with (a) review and/or any claims made regarding the Company's determination of
Excise Tax and Gross-Up Amount pursuant to Section 4 herein, or (b) any
arbitration proceeding brought under this Agreement pursuant to Section 18,
where the arbitration is concluded in Executive's favor.
20. NO MITIGATION OR SET-OFF. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to require that Executive mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Executive as a result of his
employment by another employer or otherwise. The Company's obligations to make
the payments to Executive required under this Agreement, and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive.
* * * * * * * * * * * * * * * *
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHIREX INC.
/s/ Michael A. Griffith
------------------------
By: Michael A. Griffith
Chief Financial Officer
/s/ Roger B. Pettman
------------------------
ROGER B. PETTMAN
9
<PAGE>
10.9
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
made as of July 1, 1998, between CHIREX INC., a Delaware corporation ("ChiRex")
and its wholly owned subsidiary, CHIREX (Holdings ) Limited., a U.K. company
("Holdings", ChiRex and Holdings referred to collectively herein as the
"Company"), and David Frank Raynor ("Executive").
------- ---------
RECITALS
--------
Executive is presently Vice President, Dudley Operations and
previously entered into a Service Agreement dated March 11, 1996 with a
predecessor of the Company known as Crossco (157) Limited (the"Original
Agreement"). Effective as of July 1, 1998, Executive has taken on additional
responsibilities. The parties hereto desire to set forth in writing the terms of
Executive's employment relationship with the Company in light of his new
responsibilities.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. (a) The Company hereby agrees continue to employ
----------
Executive to render exclusive and full-time services to the Company as its Vice
President, Dudley Operations, and to perform such other duties commensurate with
such office as he shall reasonably be directed by the Office of the Chief
Executive, Chief Operating Officer and/or Board of Directors of the Company, for
the period specified in Section 2.
(b) Executive hereby accepts such employment and agrees to render the
services described above to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner. Executive further agrees to
accept election and to serve during all or any part of the term of this
Agreement as an officer or director of the Company and of any parent, subsidiary
or affiliate of the Company, without any compensation therefor, other than that
specified in this Agreement or as otherwise determined by the Board of Directors
of the Company or of any parent, subsidiary or affiliate, as the case may be.
(c) The duties to be performed by Executive hereunder shall be
performed within the Company's U.K. facilities. Executive agrees that he shall
also travel and work outside the U.K. during the Employment Period as may be
required by the Company from time to time.
2. TERM OF EMPLOYMENT. The term of Executive's employment by the
------------------
Company shall commence as of July 1, 1998 and end on December 31, 1999 unless
sooner terminated as hereinafter provided (the "Employment Period"). If the
Company gives Executive notice that it does not wish to extend this Agreement
during its term, Executive shall be entitled to the severance payments provided
in Section 4(d) hereof.
3. BASE SALARY AND BENEFITS. (a) From the period of July 1, 1998
------------------------
through June 30, 1999, Executive's base salary shall be (Pounds)90,000 per
annum. From the period of July 1, 1999 through December 31, 1999, Executive's
base salary shall be paid at the rate of (Pounds)105,000 per annum, which salary
shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary tax withholding.
During the Employment Period, Executive shall be entitled to participate in all
of the Company's employee benefit programs for which senior executive employees
based in the U.K. of the Company and its subsidiaries are generally eligible.
Executive agrees that the Company may pay all or any part of Executive's base
salary or benefits through one or more of its affiliated companies.
1
<PAGE>
(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(c) In addition to the base salary, Executive shall be entitled to a
bonus following the end of each fiscal year during the Employment Period, which
bonus shall be based upon the Company's operating results during such year and
upon Executive achieving defined specific goals and objectives during the
twelve months prior to review. The bonus shall be on the basis that the
Executive is entitled, subject to achievement of such goals and objectives, to a
payment of a sum equivalent to an additional 20% of his base salary beginning
for calendar year 1998.
(d) Per an Incentive Stock Option Agreement dated April 17, 1997 (the
"Stock Option Agreement") Executive has been awarded 60,000 options to purchase
shares of ChiRex Common Stock under the Company's 1995 Stock Incentive Plan. On
or before August 15, 1998, Executive and the Office of the Chief Executive shall
agree in writing upon specific goals Executive must meet on certain dates during
the Employment Period, and shall attach such list to this Agreement so that it
shall become a part hereof. In the event Executive is employed by the Company
and attains all goals required to be completed by July 1, 1999, the Company
shall amend the Stock Option Agreement so that an additional 18,000 options of
the aforementioned 60,000 will vest upon such date. In the event Executive
attains all goals required to be completed by his retirement on December 31,
1999, the Company shall likewise amend the Stock Option Agreement to accelerate
the vesting of the remaining 18,000 unvested options so that Executive shall be
permitted to exercise all options awarded under the Stock Option Agreement on or
before March 31, 2000. After March 31, 2000, all unexercised vested options
shall become void.
(e) Executive shall continue to receive a motor car (together with
petrol and running cost benefits) as specified in the Company's U.K. car policy.
(f) Executive shall continue to be entitled to be a member of the
ChiRex U.K. Pension Plan subject to and in accordance with its terms and
conditions as amended from time to time. The current terms and conditions
include the right of the Company to discontinue such plan.
(g) Executive shall be entitled to benefits under the Company's U.K.
Private Health Care Scheme or to a scheme offering broadly equivalent benefits
to the Executive as the Company shall determine. In addition, the Executive
shall be entitled to an annual private medical examination at the cost of the
Company.
(h) Executive shall be entitled to a mobile phone including payment of
the cost of all charges relating to the rental or use thereof.
(i) 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 Board. In the event Executive's employment terminates for any
reason other than cause, the Executive shall be entitled to a ratable proportion
of his annual holiday entitlement.
4. TERMINATION AND RETIREMENT. (a) If Executive shall die during
---------------------------
the Employment Period, this Agreement shall terminate, except that (i)
Executive's surviving spouse or, if none, his estate, shall be entitled to
receive Executive's compensation (including bonus) to the
2
<PAGE>
last day of the third calendar month following the date of his death; and (ii)
such termination shall not affect any rights which Executive may have at the
time of his death pursuant to any insurance or other death benefit, retirement,
stock option or other plans or arrangements of the Company or of any subsidiary
or affiliate of the Company, which rights shall continue to be governed by the
provisions of such plans and arrangements.
(b) At the sole discretion of the Board of Directors, Executive may be
terminated if the Executive is disabled (as defined below) and shall have been
absent from his duties with the Company on a full time basis for one hundred and
eighty (180) consecutive days, and within thirty (30) days after written notice
by the Company to do so, the Executive shall not have returned to the
performance of his duties hereunder on a full time basis. In the event of such
termination, the Company shall make to Executive the payments specified in
Section 4(d). As used herein, the term "disabled" shall (i) mean that Executive
--------
is unable, as a result of a medically determinable physical or mental
impairment, to perform the duties and services of his position, or (ii) have the
meaning specified in any disability insurance policy maintained by the Company,
whichever is more favorable to the Executive.
(c) The Company may, by written notice to Executive, terminate
Executive's employment hereunder for cause, which termination shall be effective
as of the date of receipt of such notice by Executive. In the event of a
termination for cause, the Company shall not be required to give any prior
notice per Section 2 herein, and Executive shall receive no severance benefits
whatsoever. As used herein, "cause" shall mean (i) the conviction of Executive
-----
of a felony or conviction of a misdemeanor if such misdemeanor involves moral
turpitude; or (ii) Executive's voluntary engagement in conduct constituting
larceny, embezzlement, conversion or any other act involving the
misappropriation of Company funds in the course of his employment; or (iii) the
willful refusal to carry out specific directions of the Board of Directors,
which directions shall be consistent with the provisions hereof; or (iv)
Executive's committing any act of gross negligence or intentional misconduct in
the performance or non-performance of his duties as an employee of the Company;
or (v) any material breach by the Executive of any material provision of this
Agreement (other than for reasons related only to the business performance of
the Company or business results achieved by the Executive). For purposes of this
Section 4(c), no act or failure to act on Executive's part shall be considered
to be reason for termination for cause if done, or omitted to be done, by
Executive in good faith and with the reasonable belief that the action or
omission was in the best interests of the Company.
(d) Executive's employment may be terminated at any time by the
Company without cause upon written notice; provided, however, that in such event
Executive shall be entitled to receive (so long as he executes and delivers the
Company's standard form of release), 120% of Executive's then effective annual
base salary. The foregoing amount shall be payable in one lump sum payment
within five (5) days after Executive's last day of active employment. In
addition, Executive shall be entitled to continue participation in the Company's
health and other welfare benefit plans for a period of up to one (1) year or
until Executive is covered by a successor employer's benefit plans, whichever is
sooner.
(e) Unless Executive's employment is terminated sooner per subsections
(a) through (d) above, at the end of the Employment Period, Executive shall
retire from the Company. Upon Executive's retirement, the Company shall (i)
consent to Executive's early entry to the ChiRex Senior Executive Pension Plan
of which he is a member; (ii) pay Executive (Pounds)20,000 (subject to tax
withholding required by Inland Revenue) which Executive may use towards purchase
of an automobile; and (iii) on or about 90 days after delivery of ChiRex share
certificates to the Company's General Counsel, arrange to have restrictive
legends on such certificates lifted. Executive acknowledges and agrees that upon
retirement he shall have no claim to any additional payments or any other
consideration from the Company other than as set forth above.
3
<PAGE>
5. CONFIDENTIAL INFORMATION. (a) Executive acknowledges and agrees
------------------------
that the information, observations and data obtained by him while employed by
the Company and its subsidiaries concerning the business or affairs of the
Company or any other subsidiary ("Confidential Information") are the property of
------------------------
the Company or such subsidiary. Therefore, Executive agrees to keep secret and
retain in the strictest confidence all Confidential Information, including
without limitation, trade "know-how" secrets, customer lists, pricing policies,
operational methods, technical processes, formulae, inventions and research
projects and other business affairs of the Company, learned by him prior to or
after the date of this Agreement, and not to disclose them to anyone outside the
Company, either during or after his employment with the Company, except (i) in
the course of performing his duties hereunder; (ii) with the Company's express
written consent; (iii) to the extent that the Confidential Information becomes
generally known to and available for use by the public other than as a result of
Executive's acts or omissions; or (iv) where required to be disclosed by court
order, subpoena or other government process. If Executive shall be required to
make disclosure pursuant to the provisions of clause (iv) of the preceding
sentence, Executive promptly, but in no event more than 48 hours after learning
of such subpoena, court order or other governmental process, shall notify the
Company, by personal delivery or fax (pursuant to Section 10 hereof), and, at
the Company's expense, shall take all reasonably necessary steps requested by
the Company to defend against the enforcement of such subpoena, court order or
other governmental process and permit the Company to intervene and participate
with counsel of its own choice in any related proceeding.
(b) Executive shall deliver to the Company at the termination of his
employment, or at any other time the Company may request, all memoranda, notes,
plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. INVENTIONS AND PATENTS. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company or its predecessor and its subsidiaries ("Work Product") belong
------------
to the Company or such subsidiary. Executive shall promptly disclose such Work
Product to the Board and perform all actions reasonably requested by the Board
(whether during or after his employment) to establish and confirm such ownership
(including, without limitation, assignments, consents, powers of attorney and
other instruments).
7. ORIGINAL AGREEMENT. Clauses 3.3, 3.4, 9.1, 9.2, 9.3, 9.4, 9.5,
------------------
9.6, 12.3, 12.4, and 12.6 of the Original Agreement shall continue as therein
written in full force and effect.
8. INDEMNIFICATION. The Company will indemnify Executive and his
---------------
legal representatives, to the fullest extent permitted by the laws of the State
of Delaware and the existing by-laws of the Company or any other applicable laws
or the provisions of any other corporate document of the Company, and Executive
shall be entitled to the protection of any insurance policies the Company may
elect to obtain generally for the benefit of its directors and officers, against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives in connection with any action, suit or proceeding to which
he or his legal representatives may be made a party by reason of his being or
having been a director or officer of the Company or of any of its subsidiaries
or affiliates or actions taken purportedly on behalf of the Company or of any of
its subsidiaries or affiliates.
4
<PAGE>
9. EXECUTIVE'S REPRESENTATIONS. Executive hereby represents and
---------------------------
warrants to the Company that (a) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, and (b) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms. Executive hereby acknowledges and represents that he fully
understands the terms and conditions contained in this Agreement.
10. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail or equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
Notices to Executive: David Frank Raynor
--------------------
[DELETED]
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: General Counsel
11. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. COMPLETE AGREEMENT. Except as set forth in Section 7 herein,
------------------
this Agreement constitutes the complete agreement and understanding among the
parties and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way, including without limitation, the
Original Agreement. Notwithstanding the foregoing, except as set forth in
Section 3(d), the Stock Option Agreement shall remain in full force and effect.
13. NO STRICT CONSTRUCTION. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder
5
<PAGE>
without the prior written consent of the Company. The Company will require any
successor to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
16. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
18. ARBITRATION. Any controversy or claim arising out of or relating
-----------
to this Agreement, the making, interpretation or the breach thereof, other than
a claim solely for injunctive relief for any alleged breach of the provisions of
Section 5 as to which the parties shall have the right to apply for specific
performance to any court having equity jurisdiction, shall be settled by
arbitration in London, England by one arbitrator in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof (in the U.S and in the U.K.) and any party to the
arbitration may, if he elects, institute proceedings in any court having
jurisdiction for the specific performance of any such award. The powers of the
arbitrator shall include, but not be limited to, the awarding of injunctive
relief. The Company shall reimburse Executive for all expenses incurred by
Executive in connection with any arbitration, including reasonable attorney's
fees, to the extent the arbitration is concluded in Executive's favor.
19. NO MITIGATION OR SET-OFF. The provisions of this Agreement are
------------------------
not intended to, nor shall they be construed to require that Executive mitigate
the amount of any payment provided for in this Agreement by seeking or accepting
other employment, nor shall the amount of any payment provided for in this
Agreement be reduced by any compensation earned by Executive as a result of his
employment by another employer or otherwise. The Company's obligations to make
the payments to Executive required under this Agreement, and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action that the
Company may have against Executive.
* * * * * * * * * * * * * * * *
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
CHIREX INC. and its subsidiary
CHIREX (HOLDINGS) LTD.
/s/ Michael A. Griffith
------------------------------
MICHAEL A. GRIFFITH
CHIEF FINANCIAL OFFICER
/s/ David Frank Raynor
-----------------------------
DAVID FRANK RAYNOR
7
<PAGE>
SCHEDULE 1
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WRITTEN STATEMENT OF MAIN TERMS AND CONDITIONS OF EMPLOYMENT AS REQUIRED BY THE
- -------------------------------------------------------------------------------
EMPLOYMENT RIGHTS ACT 1996
--------------------------
1. Parties: The names and addresses of the Company and Executive are set out on
-------
page 1 of this Agreement and in Section 10 of this Agreement.
2. Commencement of Continuity of Employment. The Executive's continuous period
----------------------------------------
commenced on 12 July 1965. 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 set out on page 1 of this
---------
Agreement.
4. Place of Work. The Executive's place of work is set out in Section 1(c) of
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this Agreement.
5. Remuneration. See Section 3 of this Agreement.
------------
6. Hours of Work. The hours of work shall be such hours as may be required for
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the proper performance of the Executive's duties under this Agreement.
7. Holidays. See Section 3(i) of this Agreement.
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8. Notice Period. See Section 2 of this Agreement.
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9. Sick Pay. See Section 4(b) of this Agreement.
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10. Retirement. The normal age of retirement is 60.
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11. Pensions. See Section 4(f) of this Agreement. A contracting out
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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.
13. Disciplinary Rules. Any appeal against disciplinary action will be dealt
------------------
with by the Board.
14. Miscellaneous. There are no collective agreements in force which affect the
-------------
terms and conditions of Executive's employment.
8
<PAGE>
EXHIBIT 10.37
Execution
Copy
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
AND
CHIREX AMERICA, INC.
EXCLUSIVE PATENT LICENSE AGREEMENT
Offer to continue negotiations based upon this
agreement open until May 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RECITALS.................................................................... 1
1. Definitions............................................................. 2
2. Grant of Rights......................................................... 4
3. Company Obligations Relating to Commercialization....................... 7
4. Consideration for Grant of Rights....................................... 12
5. Royalty Reports......................................................... 13
6. Patent Prosecution...................................................... 16
7. Infringement............................................................ 17
8. Term and Termination.................................................... 18
9. Dispute Resolution...................................................... 19
10. Miscellaneous........................................................... 21
EXHIBIT A................................................................... 25
EXHIBIT B................................................................... 26
</TABLE>
<PAGE>
1
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
EXCLUSIVE PATENT LICENSE AGREEMENT
(rev. 9/26/97)
This Agreement, effective as of the date set forth above the signatures of
the parties below (the "Effective Date"), is between the Massachusetts Institute
of Technology ("M.I.T."), a Massachusetts corporation, with a principal place of
business at 77 Massachusetts Avenue, Cambridge, MA 02139-4307 and ChiRex America
Inc. ("Company"), a Delaware corporation, with a principal place of business at
Suite 402, 300 Atlantic Ave., Stamford, Connecticut 06901
RECITALS
--------
WHEREAS, M.I.T. is the owner of certain Patent Rights (as later defined
herein) relating to M.I.T. Case No. 6752, "Techniques for and Applications of
Carbon-nitrogen Bond Formation", by Stephen L. Buchwald and Anil Guram, M.I.T.
Case No. 7518, "Synthesis of Aryl Ethers", by Stephen L. Buchwald, Michael
Palucki, and John P. Wolfe M.I.T. Case No. 7718, "The First General Copper-
catalyzed Formation of Diaryl Ethers", by Stephen L. Buchwald, Sven Doye, and
Jean-francois Marcoux, M.I.T. Case No. 7767, "An Ammonia Equivalent for the
Palladium-catalyzed Amination of Aryl Halides and Triflates", by J. Ahman,
Stephen L. Buchwald, Joseph P. Sadighi, R. A. Singer, and John P. Wolfe, and
M.I.T. Case No. 7951 "Pd-catalyzed Arylations of Hydrazines, Hydrazones and
Applications Thereof", by Stephen L. Buchwald, Oliver Geis, and Seble H. Wagaw
and has the right to grant licenses under said Patent Rights, subject only to a
royalty-free, nonexclusive non-transferable license to practice the Patent
Rights reserved by the United States Government and the rights described in
Section 2.2;
WHEREAS, M.I.T. desires to have the Patent Rights developed and commercial
benefit the public and is willing to grant a license thereunder;
WHEREAS, Company has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that Company shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights so that public utilization
shall result therefrom; and
WHEREAS, Company desires to obtain a license under the Patent Rights upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, M.I.T. and Company hereby agree as follows:
<PAGE>
2
1. Definitions.
-----------
1.1. "Affiliate" shall mean any legal entity (such as a corporation,
---------
partnership, or limited liability company) that is controlled by Company. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least thirty percent (30%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
thirty percent (30%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.
1.2. "Exclusive Period" shall mean the period of time set forth in Section
----------------
2.2(a).
1.3. Excluded Fields of Use shall mean synthesis of Licensed Products for
----------------------
the exclusive purpose of generating libraries using either /or (a) Combinatorial
-------------
Chemistry defined as contemporaneous synthesis of more than 25 compounds in a
- ----------
single reaction vessel; or (b) Parallel Synthesis defined as mechanized
-------------------
manufacture of more than 25 discrete compounds contemporaneously.
1.4. "Field of Use One FOU-1" shall mean manufacture, use and sale of
----------------------
Licensed Products for the pharmaceutical and veterinarian markets except for the
Excluded Fields of Use.
- ----------------------
1.5. "Field of Use Two FOU-2" shall mean manufacture, use and sale of
----------------------
Licensed Products for the agricultural market except for the Excluded Fields of
------------------
Use.
- ---
1.6. "Licensed Product" shall mean any product whose development
----------------
manufacture, or sale would infringe one or more claims under the Patent Rights
if such activity took place in the United States, regardless of where such
activity actually takes place.
1.7. "Licensed Process" shall mean any process whose development,
----------------
manufacture, or sale would infringe one or more claims under the Patent Rights
if such activity took place in the United States, regardless of where such
activity actually takes place.
1.8. "Cost of Goods Sold" shall be calculated using the same generally
------------------
accepted accounting principles that ChiRex uses when preparing its financial
reports.
<PAGE>
3
1.9. "Net Revenues" shall mean the gross amount billed or invoiced by
------------
Company and its Affiliates for Licensed Products and Licensed Processes, less
the following: (i) customary trade, quantity, or cash discounts and commissions
to non-affiliated brokers or agents to the extent actually allowed and taken;
(ii) amounts repaid or credited by reason of rejection or return; (iii) to the
extent separately stated on purchase orders, invoices, or other documents of
sale, any taxes or other governmental charges levied on the production, sale,
transportation, delivery, or use of a Licensed Product or Licensed Process which
is paid by or on behalf of Company; and (iv) outbound transportation costs
prepaid or allowed and costs of insurance in transit.
1.10. No deductions shall be made for commissions paid to individuals
whether they be with independent sales agencies or regularly employed by Company
and on its payroll, or for cost of collections. Net Revenues shall occur on the
date of invoice or billing for a Licensed Product or Licensed Process. If a
Licensed Product or a Licensed Process is distributed, billed or invoiced to
Affiliates or others at a discounted price that is substantially lower than the
customary price charged by Company to independent third parties, Net Revenues
shall be calculated based on the invoice amount of the Licensed Product or
Licensed Process to an independent third party during the same Royalty Period
or, in the absence of such invoice, on the fair market value of the Licensed
Product or Licensed Process as mutually determined by the parties in good faith.
1.11. Neither the Company nor an Affiliate nor any Sublicensee shall accept
non-monetary consideration for any Licensed Products or Licensed Processes
without the prior written consent of M. 1. T.
1.12. "Patent Rights" shall mean:
-------------
a. the United States patents listed on Exhibit A;
---------
b the United States patent applications listed on Exhibit A, and
---------
any divisionals, continuations, and continuation-in-part
applications of such United States patent applications to the extent
the claims are directed to subject matter specifically described in
such United States patent applications, and the resulting patents;
c. any patents resulting from reissues, reexaminations, or
extensions of the United States patents described in (a) and (b)
above;
d. foreign patent applications directed to the subject matter
described in sections (a) and (b) filed after the Effective Date in
the countries listed in Exhibit B and divisionals, continuations and
---------
continuation-in-part applications of such foreign patent
applications to the extent the claims are directed to subject matter
specifically described in such foreign patent applications, and the
resulting patents; and
e. any foreign patents resulting from foreign procedures equivalent
or substantially equivalent to those in the United States for
reissues, reexaminations, or extensions of the foreign patents
described in (d) above.
<PAGE>
4
1.13. "Royalty Period" shall mean the partial calendar quarter commencing
--------------
on the date on which the first Licensed Product is sold or used or the first
Licensed Process is performed and for every complete or partial calendar quarter
thereafter during which either (i) this Agreement remains in effect or (ii)
Company has the right to complete and sell work-in-progress and inventory of
Licensed Products pursuant to Section 8.5.
1.14. "Sublicense Income" shall mean any payments that Company receives
-----------------
from a Sublicensee in consideration of the sublicense of the rights granted
Company under Section 2. 1., including without limitation license fees,
milestone payments, license maintenance fees, running royalties on Sublicensees
Net Revenues and other payments.
1.15. "Sublicensee" shall mean any permitted sublicensee of the rights
-----------
granted Company under this Agreement, as further described in Section 2.3.
1.16. "Term" shall mean the term of this Agreement as further defined in
----
Section 8. 1. below.
2. Grant of Rights.
---------------
2.1. License Grants. Subject to the terms of this Agreement, M.I.T. hereby
--------------
grants to Company and its Affiliates a royalty-bearing license under its
commercial rights in the Patent Rights, to the extent not prohibited by other
patents, to develop, make, have made, use, sell, lease, and import Licensed
Products in Fields of Use FOU- I AND FOU-2 and to develop and perform Licensed
Processes in the Fields of Use FOU- I AND FOU-2.
2.2 Exclusivity.
-----------
(a) The Exclusive Period shall commence on the Effective Date
and terminate with the first to occur of:
(i) the expiration of six (6) years after the first ton
sale of a Licensed Product; or
(ii) the expiration of twelve ( 12) years after the
Effective Date.
(b) During the Exclusive Period described above, M.I.T. agrees
that it shall not grant any other license in Fields of Use FOU- I AND FOU-2 to
practice under the Patent Rights unless sooner terminated as provided in this
Agreement except for:
(i) a nonexclusive, nontransferable license heretofore
granted to Pfizer Pharmaceutical Inc. and its affiliates in
the field of use "human and animal pharmaceuticals;"
(ii) and a nonexclusive, nontransferable license heretofore
granted to Wyckoff Chemical Co. and its affiliate, in the
field of use "racemic Intraconazole structure."
(iii) any third-party license(s) M.I.T. may grant in the
Excluded Field of Use which shall also grant the third-party
licensee(s) the right to manufacture and sell, for research
purposes only, small quantities of Licensed Products which
are single compounds
<PAGE>
5
derived from the third party licensee's practice of
Combinatorial Chemistry or Parallel synthesis in reactions
which fall under the Patent Rights (hereinafter referred to
as "Isolated Compounds"). Such small quantities shall not
------------------
exceed 500 grams. Such third party licensee(s) shall also
have the right to supply up to 10 kilos, only for use in
preclinical studies, of such single isolated compounds as
intermediates or final compounds.
(c) The Exclusive Period may be extended at the sole discretion
of M.I.T. based on M.I.T.'s assessment of Company's due diligence in pursuing
commercialization. Upon expiration of the Exclusive Period, the license granted
hereunder shall become nonexclusive and shall extend to the end of the Term,
unless sooner terminated as provided in this Agreement.
(d) If Company is approached by a third party licensee to the
Excluded Field of Use to purchase or have made an "Isolated Compound" not then
being manufactured or under development by Company, then Company shall engage in
good faith negotiations to make or have made commercial quantities of such
Isolated Compound at a commercially reasonable price and at a commercially
reasonable schedule, or, at Company's discretion, shall grant a nonexclusive
license to the third party licensee for the commercial manufacture and sale of
the Compound, at commercially reasonable royalties. If Company is unwilling or
unable to supply such Compounds at a commercially reasonable price and schedule,
or is unable to reach a sublicense agreement with the third party licensee
within six months of the original request, then M.I.T. shall have the right to
grant the sublicense, at royalty rates of no less than Four Percent (4%) of net
sales of the Licensed Products, and shall share fifty percent (50%) of any
royalties received with Company. Any disagreements between M.I.T. and Company as
to whether schedules, prices and/or sublicensing rates offered to the third
party are "commercially reasonable" shall be negotiated in good faith and if
agreement cannot be promptly reached shall be subject to the Dispute Resolution
procedures of this license.
2.3. Sublicenses.
-----------
Company shall have the right to grant sublicenses of its rights
under Section 2. 1. only during the Exclusive Period. Such sublicenses may
extend past the expiration date of the Exclusive Period, but any exclusivity of
such sublicense shall expire upon the expiration of the Exclusive Period.
Company shall incorporate terms and conditions into its sublicense agreements
sufficient to enable Company to comply with this Agreement. Company shall
promptly furnish M.I.T. with a fully executed copy of any sublicense agreement.
Upon termination of this Agreement for any reason, any sublicensee not then in
default shall have the right to seek a license from M.I.T. M.I.T. agrees to
negotiate such licenses in good faith under reasonable terms and conditions.
2.4. Retained Rights.
---------------
(a) M.I.T. M.I.T. retains the right to make, use and practice
------
under the Patent Rights for research, teaching, and educational purposes,
without payment of compensation to Company.
(b) Federal Government. Company acknowledges that the federal
------------------
government retains a royalty-free, non-exclusive, non-transferable license to
practice any
<PAGE>
6
government-funded invention claimed in any Patent Rights. This Agreement and the
grant of any rights in such government funded inventions in the Patent Rights
are subject to and governed by federal law as set forth in 35 U.S.C. (S)(S) 201-
211, and the regulations promulgated thereunder, as amended, or any successor
statutes or regulations. If any term of this Agreement fails to conform with
such laws and regulations, the relevant term shall be deemed an invalid
provision and modified in accordance with Section 10.10.
2.5. New Inventions. M.I.T. also grants to Company a first option to add to
--------------
the PATENT RIGHTS of this agreement, any new invention arising from the
laboratory of Prof. Stephen L. Buchwald at M.I.T. which:
(a) is reported to the M.I.T. Technology Licensing Office within
three (3) years of the Effective Date of this Agreement; and
(b) is dominated by the claims of the PATENT RIGHTS existing as
of the Effective Date; and
(c) is available for license to Company after satisfaction of
the terms of any sponsorship agreement under which the invention was made and
subject to any rights granted under such sponsorship.
This option shall be exercisable in writing by Company for each new
invention within six (6) months of M.I.T. notifying Company of the new
invention, with similar terms as contained in this agreement and additional
license issue fees and additional license maintenance fees to be negotiated, but
not to exceed:
(i) License issue fee: Twenty Five Thousand dollars ($25,000) if
foreign patent rights are obtainable; Fifteen Thousand Dollars
($15,000) if only U.S. rights are obtainable.
(ii) License maintenance fees: Twenty Thousand dollars ($20,000)
per year if foreign patent rights are obtainable; Ten Thousand
Dollars ($10,000) per year if only U.S. rights are obtainable and
otherwise under the terms of this agreement.
2.6. No Additional Rights. Nothing in this Agreement shall be construed to
--------------------
confer any rights upon Company by implication, estoppel, or otherwise as to any
technology or patent rights of M.I.T. or any other entity other than the Patent
Rights, regardless of whether such rights shall be dominant or subordinate to
any Patent Rights, except as specified in paragraph 2.5 above.
3. Company Obligations Relating to Commercialization.
-------------------------------------------------
3. 1. Diligence Requirements. Company shall use diligent efforts, or shall
----------------------
cause its Affiliates to use diligent efforts, to develop Licensed Products or
Licensed Processes and to introduce Licensed Products or Licensed Processes into
Fields of Use FOU- I and FOU-2; thereafter, Company or its Affiliates shall make
Licensed Products or Licensed Processes reasonably available to the public.
Specifically, Company or Affiliate shall fulfill the following obligations:
<PAGE>
7
(a) Within three (3) months after the Effective Date, Company shall furnish
M.I.T. with a written research and development plan documenting the major tasks
needed to be achieved for successful commercialization, dates when each major
task is estimated to be completed, the name(s) of the project manager(s)
assigned to the development of each Field of Use (FOU- I and FOU-2), and other
resources devoted to the commercialization of Licensed Products or Licensed
Processes in each Field of Use (FOU- 1 and FOU-2).
(b) A duly authorized representative of the Company shall certify to M.I.T.
that Company has spent at the rate of at least One Hundred Fifty Thousand
Dollars ($150,000) per year of internal or external research and development
funds toward the development of Licensed Products and/or Licensed Processes in
FOU- 1 and FOU-2 beginning on the Effective Date and ending after the first
commercial sales of a Licensed Product or a first commercial performance of a
Licensed Process in FOU-1 and FOU-2.
(c) Within sixty (60) days after the end of each calendar year, Company shall
furnish M.I.T. with a updated development plan as described in Paragraph 3.1 (a)
for each Field of Use (FOU-1 and FOU-2) on the progress of its efforts during
the immediately preceding calendar year to develop and commercialize Licensed
Products or Licensed Processes, including without limitation research and
development efforts, efforts to obtain regulatory approval, marketing efforts,
and sales figures. The report shall also contain a discussion of intended
efforts and sales projections for the current year.
(d) Company shall identify initial target molecules to be produced by Licensed
Process and customers for Licensed Products for at least one of the Fields of
Use (FOU- 1 or FOU-2) by September 1, 1998 and for both of the Fields of Use by
January 1, 1999.
(e) Company shall receive Net Revenues from sales of one or more Licensed
Products in one of the Fields of Use (FOU-1, or FOU-2) in amounts equal to or
greater than the following schedule:
<TABLE>
<S> <C>
Effective Date to September 30, 1999 $ 20,000
October 1, 1999 to September 30, 2000 $ 100,000
October 1, 2000 to September 30, 2001 $ 250,000
October 1, 2001 to September 30, 2002 $ 500,000
October 1, 2002 to September 30, 2003 $ 1,000,000
October 1, 2003 to September 30, 2004 $ 2,000,000
the 12 months starting with October 1, 2004
and each 12 months thereafter $ 5,000,000
</TABLE>
(f) Company shall receive Net Revenues from sales of one or more Licensed
Products in the remaining Field of Use whose sales were not included in Section
3.1 (e) in amounts equal to or greater than the following schedule:
<TABLE>
<S> <C>
Effective Date to March 31, 2000 $ 20,000
April 1, 2000 to March 31, 2001 $ 100,000
April 1, 2001 to March 31, 2002 $ 250,000
April 1, 2002 to March 31, 2003 $ 500,000
April 1, 2003 to March 31, 2004 $1,000,000
April 1, 2004 to March 31, 2005 $2,000,000
</TABLE>
<PAGE>
8
<TABLE>
<S> <C>
the 12 months starting with March 1, 2006
and each 12 months thereafter $5,000,000
</TABLE>
(g) Company shall permit an in-plant inspection by M.I.T. on or before April
1st, 1999, and thereafter permit in-plant inspections by M.I.T. at regular
intervals with at least twelve (12) months between each such inspection.
3.2. Diligence. In the event that M.I.T. determines that Company (or an
---------
Affiliate or Sublicensee) has not fulfilled its obligations under one or more of
the provisions of Section 3. 1. for either Field of Use (FOU- 1 or FOU-2),
M.I.T. shall furnish Company with written notice of such determination. Within
sixty (60) days after receipt of such notice, Company shall either (i) fulfill
the relevant obligation or (ii) immediately upon written notice to Company,
M.I.T. may terminate the rights for Company to practice in the Field(s) of Use
(FOU- 1, and or FOU-2) for which Company has not met the diligence and sales
milestones of Section 3.1.
In the event that M.I.T. determines that Company (or an Affiliate or
Sublicensee) has not fulfilled its obligations under this Section 3.1, M.I.T.
shall furnish Company with written notice of such determination. Within sixty
(60) days after receipt of such notice, Company shall either (i) fulfill the
relevant obligation or (ii) immediately upon written notice to Company, M.I.T.
may terminate this entire Agreement.
3.3. Indemnification.
----------------
(a) Indemnity. Company shall indemnify, defend, and hold harmless
---------
M.I.T. and its trustees, officers, faculty, students, employees, and agents and
their respective successors, heirs and assigns (the "Indemnitees"), against any
liability, damage, loss, or expense (including reasonable attorneys' fees and
expenses) incurred by or imposed upon any of the Indemnitees in connection with
any claims, suits, actions, demands or judgments arising out of any theory of
liability (including without limitation actions in the form of tort, warranty,
or strict liability and regardless of whether such action has any factual basis)
concerning any product, process, or service that is made, used, sold, or
imported pursuant to any right or license granted under this Agreement.
(b) Procedures. The Indemnitees agree to provide Company with
----------
prompt written notice of any claim, suit, action, demand, or judgment for which
indemnification is sought under this Agreement. Company agrees, at its own
expense, to provide attorneys reasonably acceptable to M.I.T. to defend against
any such claim. The Indemnitees shall cooperate fully with Company in such
defense and will permit Company to conduct and control such defense and the
disposition of such claim, suit, or action (including all decisions relative to
litigation, appeal, and settlement); provided, however, that any Indemnitee
shall have the right to retain its own counsel, at the expense of Company, if
representation of such Indemnitee by the counsel retained by Company would be
inappropriate because of actual or potential differences in the interests of
such Indemnitee and any other party represented by such counsel. Company agrees
to keep M.I.T. informed of the progress in the defense and disposition of such
claim and to consult with M.I.T. with regard to any proposed settlement.
(c) Insurance. Company shall obtain and carry in full force and
---------
effect commercial general liability insurance, including product liability and
errors and emissions insurance which shall protect Company and Indemnitees with
respect to events
<PAGE>
9
covered by Section 3.2(a) above. Such insurance shall be issued by an insurer
pre-approved by M.I.T., such approval not to be unreasonably withheld, shall
list M.I.T. as an additional named insured thereunder, shall be endorsed to
include product liability coverage, and shall require thirty (30) days written
notice to be given to M.I.T. prior to any cancelation or material change
thereof. The limits of such insurance shall not be less than One Million Dollars
($ 1,000,000) per occurrence with an aggregate of Three Million Dollars
($3,000,000) for bodily injury including death; One Million Dollars ($1,000,000)
per occurrence with an aggregate of Three Million Dollars ($3,000,000) for
property damage; and One Million Dollars ($ 1,000,000) per occurrence with an
aggregate of Three Million Dollars ($3,000,000) for errors and omissions. In the
alternative, Company may self-insure subject to prior approval of M.I.T. Company
shall provide M.I.T. with Certificates of Insurance evidencing compliance with
this section. Company shall continue to maintain such insurance or self-
insurance after the expiration or termination of this Agreement during any
period in which Company or any Affiliate or Sublicensee continues (i) to make,
use, or sell a product that was a Licensed Product under this Agreement or (ii)
to perform a service that was a Licensed Process under this Agreement, and
thereafter for a period of five (5) years.
3.4. Use of M.I.T. Name. Company and its Affiliates and Sublicensees shall
------------------
not use the name of "Massachusetts Institute of Technology," "Lincoln
Laboratory" or any variation, adaptation, or abbreviation thereof, or of any of
its trustees, officers, faculty, students, employees, or agents, or any
trademark owned by M.I.T., or any terms of this Agreement in any promotional
material or other public announcement or disclosure without the prior written
consent of M.I.T. The foregoing notwithstanding, without the consent of M.I.T.,
Company may state that it is licensed by M.I.T. under one or more of the patents
and/or patent applications comprising the Patent Rights and may disclose such
information in any prospectus, offering memorandum, or other document or filing
required by applicable securities laws or other applicable law or regulation.
3.5. Marking of Licensed Products. To the extent commercially feasible and
----------------------------
consistent with prevailing business practices, Company shall mark, and shall
cause its Affiliates and Sublicensees to mark, literature describing Licensed
Products that are manufactured or sold under this Agreement with the number of
each issued patent under the Patent Rights that applies to such Licensed
Product. M.I.T. recognizes that it may not be commercially feasible to include
the relevant issued patent numbers on the shipping labels for the containers for
Licensed Products.
3.6. Compliance with Law. Company shall use reasonably commercial efforts
-------------------
to comply with, and shall ensure that its Affiliates and Sublicensees use
reasonably commercial efforts to comply with, all commercially material local,
state, federal, and international laws and regulations relating to the
development, manufacture, use, and sale of Licensed Products and Licensed
Processes. Company expressly agrees to comply with the following:
(i) Company and its Affiliates and Sublicensees shall comply with all
United States laws and regulations controlling the export of certain commodities
and technical data, including without limitation all Export Administration
Regulations of the United States Department of Commerce. Among other things,
these laws and regulations prohibit or require a license for the export of
certain types of commodities and technical data to specified countries. Company
hereby gives written assurance that it will comply with, and will cause its
Affiliates and Sublicensees to comply with, all United States export
<PAGE>
10
control laws and regulations, that it bears sole responsibility for any
violation of such laws and regulations by itself or its Affiliates or
Sublicensees, and that it will indemnify, defend, and hold M.I.T. harmless (in
accordance with Section 3.2.) for the consequences of any such violation.
(ii) Company agrees that any Licensed Products used or sold in the United
States will be manufactured substantially in the United States or its
territories.
4. Consideration for Grant of Rights.
---------------------------------
4. 1. License Issue Fee. In partial consideration of the rights granted
-----------------
Company under this Agreement, Company shall pay to M.I.T. on the Effective Date
a license issue fee of Fifty Thousand Dollars ($50,000), and shall reimburse
M.I.T. for its actual expenses incurred as of the Effective Date in connection
with obtaining the Patent Rights. These license fee payments are nonrefundable
and are not creditable against any other payments due to M.I.T. under this
Agreement.
4.2. License Maintenance Fee. In each calendar year during the Term, due
-----------------------
and payable in full, the Company shall pay to M.I.T. the following license
maintenance fee on the following dates:
January 1, 1999 $30,000
January 1, 2000 $40,000
January 1, 2001 $50,000
January 1, 2002 and each January 1st thereafter $60,000
This annual license maintenance fee is nonrefundable; however, the license
maintenance fee will be credited towards any running royalties subsequently due
on Net Revenues during the same calendar year for which the License Maintenance
Fee was paid. License maintenance fees paid in excess of running royalties due
in such calendar year shall not be creditable to running royalties for future
years.
4.3. Running Royalties. In partial consideration of the rights granted
-----------------
Company under this Agreement, Company shall pay to M.I.T. a running royalty of
three percent (3%) of Net Revenues earned by Company and its Affiliates.
4.5. Sharing of Sublicense Income. Company shall pay M.I.T. a total of
----------------------------
fifty percent (50%) of all Sublicensee Issue Fees and other Sublicense Income
but not less than three percent (3%) of the Sublicensee Net Revenue of Licensed
Products sold by sublicensee. If the Licensed Product manufactured by the
sublicensee is a compound or bulk product later formulated into a finished
pharmaceutical by that same sublicensee, then the Net Revenue price attributed
to the Licensed Product for the purposes of royalties under this paragraph shall
be either:
(a) the price of the raw (unformulated) Licensed Product sold
separately in commercial quantities by the sublicensee or, if not sold
by sublicensee then by Company or another sublicensee, if such product
is sold unformulated; or
(b) if the unformulated product is not available on the market, then
the Net Revenue price shall be the Fully Absorbed Manufacturing Cost
(using
<PAGE>
11
standard accounting practices) times the quantity 1.40 (that is, 140%
of the Fully Absorbed Manufacturing Price.)
4.6. No Multiple Royalties. If the manufacture, use, lease, or sale of any
---------------------
Licensed Product or the performance of any Licensed Process is covered by more
than one of the Patent Rights, multiple royalties shall not be due.
---
5. Royalty Reports; Payments; Records.
----------------------------------
5. 1. Frequency of Reports.
--------------------
(a) Before First Commercial Sale. Prior to the first commercial
----------------------------
sale of any Licensed Product or first commercial performance of any Licensed
Process, Company shall deliver reports to M.I.T. annually, within sixty (60)
days of the end of each calendar year, containing information concerning the
immediately preceding calendar year.
(b) After First Commercial Sale. After the first commercial sale
---------------------------
of any Licensed Product or first commercial performance of any Licensed Process,
Company shall deliver reports to M.I.T. quarterly, within sixty (60) days of the
end of each calendar quarter, containing information concerning the immediately
preceding calendar quarter.
(c) Upon First Commercial Sale of each Licensed Product or
------------------------------------------------------
Commercial Performance of Licensed Process. Company shall report to M.I.T. the
- ------------------------------------------
date of first commercial sale of each Licensed Product and the date of first
commercial performance of each Licensed Process within sixty (60) days of
occurrence.
5.2. Content of Reports and Payments. Each report delivered by Company to
-------------------------------
M.I.T. contain at least the following information for the immediately preceding
Royalty Period:
(i) the number of Licensed Products sold, leased or distributed by
Company, its Affiliates and Sublicensees to independent third parties in each
country, and, if applicable, the number of Licensed Products used by Company,
its Affiliates and Sublicensees in the provision of services;
(ii) the number of Licensed Processes performed by Company, its Affiliates
Sublicensees;
(iii) the gross price charged by Company, its Affiliates and Sublicensees
for each Licensed Product and, if applicable, the gross price charged for each
Licensed Product used to provide services in each country; and the gross price
charged for each Licensed Process performed by Company, its Affiliates and
Sublicensees;
(iv) calculation of Net Revenues for the applicable Royalty Period,
including a listing of applicable deductions;
(v) total royalty payable on Net Revenues in U.S. dollars, together with
the exchange used for conversion;
<PAGE>
12
(vi) the amount due to M.I.T. from Sublicense Income for the applicable
Royalty from each Sublicensee with a description of each type of Sublicense
Income; and
(vii) the number of sublicenses entered into for the Patent Rights,
Licensed Products and/or Licensed Processes.
If no royalties are due to M.I.T. for any Royalty Period, the report shall so
state. Concurrent with this report, Company shall remit to M.I.T. any payment
due for the applicable Royalty Period.
5.3. Financial Statements. On or before the one-hundred and twentieth
--------------------
(120th) day following the close of Company's fiscal year, Company shall provide
M.I.T. with Company's financial statements for the preceding fiscal year
including, at a minimum, a balance sheet and an income statement, certified by
Company's chief financial officer or by an independent auditor. All such
financial statements shall be considered Company Confidential Information.
5.4. Payments in U.S. Dollars. All payments due under this Agreement shall
------------------------
be payable 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 Wall Street Journal) on the last working day of the calendar
-------------------
quarter preceding the applicable Royalty Period. Such payments shall be without
deduction of exchange, collection, or other charges.
5.5. Payments in Other Currencies. If by law, regulation, or fiscal policy
----------------------------
of a particular country, conversion into United States dollars or transfer of
funds of a convertible currency to the United States is restricted or forbidden,
Company shall give M.I.T. prompt written notice of such restriction, which
notice shall satisfy the sixty-day payment deadline described in Section 5.2.
Company shall pay any amounts due M.I.T. through whatever lawful methods M.I.T.
reasonably designates; provided, however, that if M.I.T. fails to designate such
payment method within thirty (30) days after M.I.T. is notified of the
restriction, Company may deposit such payment in local currency to the credit of
M.I.T. in a recognized banking institution selected by Company and identified by
written notice to M.I.T., and such deposit shall fulfill all obligations of
Company to M.I.T. with respect to such payment.
5.6. Records. Company shall maintain, and shall cause its Affiliates and
-------
Sublicensees to maintain, complete and accurate records relating to the rights
and obligations under this Agreement and any amounts payable to M.I.T. in
relation to this Agreement, which records shall contain sufficient information
to permit M.I.T. to confirm the accuracy of any reports delivered to M.I.T.
under Section 5.2 and compliance in other respects with this Agreement. The
relevant party shall retain such records for at least five (5) years following
the end of the calendar year to which they pertain, during which time M.I.T., or
M.I.T.'s appointed agents, shall have the right, at M.I.T.'s expense, to inspect
such records during normal business hours to verify any reports and payments
made or compliance in other respects under this Agreement. In the event that any
audit performed under this Section reveals an underpayment in excess of ten
percent (10%), Company shall bear the full cost of such audit and shall remit
any amounts due to M.I.T. within thirty (30) days of receiving notice thereof
from M.I.T.
<PAGE>
13
5.7. Late Payments. Any payments by Company that are not paid on or before
-------------
the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Prime Rate of
interest as reported in the Wall Street Journal on the date payment is due, with
-------------------
interest calculated based on the number of days that payment is delinquent.
5.8. Method of Payment. All payments under this Agreement should be made
-----------------
payable to "Massachusetts Institute of Technology" and sent to the address
identified below. Each payment should reference this Agreement and identify the
obligation under this Agreement that the payment satisfies.
5.9. Withholding and Similar Taxes. All royalty payments and other payments
-----------------------------
due to M.I.T. under this Agreement shall be paid in full, without deduction of
withholding or similar taxes or other government imposed fees or taxes, except
as defined in Net Revenues.
6. Patent Prosecution.
------------------
6. 1. Responsibility for Patent Rights. M.I.T. shall have primary
--------------------------------
responsibility for the preparation, filing, prosecution, and maintenance of all
Patent Rights. Company shall have reasonable opportunities to advise M.I.T. and
shall cooperate with M.I.T. in such filing, prosecution and maintenance. Such
cooperation includes, without limitation, (i) promptly executing all reasonable
and appropriate papers and instruments to enable M.I.T. to file, prosecute, and
maintain such Patent Rights in any country; and (ii) promptly informing M.I.T.
of matters that may affect the preparation, filing, prosecution, or maintenance
of any such Patent Rights (such as becoming aware of an additional inventor who
is not listed as an inventor in a patent application).
6.2. Foreign Filings. Exhibit B is a list of Foreign Countries in which
---------------
patent applications corresponding to the United States patent applications
listed in Exhibit A shall be filed. Exhibit B may be amended by mutual agreement
of Company and M.I.T.
6.3. Payment of Expenses. Payment of all fees and costs, including
-------------------
attorneys fees, relating to the filing, prosecution and maintenance of the
Patent Rights shall be the responsibility of Company, whether such amounts were
incurred before or after the Effective Date. Amounts incurred before the
Effective Date shall be due in four equal payments starting with the first day
of the first quarter after the Effective Date. Company shall reimburse all
amounts due pursuant to this Section quarterly within thirty (30) days of
invoicing; late payments shall accrue interest pursuant to Section 5.7. In all
instances, M.I.T. shall deem company a "large entity" for purposes of paying
fees and costs to the United States Patent Office. Should M.I.T. receive partial
reimbursement from other licensees for Patent costs, M.I.T. will amend this
agreement so that Company will not be billed for those amounts repaid by other
licensees.
7. Infringement.
------------
7.1 Notification of Infringement. Each party agrees to provide written
----------------------------
notice to the party promptly after becoming aware of any infringement of the
Patent Rights.
<PAGE>
14
7.2. Company Right to Prosecute. So long as Company remains the only
--------------------------
licensee of the Patent Rights in any Field of Use, Company shall have the right,
under its own control and at its own expense, to prosecute any third party
infringement of the Patent Rights in that Field of Use or to defend the Patent
Rights in any declaratory judgment action brought by a third party that alleges
invalidity, unenforceability, or non-infringement of the Patent Rights. Prior to
commencing any such action, Company shall consult with M.I.T. and shall consider
the views of M.I.T. regarding the advisability of the proposed action and its
effect on the public interest. Company shall not enter into any settlement,
consent judgment, or other voluntary final disposition of any infringement
action under this section without the prior written consent of M.I.T.
7.3. Recovery. Any recovery obtained in an action under this Section shall
--------
be distributed as follows: (i) each party shall be reimbursed for any expenses
incurred in the action (including the amount of any royalty payments withheld
from M.I.T. as described below), (ii) as to ordinary damages, Company shall
receive an amount equal to its lost profits or a reasonable royalty on the
infringing sales (whichever measure of damages the court shall have applied),
less a reasonable approximation of the royalties and other amounts that Company
would have paid to M.I.T. if Company had sold the infringing products, processes
and services rather than the infringer, and (iii) as to special or punitive
damages, the parties shall share equally in any award. Company may offset a
total of fifty percent (50%) of any expenses incurred under this Section against
any running royalty payments due to M.I.T. under this Agreement, provided that
in no event shall the running royalty payments under Section 4.3. and 4.5., when
aggregated with any other offsets and credits allowed under this Agreement, be
reduced by more than fifty percent (50%) in any Royalty Period.
7.4. M.I.T. as Indispensable Party. M.I.T. shall permit any action under
-----------------------------
this Section to be brought in its name if required by law, provided that Company
shall hold M.I.T. harmless from, and if necessary indemnify M.I.T. against, any
costs, expenses, or liability that M.I.T. may incur in connection with such
action.
7.5. M.I.T. Right to Prosecute. In the event that Company fails to initiate
-------------------------
an infringement action within a reasonable time after it first becomes aware of
the basis for such action, or to answer a declaratory judgment action within a
reasonable time after such action is filed, M.I.T. shall have the right to
prosecute such infringement or answer such declaratory judgment action, under
its sole control and at its sole expense, and any recovery obtained shall be
given to M.I.T.
7.6. Cooperation. Each party agrees to cooperate fully in any action under
---------------
this Article which is controlled by the other party, provided that the
controlling party reimburses the cooperating party promptly for any costs and
expenses incurred by the cooperating party in connection with providing such
assistance.
8. Term and Termination.
--------------------
8.1. Term. This Agreement shall commence on the Effective Date and shall
----
remain in effect until the expiration or abandonment of all issued patents and
filed patent applications within the Patent Rights, unless earlier terminated in
accordance with the provisions of this Agreement.
<PAGE>
15
8.2. Voluntary Termination by Company. Company shall have the right to
--------------------------------
terminate this Agreement, for any reason, upon six (6) months prior written
notice to M.I.T. and upon payment of all amounts due to M.I.T. through the
desired Effective Date of the termination.
8.3. Termination for Default.
-----------------------
(a) NonPayment. In the event Company fails to pay any amounts due and
----------
payable to M.I.T. hereunder, and falls to make such payments within thirty (30)
days after receiving written notice thereof, M.I.T. may terminate this Agreement
immediately upon written notice to Company. Company shall have only one
opportunity to benefit from the thirty (30) day cure period; any subsequent
breach for nonpayment by Company will entitle M.I.T. to terminate this Agreement
immediately upon written notice to Company, without the thirty-day cure period.
(b) Material Breach. In the event Company commits a material breach of
---------------
its obligations under this Agreement, except for breach as described in
Subsection 83(a), and falls to cure that breach within sixty (60) days after
receiving written notice thereof, M.I.T. may terminate this Agreement
immediately upon written notice to Company.
8.4. Force Majeure. Neither party will be responsible for delays resulting
-------------
from causes beyond the reasonable control of such party, including without
limitation fire, explosion, flood, war, strike, or riot, provided that the
nonperforming party uses commercially reasonable efforts to avoid or remove such
causes of nonperformance and continues performance under this Agreement with
reasonable dispatch whenever such causes are removed.
8.5. Effect of Termination. The following provisions shall survive the
---------------------
expiration or termination of this Agreement: Articles I and 9; Sections 3.2.,
3.5., 5.2. (obligation to provide final report and payment), 5.6., 8.5., and
10.8. Upon the early termination of this Agreement, Company and its Affiliates
and Sublicensees may complete and sell any work-in-progress and inventory of
Licensed Products that exist as of the Effective Date of termination, provided
that (i) Company is current in payment of all amounts due M.I.T. under this
Agreement, (ii) Company pays M.I.T. the applicable running royalty or other
amounts due on such sales of Licensed Products in accordance with the terms and
conditions of this Agreement, and (iii) Company and its Affiliates and
Sublicensees shall complete and sell all work-in-progress and inventory of
Licensed Products within six (6) months after the Effective Date of termination.
9. Dispute Resolution.
------------------
9. 1. Mandatory Procedures. The parties agree that any dispute arising out
--------------------
of or relating to this Agreement shall be resolved solely by means of the
procedures set forth in this Article, and that such procedures constitute
legally binding obligations that are an essential provision of this Agreement;
provided, however, that all procedures and deadlines specified in this Article
may be modified by written agreement of the parties. If either party falls to
observe the procedures of this Article, as modified by their written agreement,
the other party may bring an action for specific performance in any court of
competent jurisdiction.
<PAGE>
16
9.2. Dispute Resolution Procedures.
-----------------------------
(a) Negotiation. In the event of any dispute arising out of or
-----------
relating to this Agreement, the affected party shall notify the other party, and
the parties shall attempt in good faith to resolve the matter within ten (10)
days after the date of such notice (the "Notice Date"). Any disputes not
resolved by good faith discussions shall be referred to the Director or
Assistant Director of the Technology Licensing Office for M.I.T. and to a senior
executive for the Company (collectively, the "Executives"), who shall meet at a
mutually acceptable time and location within thirty (30) days after the Notice
Date and attempt to negotiate a settlement.
(b) Mediation. If the matter remains unresolved within sixty (60)
---------
days after the Notice Date, or if the Executives fail to meet within thirty (30)
days after the Notice Date, either party may initiate mediation upon written
notice to the other party, whereupon both parties shall be obligated to engage
in a mediation proceeding under the then current Center for Public Resources
("CPR") Model Procedure for Mediation of Business Disputes, except that specific
provisions of this Section shall override inconsistent provisions of the CPR
Model Procedure. The mediator will be selected from the CPR Panels of Neutrals.
If the parties cannot agree upon the selection of a mediator within ninety (90)
days after the Notice Date, then upon the request of either party, the CPR shall
appoint the mediator. The parties shall attempt to resolve the dispute through
mediation until one of the following occurs: (i) the parties reach a written
settlement; (ii) the mediator notifies the parties in writing that they have
reached an impasse; (iii) the parties agree in writing that they have reached an
impasse; or (iv) the parties have not reached a settlement within one hundred
and twenty (120) days after the Notice Date.
(c) Trial Without Jury. If the parties fail to resolve the dispute
------------------
through mediation, or if neither party elects to initiate mediation, each party
shall have the right to pursue any other remedies legally available to resolve
the dispute, provided, however, that the parties expressly waive any right to a
jury trial in any legal proceeding under this Section.
9.3. Preservation of Rights Pending Resolution.
-----------------------------------------
(a) Performance to Continue. Each party shall continue to perform
-----------------------
its obligations under this Agreement pending final resolution of any dispute
arising out of or relating to this Agreement; provided, however, that a party
may suspend performance of its obligations during any period in which the other
party falls or refuses to perform its obligations. Nothing in this Section is
intended to relieve Company from its obligation to make payments pursuant to
Sections 4 and 6 of this Agreement.
(b) Provisional Remedies. Although the procedures specified in this
--------------------
Article are the sole and exclusive procedures for the resolution of disputes
arising out of or relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if, in its
reasonable judgment, such action is necessary to avoid irreparable harm to
itself or to preserve its rights under this Agreement.
(c) Statute of Limitations. The parties agree that all applicable
----------------------
statutes of limitation and time-based defenses (such as estoppel and laches)
shall be tolled while the procedures set forth in Subsections 9.2.(a) and 9.2(b)
are pending. The parties shall take any actions necessary to effectuate this
result.
<PAGE>
17
10. Miscellaneous.
-------------
10. 1. No Representations or Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET
--------------------------------
FORTH IN THIS AGREEMENT, M.I.T. MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY
KIND CONCERNING THE PATENT RIGHTS, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT, VALIDITY OF PATENT RIGHTS CLAIMS, WHETHER ISSUED OR PENDING,
AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE.
Specifically, and not to limit the foregoing, M.I.T. makes no warranty or
representation (i) regarding the validity or scope of the Patent Rights, (ii)
that the exploitation of the Patent Rights or any Licensed Product or Licensed
Process will not infringe any patents or other intellectual property rights of
M.I.T. or of a third party, and (iii) that M.I.T. or a third party is not
currently infringing or will not infringe the Patent Rights.
IN NO EVENT SHALL M.I.T., ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND
AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND,
INCLUDING ECONOMIC DAMAGES OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF
WHETHER M.I.T. SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT
SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING.
10.2. Compliance with Law and Policies. Company agrees to comply with
--------------------------------
applicable law and the policies of M.I.T. in the area of technology transfer and
shall promptly notify M.I.T. of any violation that Company knows or has reason
to believe has occurred or is likely to occur. The M.I.T. policies currently in
effect are available through the M.I.T. Technology Licensing Office.
10.3. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each which shall be deemed an original, and all of which together
shall be deemed to be one and the same instrument.
10.4. Headings. All headings are for convenience only and shall not affect
--------
the meaning of any provision of this Agreement.
10.5. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties and their respective permitted successors and assigns.
10.6. Assignment. This Agreement is personal to Company and no rights or
----------
obligations may be assigned by Company without the prior written consent of
M.I.T., which shall not be unreasonably withheld. If there is a purchase of a
majority of Company's outstanding voting securities by a third party M.I.T.
retains the right to renegotiate the running royalty rates in this license to
reflect the business realities at the time of such purchase. This renegotiation
would recognize that the current license contains favorable licensing terms
given to Company because of Company's current limited resources so that Company
would thereby be able to maximize the resources available for developing Patent
Rights, provided however that in such renegotiations no running royalty
expressed as a percentage of Net Revenues earned by Company , its Affiliates, or
Sublicensees shall exceed five percent (5%). (See section 4.3 and also section
4.5 of this agreement).
<PAGE>
18
10.7. Amendment and Waiver. This Agreement may be amended, supplemented, or
--------------------
otherwise modified only by means of a written instrument signed by both parties.
Any waiver of any rights or failure to act in a specific instance shall relate
only to such instance and shall not be construed as an agreement to waive any
rights or fail to act in any other instance, whether or not similar.
10.8. Governing Law. This Agreement and all disputes arising out of or
-------------
related to this Agreement, or the performance, enforcement, breach or
termination hereof, and any remedies relating thereto, shall be construed,
governed, interpreted and applied in accordance with the laws of the
Commonwealth of Massachusetts, U.S.A., without regard to conflict of laws
principles, except that questions affecting the construction and effect of any
patent shall be determined by the law of the country in which the patent shall
have been granted.
10.9. Notice. Any notices required or permitted under this Agreement shall
------
be in writing, shall specifically refer to this Agreement, and shall be sent by
hand, recognized national overnight courier, confirmed facsimile transmission,
confirmed electronic mail, or registered or certified mail, postage prepaid,
return receipt requested, to the following addresses or facsimile numbers of the
parties:
If to M.I.T.:
Technology Licensing Office, NE25-230
Massachusetts Institute of Technology
Five Cambridge Center, Kendall Square
Cambridge, MA 02142-1493
Attention: Director
Tel: 617-253-6966
Fax: 617-258-6790
If to Company:
ChiRex America Inc.
Suite 402
300 Atlantic St.
Stamford, CT 06901 U.S.A.
Attention: Beth Hecht
Tel: 203-351-2323
Fax: 203-425-9996
All notices under this Agreement shall be deemed effective upon receipt. A party
may change its contact information immediately upon written notice to the other
party in the manner provided in this Section.
<PAGE>
19
10.10. Severability. In the event that any provision of this Agreement
------------
shall be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other provision of this Agreement, and the
parties shall negotiate in good faith to modify the Agreement to preserve (to
the extent possible) their original intent. If the parties fail to reach a
modified agreement within sixty (60) days after the relevant provision is held
invalid or unenforceable, then the dispute shall be resolved in accordance with
the procedures set forth in Article 9. While the dispute is pending resolution,
this Agreement shall be construed as if such provision were deleted by agreement
of the parties.
10. 11. Entire Amendment. This Agreement constitutes the entire agreement
----------------
between the parties with respect to its subject matter and supersedes all prior
agreements or understandings between the parties relating to its subject matter.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed b
duly authorized representatives.
The Effective Date of this Agreement is /s/ May 22, 1998
--------------------------
MASSACHUSETTS'S INSTITUTE OF CHIREX AMERICA INC.
TECHNOLOGY
By: /s/ John H. Turner, Jr. By: /s/ Michael Griffith
------------------------ --------------------------
Name: John H. Turner, Jr. Name: Michael Griffith
Title: Assistant Director Technology Title: Chief Financial
Licensing Office
<PAGE>
20
EXHIBIT A
List of Patent Applications and Patents in the Patent Rights as of the Effective
- --------------------------------------------------------------------------------
Date
- ----
M.I.T. Case No. 6752
"Techniques for and Applications of Carbon-nitrogen Bond Formation"
by Stephen L. Buchwald and Anil Gurarn
U.S. Patent No. 5,576,460; issued 11/19/97
M.I.T. Case No. 7518
"Synthesis of Aryl Ethers"
by Stephen L. Buchwald, Michael Palucki, and John P. Wolfe
U.S. Serial No. 08/728,449; filed 10/10/96
M.I.T. Case No. 7718
"The First General Copper-catalyzed Formation of Diaryl Ethers"
by Stephen L. Buchwald, Sven Doye, and Jean-francois Marcoux
U.S. Serial No. 60/061114; filed 10/6/97
M.I.T. Case No. 7767
"An Ammonia Equivalent for the Palladium-catalyzed Amination of Aryl Halides and
Triflates" by J. Ahman, Stephen L. Buchwald, Joseph P. Sadighi, R. A. Singer,
and John P. Wolfe, U.S. Serial No. 60/054092; filed 7/29/97
M.I.T. Case No. 7951
"Pd-catalyzed Arylations Of Hydrazines, Hydrazones and Applications Thereof",
by Stephen L. Buchwald, Oliver Geis, and Seble H. Wagaw
<PAGE>
21
EXHIBIT B
Company has asked M.I.T. to file P.C.T. applications designating Europe, Canada,
and Japan for all M.I.T. Cases covered by Patent Rights unless Company
explicitly requests M.I.T. to do otherwise as described in Sections 6.1, 6.2 and
10.9.
<PAGE>
10.38
EXECUTION COPY
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement") is made as of October 1,
---------
1999, between CHIREX INC., a Delaware corporation ("ChiRex") on behalf of itself
------
and its wholly owned subsidiary CHIREX TECHNOLOGY CENTER INC. ("CIC"; ChiRex and
---
CTC collectively referred to herein as the "Company") and Eric N. Jacobsen Ph.D.
("Consultant").
----------
RECITALS
--------
Consultant is presently a member of the ChiRex Board of Directors (the
"Board") and Scientific Advisory Board (the "SAB"). Effective October 1, 1998
-----
Consultant has also agreed to serve as a consultant to CTC. The parties hereto
desire to set forth in writing the terms of the Consultant's relationship in
light of these responsibilities.
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT AS CONSULTANT.
-------------------------
(a) CTC hereby appoints Consultant to provide scientific and
strategic guidance to CIC in connection with the development by CTC of chiral
chemistry methods, applications and technologies (the "Services"). "Services"
--------
shall not include any "executive services" as provided in the policies relating
to research and other professional activities within and outside Harvard
University (the "Harvard -Policies"). Consultant shall bear the title
-----------------
"Scientific Director of the ChiRex Technology Center" and shall perform the
Services commensurate with such appointment as he shall be directed by the Chief
Executive Officer or ChiRex and/or Board, for the period specified in Section 2.
Consultant shall devote at least one full weekday working day per week to his
duties as Scientific Director of the CTC. Notwithstanding anything to the
contrary in this Agreement, Consultant shall not be required to provide Services
which, in his good faith judgment, would unduly interfere with any employment
situation he has or may obtain, including any academic appointments. In this
connection, the Company acknowledges that Consultant is employed on a full-time
basis as a professor of chemistry and chemical biology by Harvard University and
is subject to the Harvard Policies, and that Consultant may, from time to time,
have appointments with other academic institutions (collectively, "Academic
Institutions"). The Company agrees that if the Consultant has a material
conflict of interest with respect to any matter presented to him in his capacity
as consultant hereunder, or with respect to any matter arising in connection
with his service on the Board or the SAB, including a material conflict (or
potential material conflict) with any policy or rule of any Academic
Institution, including the Harvard Policies, Consultant may excuse himself with
respect to such matter and in so doing shall not be deemed in default hereunder.
(b) Consultant hereby accepts such appointment and agrees to render
the Services to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner. Consultant further agrees to continue to
serve during all or any part of the term of this Agreement as a director of CTC
and as a member of the SAB, without any compensation therefor, other than that
specified in this Agreement. Consultant agrees that his Special Scientific
Advisory Board Consulting Agreement dated July 19, 1996 shall be terminated as
of the effective date of this Agreement, and he shall continue as a member of
such SAB for the compensation set forth in this Agreement. Notwithstanding the
foregoing, Consultant shall continue to receive compensation separate and apart
from this Agreement for his service on the Board per the compensation scheme in
place from time to time for non-employee directors.
1
<PAGE>
2. TERM OF APPOINTMENT. The appointment of Consultant hereunder
-------------------
shall commence on October 1, 1998 and end on December 31, 2001 (the "Initial
Term") unless further extended or sooner terminated as hereinafter provided.
Commencing on December 31, 2001, and each December 31 thereafter, the term of
Consultant's employment shall automatically be extended for one additional year
to, respectively, December 31, 2002, and each December 31, thereafter, unless,
not later than twelve months prior to the end of the Initial Term or any renewal
term, either party hereunder shall have given written notice to the other party
that it does not wish to extend this Agreement. It is expressly acknowledged and
agreed that Consultant may resign from the Board or the SAB and in so doing
shall not be deemed in default hereunder.
3. COMPENSATION.
------------
(a) During the term of this Agreement, Consultant shall be paid a
base amount of $120,000 per annum or such higher rate as the CTC may designate
from time to time (the "Base Amount"), which amount shall be payable in monthly
-----------
installments in accordance with the Company's general practices.
(b) CTC shall reimburse Consultant for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment, reasonable telecommuting expenses
(including fax, phone and cellular calls made in connection with his duties
hereunder) and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(c) In addition to the Base Amount, Consultant shall be eligible to
receive a bonus for each calendar year (beginning with calendar year 1999)
during the term of this Agreement, which bonus shall be calculated as set forth
in Appendix A attached hereto.
(d) Upon execution of this Agreement, Consultant shall receive a
grant of 100,000 stock options (the "Options") under the ChiRex 1997 Stock
-------
Incentive Plan (the "Plan"), which grant shall have been approved by the Board
----
or the "Committee" (as defined in the Plan) and which shall be subject to the
exemption contained in Rule 16b-3(d)(1) of the Rules promulgated under the
Securities Exchange Act of 1934. The first 20% of such stock-option grant shall
vest on January 2, 2000. The balance of the Options shall vest in 20% increments
on each October 1 thereafter beginning October 1, 2000. Subject to Section 4
herein, the terms, conditions and rights with respect to such grant will be
subject to the actual provisions and conditions of the Plan.
4. TERMINATION AND CHANGE OF CONTROL.
---------------------------------
(a) If the consultant shall die during the term of this Agreement,
this Agreement shall terminate, except that such termination shall not affect
any rights of Consultant which have vested at the time of his death, which
rights shall continue as provided for herein and in accordance with the Plan as
the case may be.
(b) in the sole discretion of the Board, this Agreement may be
terminated if the Consultant is disabled (as defined below) and shall have
failed to provide Services to the Company for one hundred and eighty (180)
consecutive days, and within thirty (30) days written notice by CTC to do so,
the Consultant shall not have returned to the performance of his duties
hereunder. In the event of such termination, the Company shall provide
Consultant with the payments specified in Section 4(d). As used herein, the term
"disabled" shall mean that Consultant is unable, as a result of a medically
--------
determinable physical or mental impairment, to perform the duties and services
of his appointment.
2
<PAGE>
(c) CTC may, by five (5) days written notice to Consultant, terminate
Consultant's employment hereunder for cause. As used herein, "cause" shall mean
-----
(i) the conviction of Consultant of a felony or conviction of a misdemeanor if
such misdemeanor involves moral turpitude; or (ii) Consultant's voluntary
engagement in conduct constituting larceny, embezzlement, conversion or any
other act involving the misappropriation of Company funds; or (iii) the willful
refusal to carry out specific directions of the Chief Executive Officer of
ChiRex, his designee, or the Board, which directions shall be consistent with
the provisions hereof; or (iv) Consultant's committing any act of gross
negligence or intentional misconduct in the performance or non-performance of
his duties hereunder; or (v) any material breach by the Consultant of any
material provision of this Agreement (other than for reasons related only to the
business performance of the Company or business results achieved by Consultant).
(d) Consultant's appointment may be terminated at any time by the
Company without cause on five (5) days written notice to Consultant; provided,
however, that in such event Consultant shall be entitled to receive (so long as
he and the Company executes and delivers the Company's standard form of release)
100% of Consultant's then effective Base Amount. The foregoing amount shall be
payable in one lump sum payment within five (5) days after Consultant's last day
of active service with CTC.
(e) If a "Change in Control" of ChiRex (as defined in Section 4(f)
below) occurs, all stock options which have not yet become vested on the date of
a Change in Control will become vested upon such event, and Consultant shall be
permitted to exercise all such rights in accordance with the administrative
provisions of those plans. If a Change in Control involves a tender offer for
all or part of ChiRex shares, the vesting date for stock options pursuant to
this subsection (a) shall be a date that permits Consultant to participate in
such tender offer with such stock options. If Consultant's appointment is
terminated in connection with a Change in Control, then Consultant shall also be
entitled to the amount specified in subsection (d) above.
(f) For purposes of this Agreement, a "Change in Control" of ChiRex
-----------------
shall be deemed to have occurred if: (i) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934) becomes
the beneficial owner, directly or indirectly, of Company securities representing
50% or more of the capital stock of the Company; or (ii) the Company's
shareholders approve merger or consolidation (where in either case ChiRex is not
the survivor thereof) in which shareholders; of ChiRex cease to own at least 80%
of the surviving entity's voting power.
(g) Should ChiRex, for any reason, own less than 80% of the voting
stock of CTC, Consultant shall have, in his sole discretion, the right to
convent the Options into options to purchase common stock of CTC based upon the
formula set forth in Appendix B attached hereto, which shall be determined five
(5) days after the consummation of such event utilizing closing market values of
ChiRex and CTC as such may be available on applicable national public exchanges.
Should applicable shares of ChiRex or CTC not be listed on national public
exchanges, other valuation methods to determine the relative value of the
Options and their conversion hereunder may be utilized as mutually agreed to by
the parties. Notwithstanding anything in this Agreement to the contrary, the
Options shall vest in full in the event Consultant makes the election set forth
in the first sentence of this Section 4(g).
5. CONFIDENTIAL INFORMATION.
------------------------
(a) Consultant acknowledges and agrees that the confidential
information, observations and data obtained by him in connection with providing
the Services and with serving on the Board and SAB concerning the business or
affairs of the Company or any other subsidiary ("Confidential Information") are
------------------------
the property of the Company or such subsidiary. Therefore,
3
<PAGE>
Consultant agrees to keep secret and retain in the strictest confidence all
Confidential Information, including without limitation, trade "know-how"
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects and other business affairs
of CTC or ChiRex, learned by him prior to or after the date of this Agreement,
and not to disclose them to anyone outside the Company (or its affiliated
companies), either during or after his appointment hereunder, except (i) in the
course of performing his duties hereunder; (ii) with the Company's express
written consent; (iii) to the extent that the Confidential Information becomes
generally known to and available for use by the public other than as a result of
Consultant's acts or omissions; or (iv) where required to be disclosed by court
order, subpoena, or other government process. If Consultant shall be required to
make disclosure pursuant to the provisions of clause (iv) of the preceding
sentence, Consultant promptly, but in no event more than 48 hours after learning
of such subpoena, court order or other governmental process, shall notify the
Company, by personal delivery or fax (pursuant to Section 9 hereof) and, at the
Company's expense, including reasonable compensation for the value of
Consultant's time, shall take all reasonably necessary steps requested by the
Company to defend against the enforcement of such subpoena, court order or other
governmental process and permit the Company to intervene and participate with
counsel of its own choice in any related proceeding.
(b) Consultant shall deliver to CTC or ChiRex, its applicable, at the
termination of his appointment hereunder, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes,
printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or the
business of the Company or any subsidiary which he may then possess or have
under his control.
(c) The Consultant's obligations under this Section 5 shall not apply
to any information that (i) is not Confidential Information; (ii) is in the
Consultant's possession at the time of disclosure other than as a result of a
prior disclosure by CTC or ChiRex or any affiliated company thereto, to
Consultant; (iii) is disclosed to Consultant by a third party under no
obligation of confidentiality to CTC or ChiRex or any affiliated company
thereto. The Consultant shall not disclose to CTC or ChiRex any trade secrets or
other confidential information of any third party that may be in his possession.
6. INVENTIONS AND PATENTS. Consultant acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the business of ChiRex or CTC or any of its
affiliated companies and which are conceived, developed or made by Consultant in
the course of providing Services hereunder ("Work Product") belong to ChiRex,
------------
CTC, or its affiliated company, as the case may be. Consultant shall promptly
disclose such Work Product to the Board and at the expense of the Company,
perform all actions reasonably requested by the Board (whether during or after
his appointment) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
7. INDEMNIFICATION. ChiRex and CTC will jointly and severally
---------------
indemnify Consultant and his legal representatives, to the fullest extent
permitted by the laws of the State of Delaware and the existing by-laws of CTC
and ChiRex or any other applicable laws or the provisions of any other corporate
document of either of them, and Consultant shall be entitled to the protection
of any insurance policies either company may elect to obtain generally for the
benefit of its directors, against all costs, charges and expenses whatsoever
incurred or sustained by him or his legal representatives in connection with any
action, suit or proceeding to which he or his legal representatives may be made
a party by reason of him being or having been a director, SAB member or
consultant of CTC or ChiRex or actions taken purportedly on behalf of the
Company or any of its subsidiaries or affiliates. This Section 7 shall survive
any termination of Consultant's appointment or this Agreement.
4
<PAGE>
8. REPRESENTATIONS.
---------------
(a) Consultant hereby represents and warrants to the Company that (i)
the execution, delivery and performance of this Agreement by Consultant do not
and shall not conflict with, breach, violate or cause a default under any
contract, agreement, instrument, order, judgment or decree to which Consultant
is a party or by which he is bound; and (ii) upon the execution and delivery of
this Agreement by the parties, this Agreement shall be the valid and binding
obligation of Consultant, enforceable in accordance with its terms. Consultant
hereby acknowledges and represents that he has consulted with independent legal
counsel regarding his rights and obligations under this Agreement and that he
fully understands the terms and conditions contained herein.
(b) ChiRex and CTC each represent and warrant for themselves that (i)
each has power and authority (including corporate power and authority) to enter
into this Agreement; (ii) the execution, delivery and performance of this
Agreement by each of them do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement instrument, order, judgment or
decree to which either of them is a party or by which either of them is bound;.
and (iii) upon the execution and delivery of this Agreement by the parties, this
Agreement shall be the valid and binding obligation of each of them, enforceable
in accordance with its terms.
9. NOTICES. Any notice provided for in this Agreement shall be in
-------
writing and shall be deemed to have been duly given if delivered personally with
receipt acknowledged or sent by registered or certified mail or equivalent, if
available, postage prepaid, or by fax (which shall be confirmed by a writing
sent by registered or certified mail of equivalent on the same day that such fax
was sent), addressed to the parties at the following addresses or to such other
address as such party shall hereafter specify by notice to the other:
Notices to Consultant: Eric N. Jacobsen Ph.D.
----------------------
[DELETED]
with a copy to,: Jonathan C. Lipson, Esq.
----------------
Hill & Barlow
One International Place
Boston, MA 02110
(617) 428-3514 (Phone)
(617) 429-3500 (Fax)
Notices to the Company: ChiRex Inc.
----------------------
300 Atlantic Street
Suite 402
Stamford, Connecticut 06901
(203) 351-2300 (Phone)
(203) 425-9996 (Fax)
Attention: Legal Department
10. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
5
<PAGE>
11. COMPLETE AGREEMENT. This Agreement constitutes the complete
------------------
agreement and understanding among the parties with respect to the subject matter
hereof and supersedes any prior understandings, agreements or representations by
or among the parties, written or oral, which may have related to the subject
matter hereof in any way.
12. NO STRICT CONSTRUCTION. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
13. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each or which is deemed to be an original and all of which taken
together constitute one and the same agreement.
14. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Consultant, the Company and their
respective heirs, successors and assigns, except that Consultant may not assign
his rights or delegate his obligations hereunder. The Company will require any
successor to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.
15. CHOICE OF LAW. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Connecticut, without giving effect to any choice
of law or conflict of law rules or provisions that would cause the application
of the laws of any jurisdiction other than the State of Connecticut.
16. AMENDMENT AND WAIVER. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of CTC, ChiRex and
Consultant, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
17. ARBITRATION. Any controversy or claim, arising out of or
-----------
relating to this Agreement, the making, interpretation or the breach thereof,
other than a claim solely for injunctive relief for any alleged breach of the
provisions of Sections 5 or 20 as to which the parties shall have the right to
apply for specific performance to any court having equity jurisdiction, shall be
settled by arbitration in Boston, Massachusetts by one arbitrator in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof and any party to the arbitration may, if he
elects, institute proceedings in any court having jurisdiction for the specific
performance of any such award. The powers of the arbitrator shall include, but
not be limited to, the awarding of injunctive relief.
18. LEGAL FEES AND EXPENSES. CTC shall reimburse Consultant up to
-----------------------
$5000 for reasonable legal fees and expenses incurred by Consultant in
connection with review of this Agreement.
19. NO EMPLOYMENT RELATIONSHIP. In his performance of this
--------------------------
Agreement, Consultant will at all times act in his own capacity and right as a
consultant and nothing contained herein may be construed to make Consultant an
employee of CTC or ChiRex. Consultant understands and agrees that under no
circumstances will he be eligible for, or entitled to participate in, any of the
employee benefit plans, programs, practices or policies which may be in effect
for the
6
<PAGE>
regular full-time employees of CTC or ChiRex, including without any limitation,
any pension, retirement or 401(k) plan; any life or health insurance plan; and
vacation or holiday pay plan.
20. COVENANT NOT TO COMPETE. The parties acknowledge that
-----------------------
Consultant's performance of all terms of this Agreement is necessary to protect
the legitimate business interests of ChiRex and CTC. The parties farther
acknowledge that Consultant provides consulting services to the other companies
listed on Exhibit I attached hereto and made a part hereof which Consultant
represents do not and shall not conflict with his duties and obligations
hereunder. The parties agree that their intention under this Section 20 is not
to interfere with those existing consulting services provided to the firms
listed on Appendix C. Consultant agrees, that during the continuance of this
Agreement and for a period of six (6) months thereafter, he will not, on behalf
of himself, or on behalf of any other person, company, corporation, partnership,
or other entity or enterprise, directly or indirectly, as an employee,
proprietor, stockholder, partner, consultant or otherwise, engage in any
business or activity that is directly competitive with the business activities
of the Company as they are conducted as of the date that this Agreement or
Consultant's appointment terminates hereunder.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CHIREX INC. on behalf of itself and
CHIREX TECHNOLOGY CENTER INC.
/s/ Michael A. Griffith
---------------------------------------
MICHAEL A. GRIFFITH
CHIEF FINANCIAL OFFICER
/s/ Eric Jacobsen
---------------------------------------
ERIC JACOBSEN
8
<PAGE>
APPENDIX A
----------
BONUS COMPUTATION
Mr. Jacobsen's bonus payment for calendar year 1999 will be determined by
multiplying his annual compensation as specified in this agreement by the result
of dividing total revenues of the ChiRex Technology Center (the "Center") by the
total operating expenses of the Center as reflected in the Center's financial
Statements for the year ended December 31, 1999 as determined in accordance with
United States Generally Accepted Accounting Principles ("GAAP"), except, that
operating expenses used for determined this bonus calculation will exclude any
intercorporate allocations of corporate expense that ChiRex Inc. may allocate to
the Center included in the operating expenses of the Center, and would also
exclude any accrual for bonus to Mr. Jacobsen pursuant to this clause required
to be accrued in accordance with GAAP included in operating expenses of the
Center. Revenues include bona fide invoices to third party and Intercompany
customers as compensation for services and product provided to such customers
during 1999 and royalty and license fees earned in 1999, as recorded in the
financial statements of the Center in accordance with GAAP. Operating expenses
include all costs and expenses of the Center however incurred in order to
generate business and provide services to its customers as contemplated by the
ChiRex Technology Center business plan and would include but would not be
limited to the Center's allocable share of the following:
- Rent and leasehold costs
- Employment costs (including Mr. Jacobsen's compensation pursuant to this
agreement)
- Scientific Advisory Board fees and expenses
- Materials and supplies
- Depreciation on equipment and improvements
- Utilities
- Insurance
- Travel and entertainment
- Patent and license expenses.
By January 31 of the following year, Mr. Jacobsen's bonus calculation will be
provided to Mr. Jacobsen by the Center in a form similar to Exhibit A attached
along with the financial statements of the Center. Mr. Jacobsen will have
fifteen (15) days to review the bonus determination and will notify the Center,
in writing, within fifteen (15) days of any questions or disagreements with the
bonus calculation. If no such notice is received by the Center from Mr. Jacobsen
within fifteen (15) days, all parties agree the bonus calculation has been
accepted by Mr. Jacobsen and the amount, so determined by said bonus
calculation, will be paid to Mr. Jacobsen in the Center's next normally
scheduled payroll which will be no later than February 28th. Should Mr. Jacobsen
have questions or disagree with the bonus calculation and said questions and
disagreements are not resolved by February 15th, the parties agree to continue
to work towards a resolution of the disagreements by February 28th (29th in a
leap year). If the parties are unable to reach an agreement by February 28th
(29th in a leap year), the parties agree to appoint an arbitrator per Section 17
of this Agreement within five (5) business days to settle the dispute no later
than March 31st. All parties agree the conclusion of the arbitrator is final
and any payment due to Mr. Jacobsen pursuant to the arbitrator's decision will
be remitted by the Center within three (3) business days of the arbitrator's
decision. Mr. Jacobsen and the Center agree to share equally any and all costs
of the arbitrator.
9
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B Jacobsen Contract
- ----------
Change in Control
Stock Option Conversion
ChiRex
Technology
ChiRex Inc. Center
----------- ------
<S> <C> <C>
Public Shares o/s 12,000,000 2,000,000
% of Outstanding 100.00% 20.00%
Market Value per share $10.00
============
Total market value $ 420,000,000 $100,000,000
============
Less Center value (100,000,000)
-------------
Market value excluding Center $ 320,000,000
=============
Net market value per share excluding $ 26.67
Center =============
Per share market value of Center in Inc. $ 8.33
market value ============
Eric Jacobsen conversion of Inc.
--------------------------------
Options into Center Options
---------------------------
Inc. Options
------------
Inc. Options outstanding 100,000
Inc. Options strike price $ 15.00
Excess of market over strike price $ 20.00
Value of Inc. Options $ 2,00,000
Center Options
-------------- 1,200,000
Center Options issued on conversion $ 8.33
Center options strike price $ 1.67
Excess of market over strike price $ 2,000,000
Value of Center Options
<CAPTION>
Exhibit
-------
Jacobsen
Contract
Bonus
Calculation
Per Center For Bo
Line No. Financials Adjustments Calculation
- -------- ---------- ------------ -----------
<S> <C> <C> <C>
1 Revenues
2 Operating
expenses
Cost of sales
Selling, general and administrative
Research and development
Other expenses
------------- ------------ -----------
Total operating expenses
============= ============ ===========
</TABLE>
10
<PAGE>
3 Bonus Factor (Line 1 divided by Line 2)
=============
4 Base compensation
=============
5 Bonus (Line 3 multiplied by Line 4)
=============
11
<PAGE>
APPENDIX C
(EXISTING CONSULTING AGREEMENTS)
1. Sepracor, Inc.
Marlboro, MA
2. Versicor, Inc.
Freemont, CA
3. Merek, Inc.
Rahway, NJ
4. ArQule Catalytics
Medford, MA
12
<PAGE>
10.39
EXECUTION COPY
DATED 1998
----------------------------------------------------
(1) CHIREX INC
(2) CHIREX (DUDLEY) LIMITED
(3) ALAN R CLARK
COMPROMISE AGREEMENT PURSUANT
TO (INTER ALIA) SECTION 77(4)(AA) OF THE
SEX DISCRIMINATION ACT 1975,
SECTION (72)(4)(AA) OF THE
RACE RELATIONS ACT 1976,
SECTION 9 OF THE
DISABILITY DISCRIMINATION ACT 1995
AND SECTION 203(2)(F) OF THE
EMPLOYMENT RIGHTS ACT 1996
1
<PAGE>
COMPROMISE AGREEMENT
--------------------
THIS AGREEMENT is made on the third day of July 1998 BETWEEN CHIREX INC, of 300
Atlantic Street, Suite 402, Stamford, CT06901 U.S.A., a Delaware corporation,
("ChiRex") its wholly owned subsidiary CHIREX (DUDLEY) LIMITED of Dudley,
Cramlington, Northumberland ("the Subsidiary") (collectively ChiRex and the
Subsidiary shall be referred to herein as "the Company") and ALAN R. CLARK
("Mr Clark").
This Agreement relates to the termination of Mr Clark's employment with the
Company on July 3, 1998 ("the Termination Date") by reason of resignation.
IT IS AGREED that:-
1. The Company will pay Mr Clark
1.1 all accrued salary and holiday pay of Mr Clark up to the Termination Date
after deductions of tax and National Insurance
1.2 The sum of (Pounds)331,250 as liquidated damages, which payment will be
subject to deductions for tax and National Insurance and will be paid to Mr
Clark in two instalments as follows:-
1.2.1 a first instalment of (Pounds)165,625 will be paid to Mr Clark on
October 1, 1998 1.2.2 A second instalment of F-165,625 will be
paid to Mr Clark on January 2, 1999.
1.2.2 A second instalment of (Pounds)165,625 will be paid to Mr Clark
on January 2, 1999.
2
<PAGE>
1.3 The sum of (Pounds)1200 in lieu of payment for private fuel,
which payment will be subject to deductions for tax and national
insurance, and will be paid forthwith following Mr Clark's
signing this Agreement
1.4 Interest calculated at the base rate of the Bank of England ("the
base rate") as at October 1 1998 on the sum of (Pounds)331,250
for the period from July 3 1998 until October 1 1998, and on the
sum of (Pounds)165,625 from October 2 1998 until January 2 1999
at the base rate as at January 2 1999
2.1 Mr Clark shall be entitled to continue as a member of the ChiRex private
health insurance scheme for a period of one year commencing on the day when
this Agreement is signed by Mr Clark
2.2 The Company will gift to Mr Clark his company car (Jeep Grand Cherokee)
forthwith following Mr Clark's signing of this Agreement
2.3 The Company will deduct from and pay to the Inland Revenue all income tax
and national insurance contributions which are due on the payments provided
for in clause 1.1 - 1.3 above.
3. The Company will be responsible for and will pay to the Inland Revenue such
tax and national insurance contributions as are assessed by the Inland
Revenue as payable in respect of the benefits described in clause 2 above.
4. Mr Clark agrees to accept the payment and receipt of the sums and other
benefits stipulated in Clause 1 above in full and final settlement of all
claims of whatever nature (including, but not limited to any claims under
English law and/or European Community Law and/or U.S. Law) which he may
have against the Company and/or all companies which are for the time being
either a holding company of the Company or a subsidiary or associated
company of either the Company or any such holding company ("Group" or
3
<PAGE>
"Group Companies") arising out of his Contract of Employment (excluding
personal injury claims) and/or the termination thereof whether pursuant to
statute or at common law or otherwise howsoever including but not limited
to any claims for wrongful dismissal, unfair dismissal, redundancy, breach
of contract, or under the Sex Discrimination Act 1975, the Race Relations
Act 1976, the Disability Discrimination Act 1995 or the Employment Rights
Act 1996 ("the 1996 Act").
5. The Company agrees that in consideration of Mr Clark entering into this
Agreement that neither it nor any of the Group Company will make any claim
against him arising out of his employment with the Company.
6. Mr Clark HEREBY AGREES that forthwith upon receipt by him of the monies
referred to in clause 1 above he shall resign from office as a Director of
the Company, as Chief Executive Officer, as Chairman of the Board and from
all and any other offices held by him in any Group Companies (including
Chirex (Annan) Ltd), such resignation or resignations to be in the form
(mutatis mutandis) of the letter attached as the First Schedule hereto.
7. Mr Clark agrees that he will not disclose (whether directly or indirectly)
the details of this settlement or the circumstances relating to the
termination of his employment to any third party without the consent in
writing of the Company having first been obtained except for the purpose of
taking professional advice or in respect of any necessary disclosure to the
statutory authorities.
8. The Company and Mr Clark undertake that they will not whether directly or
indirectly make, publish or otherwise communicate any disparaging or
4
<PAGE>
derogatory statements whether in writing or otherwise concerning the other
including in the case of Mr Clark concerning the Company or any of its
Associated Companies or any of its or their officers or employees to any
third party including but not limited to any person firm or company who was
at any time during Mr Clark's employment with the Company, a customer or
supplier of the Company. This term is of the essence of the contract.
9. Mr Clark undertakes that on the July 3, 1998 he will return to the Company
any property which is in his possession which belongs to the Company
(except for the said motor car) and in particular he will return all
documentation relating to the business of the Company or any subsidiary or
associated company and he will not retain copies thereof.
10. Mr Clark agrees to remain bound by the post-term i nation restraints set
out in paragraphs 5 and 7 of the Amended and Restated Employment Agreement
("the Employment Agreement") between the parties dated 241h April 1998 as
if the same were repeated herein.
11. Subject to Mr Clark's prompt delivery of his ChiRex share certificates to
Ms Beth Hecht, General Counsel, ChiRex, 300 Atlantic Street, Suite 402,
Stamford, CT06901, fax number 203.425.996 and SEC rules she will arrange to
have the restrictive legends lifted, such lifting to have effect on or
around October 3, 1998.
12. Mr Clark shall be entitled to exercise all stock options vested in him
pursuant to the Incentive Stock Option Agreement dated 17 April 1997 which
have vested as of July 2 1998. Such exercise of vested options must occur
on or before December 31, 2000. After December 31, 2000, all unexercised
vested options shall become void.
5
<PAGE>
13. In respect of the Incentive Stock Option Agreement dated 17 June 1997, the
Board of Directors of the Company will take such steps as are necessary to
and will honor the original vesting schedule and seven year life for the
50,000 stock options granted to Mr Clark on June 17, 1997.
14. The parties agree that the Company will, subject to ratification by the
Board of Directors of the Company on July 6, 1998 issue a press release in
the substance and spirit of the press release attached as the Third
Schedule hereto and will not make any statement which is inconsistent with
the terms contained therein.
15. Mr Clark represents and warrants that:-
(a) He has received independent legal advice from a Qualified Lawyer as to
the terms and effect of this Agreement and in particular its effect on
his ability to pursue any rights that he may have before any
Industrial Tribunal or Court. The name of the Qualified Lawyer who has
advised Mr Clark is John Martin solicitor, of Robert Muckle & Company
of Norham House, New Bridge Street, Newcastle upon Tyne ("the
Qualified Lawyer")
(b) Mr Clark has been advised by the Qualified Lawyer that there is in
force and was at the time when he received the advice referred to
above a policy of insurance covering, or cover under the Solicitors
Indemnity Fund for the risk of a claim by him in respect of loss
arising in consequence of that advice.
16. A true copy of a letter dated 3rd July 1998 from the Qualified Lawyer to
the Company's solicitors is attached as the Second Schedule hereto.
6
<PAGE>
17. The Company and Mr Clark agree and acknowledge that the statutory
conditions regulating compromise agreements are intended to and have been
satisfied.
18. The Company will pay Mr Clark's solicitor's reasonable legal fees of P-
1,000 (plus VAT) in connection with this Agreement within fourteen days of
receipt of the relevant invoice from Mr Clark's solicitors, the relevant
invoice to be sent to Beth Hecht, General Counsel, ChiRex, 300 Atlantic
Street, Suite 402, Stamford CT06901. The parties acknowledge that the above
legal fees have been exclusively incurred in connection with the
termination of Mr Clark's employment.
SIGNED FOR and on behalf of
CHIREX INC
by [Michael Griffith]
Dated: July 6, 1998
SIGNED for and on behalf of
CHIREX INC [DUDLEY] LIMITED
by [Michael Griffith]
Dated: July 6, 1998
SIGNED BY MR CLARK
Dated: 3 July 1998.
7
<PAGE>
THE FIRST SCHEDULE REFERRED TO ABOVE
- ------------------------------------
The Board of Directors
ChiRex Inc
Chirex (Dudley) Ltd
1998
Gentlemen
I hereby resign from offices as Director of Chirex Inc. Chirex (Dudley) Limited
and Chirex (Annan) Ltd such resignation to take effect when accepted by you.
I confirm that I have no claims against the company arising from or connected
with the above officeholdings at the termination thereof.
Yours faithfully
8
<PAGE>
THE SECOND SCHEDULE REFERRED TO ABOVE
-------------------------------------
[ ] 1998
Short Richardson & Forth
4 Mosley Street
Newcastle upon Tyne
NE1 1SR
Your ref:
Our ref:
Dear Sirs
RE: MR CLARK AND CHIREX LIMITED
- --------------------------------
We write further to the Compromise Agreement under (inter alia) section
77(4)(aa) of the Sex Discrimination Act 1975, Section 72(4)(aa) of the Race
Relations Act 1976, Section 9 of the Disability Discrimination Act 1995 -and
section 203(2)(f) of the Employment Rights Act 1996 proposed between Mr Clark
and Chirex Limited ("the Proposed Compromise Agreement").
This letter is to confirm that Mr Clark has been advised by in the employment]
of this firm.
[ [, [a solicitor in the employment of this firm.
It is also confirmed that at the date hereof and at all times during which [
]
has advised Mr Clark on the subject matter of the Proposed Compromise Agreement
and the legal effect of the same ("the Relevant Times") [he/she] is and has been
a Solicitor of the Supreme Court holding a practicing certificate entitling
[him/her] to practice as such.
We further confirm that at the Relevant Times [ ] has not been acting in this
matter for Chirex Limited or any associated company or associated employer of
its. In view of what we say above, [ ] is a "qualified lawyer' and
"independent" of Chirex Limited having regard to the definitions given to those
words by section 77(4B) of the Sex Discrimination Act 1975, section 72(4B) of
the Race Relations Act 1976, section 9 of the Disability Discrimination Act
1995, section 203(4) of the Employment Rights Act 1996 and all and any other
statutory provisions of similar effect.
We also confirm that [ ] has given independent legal advice to Mr
Clark as to the terms and effect of the Proposed Compromise Agreement, and, in
particular, as to its effect on Mr Clark's ability to exercise any rights which
he has or may have to pursue a complaint against Chirex Limited before the
Industrial Tribunal in respect of which a Conciliation Officer is authorized to
act including (but not limited to) any complaint that Chirex Limited committed
an act of discrimination against him which was unlawful by virtue of Part 11 of
the Sex Discrimination Act 1975 or by virtue of Part 11 of the Race Relations
Act 1976 or by virtue of Part 11 of the Disability Discrimination Act 1995, that
it unfairly dismissed him in contravention of the provisions of Chapter 1 of
Part X to the Employment Rights Act 1996 or that it made any deduction from his
wages or received any payment from him in contravention of section 13(l) or
section 15(l) of that Act.
9
<PAGE>
During the Relevant Times, there has been in force a policy of insurance
covering the risk of a claim by Mr Clark in respect of loss arising in
consequence of the advice given to him by ( ]. For the avoidance of doubt,
reference to "a policy of insurance" is to a "top up" insurance policy over and
above the indemnity cover provided by or through the Solicitors Indemnity Fund.
We confirm that this letter may be annexed to the Proposed Compromise Agreement.
Yours faithfully
10
<PAGE>
10.40
EXECUTION COPY
DATED 24TH June 1998
--------------------
(1) CHIREX (DUDLEY) LIMITED
(2) JOHN GRAHAM THORPE
COMPROMISE AGREEMENT PURSUANT
TO (INTER ALIA) SECTION 77(4)(AA) OF THE
SEX DISCRIMINATION ACT 1975,
SECTION (72)(4)(AA) OF THE
RACE RELATIONS ACT 1976,
SECTION 9 OF THE
DISABILITY DISCRIMINATION ACT 1995
AND SECTION 203(2)(F) OF THE
EMPLOYMENT RIGHTS ACT 1996
<PAGE>
2
COMPROMISE AGREEMENT
--------------------
THIS AGREEMENT is made on the 24th day of June 1998 BETWEEN CHIREX (DUDLEY)
LIMITED of Dudley, Cramlington, Northumberland ("the Company") and DR JOHN
GRAHAM THORPE ("Dr. Thorpe").
This Agreement relates to the termination of Dr. Thorpe's employment with the
Company on 30th June 1998 ("the Termination Date") by reason of resignation.
IT IS AGREED that:-
1. The Company agrees that on the 30th June 1998 it will forthwith pay Dr.
Thorpe.,
1.1 all accrued salary and holiday pay of Dr. Thorpe up to the Termination Date
after deductions of tax and National Insurance, and
1.2 the sum of seventy thousand pounds by way of payment in lieu of notice
which sum shall be subject to and will be paid less deductions for income
tax and national insurance contributions at the appropriate rate.
1.3 the following sums as payment in lieu of the benefits described below to
which Dr Thorpe is entitled in terms of the Service Agreement between Dr
Thorpe and Crossco, (157) Limited dated 11th March 1996 ("the Service
Agreement") which Service Agreement sets out the terms agreed between the
parties which apply to Dr Thorpe's employment with the Company-
1.3.1 in lieu of the Company motor vehicle registration number R273 RJR
(Pounds)6,000
<PAGE>
3
1.3.2 in lieu of payment for private fuel, (Pounds)1200
1.3.3 in lieu of the mobile phone to which he would be entitled
(Pounds)500.
1.4 As compensation for loss of employment, the sum of (Pounds) ,500.
2. The Company will account for income tax and national insurance
contributions on the payments made in accordance with clauses 1.1, 1.2, and
1.3 of this Agreement, to the Inland Revenue and the Contributions Agency.
3. Dr Thorpe shall continue as a member of the Company's private medical
insurance scheme until 29th June 1999.
4. The Company will reimburse Dr Thorpe in respect of all expenses due to Dr
Thorpe provided that all relevant claims with supporting vouchers are
submitted in the appropriate form no later than 30th June 1998 in
accordance with the Company's normal payment procedures.
5. Dr Thorpe shall on the 30th June 1998 return the Company motor vehicle
registration number R273 RJR to the Company, together with all keys and any
documentation relating to it
6. Dr. Thorpe agrees to accept the payment of the sums stipulated in Clause 1
above in full and final settlement of all claims of whatever nature
(including, but not limited to any claims under English law and/or European
Community Law and/or US law) which he may have against the Company and/or
all companies which are for the time being either a holding company of the
Company or a subsidiary or associated company of either the Company or any
such holding company ("Group" or "Group Companies")arising out of his
Contract of Employment and/or the termination thereof whether pursuant to
statute or at common law or otherwise howsoever including but not limited
to any claims for wrongful dismissal, unfair dismissal, redundancy, breach
of contract, or under the Sex
<PAGE>
4
Discrimination Act 1975, the Race Relations Act 1976, the Disability
Discrimination Act 1995 or the Employment Rights Act 1996 ("the 1996 Act")
7. Dr. Thorpe agrees that he will not disclose (whether directly or
indirectly) the details of this settlement or the circumstances relating to
the termination of his employment to any third party without the consent in
writing of the Company having first been obtained except for the purpose of
taking professional advice or in respect of any necessary disclosure to the
relevant tax authorities or any court or tribunal
8. The Company and Dr Thorpe undertake that they will not, whether directly or
indirectly, make, publish or otherwise communicate any disparaging or
derogatory statements, whether in writing or otherwise, concerning the
other including in the case of Dr Thorpe concerning the Company or any of
its Associated Companies or any of its or their officers or employees.
9. The Company consents to Dr Thorpe electing to retire early for the purposes
of the Company pension scheme on 30th June 1998.
10. The Company agrees that in consideration of Dr Thorpe entering into this
Agreement that neither it nor any Group Company will make any claim against
him arising out of his employment with the Company.
11. Dr. Thorpe undertakes that on the 30th June 1998 he will return to the
Company any property which is in his possession which belongs to the
Company and in particular he will return all documentation relating to the
business of the Company or any subsidiary or associated company and he will
not retain copies thereof.
12. Dr Thorpe agrees to remain bound by the restrictive covenants set out in
paragraphs 8 and 9 of the Service Agreement, as if the same were repeated
herein
<PAGE>
5
save that the period of restraint of two years provided for in line two of
that clause 9.2 will by agreement be reduced to one year.
13. Dr Thorpe shall be entitled to exercise all stock options granted to him
pursuant to the 1995 and/or 1997 ChiRex Stock Incentive Plans which have
vested as of June 30, 1998. Such exercise of vested options must occur on
or before September 30, 19. After September 30, 1998 all unexercised
vested options shall become void.
14. Dr. Thorpe represents and warrants that:-
(a) He has received independent legal advice from a Qualified Lawyer as to
the terms and effect of this Agreement and in particular its effect on
his ability to pursue any rights that he may have before any
Industrial Tribunal or Court. The name of the Qualified Lawyer who
has advised Dr. Thorpe is John Martin, solicitor, of Robert Muckle &
Co of Norham House, New Bridge Street, Newcastle upon Tyne ("the
Qualified Lawyer")
(b) Dr. Thorpe has been advised by the Qualified Lawyer that there is in
force and was at the time when he received the advice referred to
above a policy of insurance covering, or cover under the Solicitors
Indemnity Fund for the risk of a claim by him in respect of loss
arising in consequence of that advice.
14. A true copy of a letter dated 25th June 1998 from the Qualified Lawyer to
the Company's solicitors is attached as the First Schedule hereto.
15. The Company shall on receipt of a request from a potential employer of Dr
Thorpe provide a reference in the agreed form set out in the Second
Schedule and shall not depart from the terms of this reference whether
orally or in writing.
<PAGE>
6
16. The Company and Dr. Thorpe agree and acknowledge that the statutory
conditions regulating compromise agreements are intended to and have been
satisfied.
17. The Company will pay Dr. Thorpe's solicitor's reasonable legal fees of
(Pounds)1000 (plus VAT) in connection with this Agreement within fourteen
days of receipt of the relevant invoice from Dr Thorpe's solicitors, the
relevant invoice to be sent to Beth P Hecht, General Counsel, Chirex, 300
Atlantic Street, Suite 402, Stamford, CT 06901, fax. 203.425.9996. The
parties acknowledge that the above legal fees have been exclusively
incurred in connection with the termination of Dr Thorpe's employment.
SIGNED for on behalf of
CHAIREX LIMITED
by [ ]
Dated: June 24, 1998
SIGNED by DR. THORPE
Dated:
<PAGE>
7
The First Schedule referred to above
------------------------------------
[ ] 1998
Short Richardson & Forth
4 Mosley Street
Newcastle upon Tyne
NE1 1SR
Your ref:
Our ref
Dear Sirs
RE: DR J G THORPE AND CHIREX LIMITED
- ------------------------------------
We write further to the Compromise Agreement under (inter alia) section
77(4)(aa) of the Sex Discrimination Act 1975, Section 72(4)(aa) of the Race
Relations Act 1976, Section 9 of the Disability Discrimination Act 1995 -and
section 203(2)(f) of the Employment Rights Act 1996 proposed between Dr Thorpe
and Chirex Limited ("the Proposed Compromise Agreement").
This letter is to confirm that Dr Thorpe has been advised [ [, [a by
solicitor in the employment] of this firm.
It is also confirmed that at the date hereof and at all times during which [ has
advised Dr Thorpe on the subject matter of the Proposed Compromise Agreement and
the legal effect of the same ("the Relevant Times") [he/she] is and has been a
Solicitor of the Supreme Court holding a practising certificate entitling
[him/her] to practise as such.
We further confirm that at the Relevant Times [ ] has not been acting in this
matter for Chirex Limited or any associated company or associated employer of
its. In view of what we say above, [ ] is a "qualified lawyer"and "independent"
of Chirex Limited having regard to the definitions given to those words by
section 77(4B) of the Sex Discrimination Act 1975, section 72(4B) of the Race
Relations Act 1976, section 9 of the Disability Discrimination Act 1995, section
203(4) of the Employment Rights Act 1996 and all and any other statutory
provisions of similar effect.
We also confirm that [ ] has given independent legal advice
to Dr Thorpe as to the terms and effect of the Proposed Compromise Agreement,
and, in particular, as to
<PAGE>
8
its effect on Dr Thorpe's ability to exercise any rights which he has or may
have to pursue a complaint against Chirex Limited before the Industrial Tribunal
in respect of which a Conciliation Officer is authorised to act including (but
not limited to) any complaint that Chirex Limited committed an act of
discrimination against him which was unlawful by virtue of Part 11 of the Sex
Discrimination Act 1975 or by virtue of Part 11 of the Race Relations Act 1976
or by virtue of Part 11 of the Disability Discrimination Act 1995, that it
unfairly dismissed him in contravention of the provisions of Chapter 1 of Part X
to the Employment Rights Act 1996 or that it made any deduction from his wages
or received any payment from him in contravention of section 13(1) or section
15(1) of that Act.
During the Relevant Times, there has been in force a policy of insurance
covering the risk of a claim by Dr Thorpe in respect of loss arising in
consequence of the advice given to him by [ ]- For the avoidance
of doubt, reference to "a policy of insurance" is to a "top up" insurance policy
over and above the indemnity cover provided by or through the Solicitors
Indemnity Fund.
We confirm that this letter may be annexed to the Proposed Compromise Agreement.
Yours faithfully
<PAGE>
9
SECOND SCHEDULE
---------------
TO WHOM IT MAY CONCERN
CONFIDENTIAL
------------
DR. JOHN GRAHAM THORPE
----------------------
Dr. Thorpe joined ChiRex (previously Sterling Organics) in 1972 and has been in
continuous employment with us.
Dr. Thorpe has used his considerable skills and expertise in a variety of
management roles in the Company. Initially as a R & D chemist working up to R &
D Director (198 -199 ) and more recently in Commercial Development during 199 to
1998.
During 1995 Dr. Thorpe was a member of the MBO team who bought out Sterling
Organics from Sanofi and formed ChiRex, a new U.S. publicly traded company,
through a merger with the U.S. company Seprachem.
Dr. Thorpe has been a valuable member of our management ultimately as Vice
President of commercial development and has achieved challenging management
objectives required of him in his high-profile management roles.
Dr. Thorpe is proactive and has earned a high level of respect on the part of
superiors, peers and subordinates. In addition he has many contacts within the
fine chemical and pharmaceutical industry in the U.S.A. and Europe.
I feel sure he will be a valuable addition to any senior management group in the
fine chemical or pharmaceutical industry.
__________________________
ALAN R. CLARK
CHIEF EXECUTIVE OFFICER
<PAGE>
10
SECOND SCHEDULE
---------------
TO WHOM IT MAY CONCERN
CONFIDENTIAL
------------
DR. JOHN GRAHAM THORPE
----------------------
Dr. Thorpe joined ChiRex (previously Sterling Organics) in 1972 and has been in
continuous employment with us.
Dr. Thorpe has used his considerable skills and expertise in a variety of
management roles in the Company. Initially as a R & D chemist working up to R &
D Director (198 -199 ) and more recently in Commercial Development during 199 to
1998.
During 1995 Dr. Thorpe was a member of the MBO team who bought out Sterling
Organics from Sanofi and formed ChiRex, a new U.S. publicly traded company,
through a merger with the U.S. company Seprachem.
Dr. Thorpe has been a valuable member of our management ultimately as Vice
President of commercial development and has achieved challenging management
objectives required of him in his high-profile management roles.
Dr. Thorpe is proactive and has earned a high level of respect on the part of
superiors, peers and subordinates. In addition he has many contacts within the
fine chemical and pharmaceutical industry in the U.S.A. and Europe.
I feel sure he will be a valuable addition to any senior management group in the
fine chemical or pharmaceutical industry.
___________________________
ALAN R. CLARK
CHIEF EXECUTIVE OFFICER
<PAGE>
10.41
EXECUTION COPY
DATED 1998
-----------------
(1) CHIREX (DUDLEY) LIMITED
(2) JOHN EDWARD WEIR
COMPROMISE AGREEMENT PURSUANT
TO (INTER ALIA) SECTION 77(4)(AA) OF THE
SEX DISCRIMINATION ACT 1975,
SECTION (72)(4)(AA) OF THE
RACE RELATIONS ACT 1976,
SECTION 9 OF THE
DISABILITY DISCRIMINATION ACT 1995
AND SECTION 203(2)(F) OF THE
EMPLOYMENT RIGHTS ACT 1996
1
<PAGE>
COMPROMISE AGREEMENT
--------------------
THIS AGREEMENT is made on the [ ] of July 1998 BETWEEN CHIREX
(DUDLEY) LIMITED of Dudley, Cramlington, Northumberland ("the Company") and JOHN
EDWARD WEIR (" Mr Weir").
This Agreement relates to the termination of Mr Weir's employment with the
Company on July 15, 1998 ("the Termination Date") by reason of resignation.
IT IS AGREED that:-
1. The Company will pay Mr Weir
1.1 all accrued salary and holiday pay of Mr Weir up to the Termination Date
after deductions of tax and National Insurance.
1.2 The sum of (Pounds)33,000 as compensation for loss of employment, which
payment will be paid to Mr Weir in six equal monthly instalments on the
27th of each month through the Company's payroll commencing on 27th July
1998.
1.3 The sum of (Pounds)1200 in lieu of payment for private fuel, which
payment will be subject to deductions for tax and national insurance,
and will be paid forthwith following Mr Weir's signing this Agreement.
2.1 Mr Weir shall be entitled to continue as a member of the ChiRex private
health insurance scheme for a period of one year until July 14, 1999.
2
<PAGE>
2.2 The Company will gift to Mr Weir his company car within seven days of the
termination date.
3.1 The Company and Mr Weir consider that the payment referred to in clause 1
above can be made free of tax. However if it is subsequently determined
that the Inland Revenue is entitled to income tax or national insurance
contributions are due in respect of the payment referred to in clause 1,
then Mr Weir will be responsible for such tax and national insurance
contributions and subject to the provisions of this clause he will
indemnify the Company against such tax and national insurance contributions
as it may be called upon to pay and does pay.
3.2 The Company will be responsible for and will pay to the Inland Revenue such
tax and national insurance contributions as are assessed by the Inland
Revenue as payable in respect of the benefits described in clause 2 above.
4. Mr Weir agrees to accept the payment and receipt of the sums and other
benefits stipulated in Clause 1 above in full and final settlement of all
claims of whatever nature (including, but not limited to any claims under
English law and/or European Community Law and/or U.S. Law) which he may
have against the Company and/or all companies which are for the time being
either a holding company of the Company or a subsidiary or associated
company of either the Company or any such holding company ("Group" or
"Group Companies") arising out of his Contract of Employment and/or the
termination thereof whether pursuant to statute or at common law or
otherwise howsoever including but not limited to any claims for wrongful
dismissal, unfair dismissal, redundancy, breach of contract, or under the
Sex Discrimination Act 1975, the Race Relations Act 1976, the Disability
Discrimination Act 1995 or the Employment Rights Act 1996 ("the 1996 Act").
3
<PAGE>
5. The Company agrees that in consideration of Mr Weir entering into this
Agreement that neither it nor any of the Group Company will make any claim
against him arising out of his employment with the Company.
6. Weir HEREBY AGREES that upon the Termination Date he shall resign from
office as a Director of the Company such resignation to be in the form
(mutatis mutandis) of the letter attached as the First Schedule hereto.
7. Mr Weir agrees that he will not disclose (whether directly or indirectly)
the details of this settlement or the circumstances relating to the
termination of his employment to any third party without the consent in
writing of the Company having first been obtained except for the purpose of
taking professional advice or in respect of any necessary disclosure to the
statutory authorities.
8. The Company and Mr Weir undertake that they will not whether directly or
indirectly make, publish or otherwise communicate any disparaging or
derogatory statements whether in writing or otherwise concerning the other
including in the case of Mr Weir concerning the Company or any of its
Associated Companies or any of its or their officers or employees to any
third party including but not limited to any person firm or company who was
at any time during Mr Weir's employment with the Company, a customer or
supplier of the Company. This term is of the essence of the contract.
9. Mr Weir undertakes that on the July 15, 1998 he will return to the Company
any property which is in his possession which belongs to the Company
(except for the said motor car) and in particular he will return all
documentation relating to the business of the Company or any subsidiary or
associated company and he will not retain copies thereof.
10. Mr Weir agrees to remain bound by the post-termination restraints set out
in paragraphs 8 and 9 of the Service Agreement between Crossco (157)
Limited and Mr Weir which
4
<PAGE>
applied to Mr Weir's employment with the Company dated March 11, 1996 as if
the same were repeated herein
11. Subject to Mr Weir's prompt delivery of his Chirex share certificates to Ms
Beth Hecht, General Counsel, ChiRex, 300 Atlantic Street, Suite 402,
Stamford, CT06901, fax number 203.425.9996 and SEC rules she will arrange
to have the restrictive legends lifted, such lifting to have effect 90 days
from July 15, 1998.
12. Mr Weir shall be entitled to exercise all and any of his vested stock
options which have vested as of July 15 1998. Such exercise of vested
options must occur on or before October 15, 1998. After October 15, 1998,
all unexercised vested options shall become void.
13. Mr Weir represents and warrants that:-
(a) He has received independent legal advice from a Qualified Lawyer as to
the terms and effect of this Agreement and in particular its effect on
his ability to pursue any rights that he may have before any
Industrial Tribunal or Court. The name of the Qualified Lawyer who has
advised Mr Weir is John Martin solicitor, of Norham House, New Bridge
Street, Newcastle upon Tyne ("the Qualified Lawyer")
(b) Mr Weir has been advised by the Qualified Lawyer that there is in
force and was at the time when he received the advice referred to
above a policy of insurance covering, or cover under the Solicitors
Indemnity Fund for the risk of a claim by him in respect of loss
arising in consequence of that advice.
16. A true copy of a letter dated July 1998 from the Qualified Lawyer to the
Company's solicitors is attached as the Second Schedule hereto.
17. The Company and Mr Weir agree and acknowledge that the statutory conditions
regulating compromise agreements are intended to and have been satisfied.
18. The Company will pay Mr Weir's solicitor's reasonable legal fees of F-500
(plus VAT) in connection with this Agreement within fourteen days of
receipt of the relevant invoice
5
<PAGE>
from Mr Weir's solicitors, the relevant invoice to be sent to Beth Hecht as
aforesaid. The parties acknowledge that the above legal fees have been
exclusively incurred in connection with the termination of Mr Weir's
employment.
SIGNED for and on behalf of
CHIREX (DUDLEY) LIMITED
by [ ]
Dated:
SIGNED by MR WEIR
Dated:
6
<PAGE>
THE FIRST SCHEDULE REFERRED TO ABOVE
- ------------------------------------
The Board of Directors
Chirex (Dudley) Ltd
1998
Gentlemen
I hereby resign from offices as Director of Chirex (Dudley) Limited and such
resignation to take effect when accepted by you.
I confirm that I have no claims against the company arising from or connected
with the above officeholdings at the termination thereof.
Yours faithfully
7
<PAGE>
THE SECOND SCHEDULE REFERRED TO ABOVE
-------------------------------------
[ ]1998
Short Richardson & Forth
4 Mosley Street
Newcastle upon Tyne
NE1 1SR
Your ref:
Our ref:
Dear Sirs
RE: MR WEIR AND CHIREX LIMITED
- ------------------------------
We write further to the Compromise Agreement under (inter alia) section
77(4)(aa) of the Sex Discrimination Act 1975, Section 72(4)(aa) of the Race
Relations Act 1976, Section 9 of the Disability Discrimination Act 1995 and
section 203(2)(f) of the Employment Rights Act 1996 proposed between Mr Weir and
Chirex Limited ("the Proposed Compromise Agreement").
This letter is to confirm that Mr Weir has been advised by [
], [a solictor in the employment] of this firm.
It is also confirmed that at the date hereof and at all times during which [
] has advised Mr Weir on the subject matter of the Proposed Compromise Agreement
and the legal effect of the same ("the Relevant Times") [he/she) is and has been
a Solicitor of the Supreme Court holding a practising certificate entitling
[him/her] to practise as such.
We further confirm that at the Relevant Times [ ] has not been acting in
this
matter for Chirex Limited or any associated company or associated employer of
its.
In view of what we say above, [ ] is a "qualified lawyer" and
"independent" of Chirex Limited having regard to the definitions given to those
words by section 77(4B) of the Sex Discrimination Act 1975, section 72(4B) of
the Race Relations Act 1976, section 9 of the Disability Discrimination Act
1995, section 203(4) of the Employment Rights Act 1996 and all and any other
statutory provisions of similar effect.
We also confirm that [ ] has given independent legal advice to Mr
Weir as to the terms and effect of the Proposed Compromise Agreement, and, in
particular, as to its effect on Mr Weir's ability to exercise any rights which
he has or may have to pursue a complaint against Chirex Limited before the
Industrial Tribunal in respect of which a Conciliation Officer is authorised to
act including (but not limited to) any complaint that Chirex Limited committed
an act of discrimination against him which was unlawful by virtue of Part II of
the Sex Discrimination Act 1975 or by virtue of Part II of the Race Relations
Act 1976 or by virtue of Part II of the Disability Discrimination Act 1995, that
it unfairly dismissed him in contravention of the provisions of Chapter 1 of
Part X to the Employment Rights Act 1996 or that it made any deduction from his
wages or received any payment from him in contravention of section 13(1) or
section 15(l) of that Act.
8
<PAGE>
During the Relevant Times, there has been in force a policy of insurance
covering the risk of a claim by Mr Weir in respect of loss arising in
consequence of the advice given to him by [ ]. For the avoidance of doubt,
reference to "a policy of insurance" is to a "top up" insurance policy over and
above the indemnity cover provided by or through the Solicitors Indemnity Fund.
We confirm that this letter may be annexed to the Proposed Compromise Agreement.
Yours faithfully
9
<PAGE>
10.42
EXECUTION COPY
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement") shall be effective as of
April 18, 1998 (the "Effective Date"), by and between CHIREX INC. (the
"Company"), and Elizabeth M. Greetham ("Consultant").
WHEREAS, the Consultant has expertise as a financial and international
business consultant;
WHEREAS, the Company desires to obtain the services of Consultant to
consult with and perform services as an independent contractor with respect to
certain business opportunities, and Consultant desires to provide services to
the Company upon the terms and conditions set forth in this Agreement;
WHEREAS, this Agreement supersedes any previous agreement concerning
this subject entered into by the parties.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the adequacy and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Consulting Services. The Company hereby engages Consultant as an
-------------------
independent contractor, and not as an employee, to render consulting services to
the Company as hereinafter provided, and Consultant hereby accepts such
engagement. During the term of this Agreement, Consultant shall render such
consulting services to the Company in connection with the Company's business
opportunities as the Company from time to time requests.
2. Compensation. In consideration of Consultant's consulting
------------
services set forth in Paragraph 1 above, the Company will pay to Consultant
beginning on the Effective Date, U.S. $10,000 per week. The weekly fees referred
to herein will be paid to Consultant on the last day of each month this
Agreement is in effect beginning April 30, 1998. The Company's obligation to pay
these weekly fees shall terminate upon the earlier to occur of (a) notice of
termination given by the Company pursuant to Paragraph 4 herein; or (b) June 27,
1998 (ten weeks from the Effective Date, the "Expiration Date").
3. Confidential Information. Consultant acknowledges that the
------------------------
information, observations and data relating to the business of the Company and
its respective affiliates which Consultant will obtain during
1
<PAGE>
the course of his association with the Company and its affiliates and his
performance under this Agreement are the property of the Company. Consultant
agrees that he will not use for his own purposes or disclose to any third party
any of such information, observations or data without the prior written consent
of the Company, unless and to the extent that the aforementioned matters become
generally known to and available for use to the public other than as a result of
Consultant's acts or omissions to act. Upon the termination of this Agreement,
Consultant agrees to deliver to the Company at the end of the Consulting Period,
or at any other time the Company may request, all memoranda, notes, plans,
records and other documentation (and copies thereof) relating to the business of
the Company and its affiliates which Consultant may then possess or have under
its control.
4. Term and Termination. This Agreement shall commence on the
--------------------
Effective Date and unless earlier terminated pursuant to this Paragraph 4, shall
terminate on the Expiration Date. The Company may terminate this Agreement at
any time upon 2 days written notice by the Company to Consultant.
5. Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes any
previous understandings or agreements, whether written or oral, regarding such
subject matter.
6. Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the domestic laws of the State of Connecticut
without giving effect to any choice of law or conflict of law provision or rule
that would cause the application of the laws of any jurisdiction other than the
State of Connecticut.
7. Consultant Representation. Consultant represents and warrants to
-------------------------
the Company that its execution and delivery of this Agreement does not conflict
with, or result in the breach of or violation of, any other agreement, order,
judgement or decree to which it is bound, nor does it conflict with any position
or office Consultant may hold with any other organization.
* * * * * * * * * * *
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
CHIREX INC.
/s/ Michael A. Griffith
- -------------------------------
By: Michael A. Griffith
Title: Chief Financial Officer
ELIZABETH M. GREETHAM
/s/ Elizabeth M. Greetham
- -------------------------------
3
<PAGE>
10.42
EXECUTION COPY
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement") shall be effective as of
April 18, 1998 (the "Effective Date"), by and between CHIREX INC. (the
"Company"), and W. Dieter Zander ("Consultant").
WHEREAS, the Consultant has expertise as a financial and international
business consultant;
WHEREAS, the Company desires to obtain the services of Consultant to
consult with and perform services as an independent contractor with respect to
certain business opportunities, and Consultant desires to provide services to
the Company upon the terms and conditions set forth in this Agreement;
WHEREAS, this Agreement supersedes any previous agreement concerning
this subject entered into by the parties.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the adequacy and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Consulting Services. The Company hereby engages Consultant as an
-------------------
independent contractor, and not as an employee, to render consulting services to
the Company as hereinafter provided, and Consultant hereby accepts such
engagement. During the term of this Agreement, Consultant shall render such
consulting services to the Company in connection with the Company's business
opportunities as the Company from time to time requests.
2. Compensation. In consideration of Consultant's consulting
------------
services set forth in Paragraph 1 above, the Company will pay to Consultant
beginning on the Effective Date, U.S. $10,000 per week. The weekly fees referred
to herein will be paid to Consultant on the last day of each month this
Agreement is in effect beginning April 30, 1998. The Company's obligation to pay
these weekly fees shall terminate upon the earlier to occur of (a) notice of
termination given by the Company pursuant to Paragraph 4 herein; or (b) June 27,
1998 (ten weeks from the Effective Date, the "Expiration Date").
3. Confidential Information. Consultant acknowledges that the
------------------------
information, observations and data relating to the business of the Company and
its respective affiliates which Consultant will obtain during the course of his
association with the Company and its affiliates and his performance under this
Agreement are the property of the Company. Consultant agrees that he will not
use for his own purposes or disclose to any third party any of such information,
observations or data without the prior written consent of the Company, unless
and to the extent that the aforementioned matters become generally known to and
available for use to the public other than as a result of Consultant's acts or
omissions to act. Upon the termination of this Agreement, Consultant agrees to
deliver to the Company at the end of the Consulting Period, or at any other time
the Company may request, all memoranda, notes, plans, records and other
documentation (and copies thereof) relating to the business of the Company and
its affiliates which Consultant may then possess or have under its control.
4. Term and Termination. This Agreement shall commence on the
--------------------
Effective Date and unless earlier terminated pursuant to this Paragraph 4, shall
terminate on the Expiration Date.
1
<PAGE>
The Company may terminate this Agreement at any time upon 2 days written notice
by the Company to Consultant.
5. Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes any
previous understandings or agreements, whether written or oral, regarding such
subject matter.
6. Governing Law. This Agreement shall be governed by and construed
-------------
and interpreted in accordance with the domestic laws of the State of Connecticut
without giving effect to any choice of law or conflict of law provision or rule
that would cause the application of the laws of any jurisdiction other than the
State of Connecticut.
7. Consultant Representation. Consultant represents and warrants to
-------------------------
the Company that its execution and delivery of this Agreement does not conflict
with, or result in the breach of or violation of, any other agreement, order,
judgement or decree to which it is bound, nor does it conflict with any position
or office Consultant may hold with any other organization.
* * * * * * * * * * * *
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
CHIREX INC.
/s/ Michael A. Griffith
- ---------------------------------
By: Michael A. Griffith
Title: Chief Financial Officer
W. DIETER ZANDER
/s/ W. Dieter Zander
- ---------------------------------
3
<PAGE>
Exhibit 10.43
EXECUTION COPY
ASSIGNMENT
----------
THIS ASSIGNMENT has an effective date of May 19, 1998 (the "Effective
Date") and is made between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, 77
Massachusetts Avenue, Cambridge, MA 02139 ("Licensor"), SEPRACOR INC., 33 Locke
Drive, Marlborough, MA 01752 ("Sepracor") and CHIREX AMERICA INC., 300 Atlantic
Street, Suite 402, Stamford, Connecticut 06901 ("ChiRex").
WHEREAS, Licensor and Sepracor are parties to a License Agreement,
dated May 5, 1989 amended on March 24, 1995, June 22, 1995, June 26, 1995 and by
a Letter of Understanding dated May 20, 1996 (collectively referred to herein as
the "License Agreement") covering MIT Case Number 4585, "Catalytic Asymmetric
Dihydroxylation of Olefins" by Wilhelm K. Amberg, Declan G. Gilheany, Byeong M.
Kim, Hoi-lun Kwong, Istvan Marko, K. Barry Sharpless, Tomoyuki Shibata, John S.
Wai and Lisa Wang, and MIT Case Number 4619, "Synthesis and Applications of
Tartrate Cyclic Sulfates", by Yun Gao and K. Barry Sharpless; and
WHEREAS, ChiRex has practiced the Patent Rights under the License
Agreement as a sublicensee of Sepracor under a Technology Transfer and License
Agreement between Sepracor and SepraChem (a predecessor of ChiRex) effective
January 1, 1995 (the "Technology Agreement") and the aforementioned Letter of
Understanding; and
WHEREAS, since the merger of Sepracor's Seprachem subsidiary into
ChiRex, ChiRex has exploited the Patent Rights to a greater extent than Sepracor
and the parties to this Amendment Agreement have agreed that Sepracor shall
assign the License Agreement to ChiRex, and ChiRex shall, from the Effective
Date, become the Licensee under such agreement pursuant to the terms set forth
herein; and
WHEREAS, Licensor has also agreed that ChiRex may grant Sepracor a
sublicense under the Patent Rights pursuant to Section 2.7 of the License
Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Assignment. Sepracor hereby assigns its rights and obligations
----------
under the License Agreement to ChiRex, subject to Sepracor's rights to practice
the Patent Rights pursuant to its sublicense per Section 3 of this Assignment.
Licensor hereby consents to the assignment of Sepracor's rights and obligations
to ChiRex, and ChiRex agrees to abide by the terms of the License Agreement and
assume all of Sepracor's obligations under said agreement as of the Effective
Date. The term Licensee as defined in the License Agreement shall hereinafter
mean ChiRex.
1
<PAGE>
2. Notices. Article XIV of the License Agreement shall be amended
-------
so that notices to Licensee shall be sent to:
ChiRex America Inc.
300 Atlantic Street, Suite 402
Stamford, CT 06901
Attention: General Counsel
Telephone: (203) 351-2300
Fax: (203) 425-9996
3. Sublicense.
----------
(a) ChiRex hereby grants Sepracor a worldwide, exclusive (even as to
---
ChiRex) sublicense under the Patent Rights, to develop, make, use
and sell (i) those compounds included in Exhibit C-1 attached
hereto and made a part hereof; (ii) Combinatorial Chemistry
Libraries (as defined below) of chiral or achiral compounds; and
(c) compounds in the Combinatorial Chemistry Libraries in
quantities of less than one (1) kilogram. In addition, ChiRex
further grants to Sepracor a worldwide non-exclusive sublicense
under the Patent Rights to manufacture pharmaceutical fine
chemical intermediates and pharmaceutical active ingredients for
the clinical and laboratory use of Sepracor and its licensees.
Such sublicenses shall bear the terms and conditions as set forth
in Articles II, V, VII, VIII, IX, X, XII and XV of the and
Sepracor hereby represents and warrants that it has a copy of the
License Agreement, is familiar with its terms and will comply
with such terms. Notwithstanding Section 4.1(d) of the License
Agreement, Licensor will receive the same royalties on Net Sales
of Licensed Products by Sepracor as it would receive on Net Sales
of Licensed Products by ChiRex.
(b) The sublicense granted per subsection (a) above shall include the
---
right to sublicense (within the scope of the rights granted
therein) third parties without ChiRex's consent provided (i) all
sublicenses granted by Sepracor will be in writing, charge
sublicensees royalties per Section 4.1(d) of the License
Agreement, and expressly require all sublicensees to comply with
the terms of the License Agreement; (ii) Sepracor provides
Licensor and ChiRex with notice of and a copy of all written
sublicenses entered into; and (iii) Sepracor and not ChiRex,
shall remain responsible for the performance, collection and
remission of royalties by all its sublicensees.
(c) Sepracor shall have the right to notify ChiRex in writing, at any
---
time after Sepracor or one of its licensees begins clinical
trials, that it wishes to add to Exhibit C-1 any (i) active
metabolite compound; or (ii) single isomer pharmaceutical
compound; or
2
<PAGE>
(iii) other chiral compound which is identified as being from a
Combinatorial Chemistry Library; such compounds shall be added to
Exhibit C-1 subject to the procedures and terms set out in
Exhibit C of the Technology Agreement.
(d) As used herein, "Combinatorial Chemistry Library" shall mean any
---
group of 25 or more compounds related in structure and
synthesized contemporaneously from a common intermediate in
quantities of no more than one hundred grams per compound.
(e) Licensor hereby consents to the grant of the sublicense to
---
Sepracor specified herein.
4. ChiRex Termination. Should ChiRex abandon, breach or otherwise
------------------
fail to maintain the License Agreement, provided Sepracor is not in breach of
the terms of its sublicense, Licensor agrees to grant Sepracor a direct license
on the same terms and conditions set forth in Section 3 so that Sepracor's use
of the Patent Rights is uninterrupted.
5. No Other Changes. Except as is expressly stated in this
----------------
Assignment, the terms of the License Agreement remain in full force and effect.
6. Definitions. Unless defined specifically herein, all capitalized
-----------
terms used in this Assignment shall have the meaning ascribed to such terms in
the License Agreement.
7. Counterparts. This Assignment may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
* * * * * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representative to execute this Agreement as of the Effective Date.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
BY:_______________________
NAME:_____________________
TITLE:____________________
SEPRACOR INC. CHIREX AMERICA INC.
BY:_______________________ BY:______________________
NAME:_____________________ NAME:_____________________
TITLE:____________________ TITLE:____________________
4
<PAGE>
Exhibit C-1
-----------
Terfenadine carboxylate (racemate and single isomers)
R-Ketoprofen
S-Ketoprofen (for use in dentifrice or mouthwash formulations)
R-Albuterol
R,R,-Formoterol
R-Fluoxetine
S-Fluoxetine
S-Oxybutynin
R-Onybutynin
S-Doxazosin
Norastemizole
Norcisapride (racemate and single isomers)
R-Ondansetron
S-Ondansetron
(-)-Amlodipine
Pantoprazole single isomers
Ketoconazole single isomers
Itraconazole single isomers
Descarboethoxyloratadine
Lomefloxacin single isomers
Ketorolac single isomers
Etodolac single isomers
Metoprolol single isomers
Cisapride (racemate and single isomers)
Salmeterol single isomers
Zoplicone single isomers
Sibutramine single isomers
Cetirizine single isomers
Zileuton single isomers
Hydroxyitraconazole single isomers (other than racemic
hydroxyitraconazole)
Glycopyrrolate single isomers
Clidinium single isomers
Tridihexethyl single isomers
Trihexplenidyl single isomers
Desformoterol single isomers
Desethyloxybutynin single isomers
Procyclidine single isomers
Lansoprazole single isomers
Bupropion single isomers
Rabeprazole single isomers
Hydroxyomeprazole single isomers
Omeprazole single isomers
5
<PAGE>
10.43
EXECUTION COPY
ASSIGNMENT
----------
THIS ASSIGNMENT has an effective date of May 19, 1998 (the "Effective
Date") and is made between RESEARCH CORPORATION TECHNOLOGIES, INC., 101 N.
Wilmot Road, Suite 600, Tuscon, Arizona 85711-3355 ("Licensor"), SEPRACOR INC.,
33 Locke Drive, Marlborough, Massachusetts 01752 ("Sepracor") and CHIREX AMERICA
INC., 300 Atlantic Street, Suite 402, Stamford, Connecticut 06901 ("ChiRex").
WHEREAS, Licensor and Sepracor are parties to a License Agreement,
dated September 10, 1992, as amended pursuant to a First Amendment dated
September 10, 1992, a Second Amendment dated January 1, 1995, a Third Amendment
dated March 5, 1996 and a Fourth Amendment dated November 20, 1996 (the License
Agreement, First Amendment, Second Amendment, Third Amendment and Fourth
Amendment collectively referred to herein as the "Jacobsen License Agreement");
WHEREAS, pursuant to the Third Amendment, ChiRex has been considered
an "Affiliate" of Sepracor under the Jacobsen License Agreement and has
practiced the Licensed Patents thereunder pursuant to the Third Amendment as
well as under a Technology Transfer and License Agreement between Sepracor and
SepraChem (a predecessor of ChiRex) effective January 1, 1995 (the "Technology
Agreement"); and:
WHEREAS, since the merger of Sepracor's Seprachem subsidiary into
ChiRex, ChiRex has exploited the Licensed Patents to a greater extent than
Sepracor and the parties to this Amendment Agreement have agreed that Sepracor
shall assign the Jacobsen License Agreement to ChiRex, and ChiRex shall, from
the Effective Date, become the Licensee under such agreement pursuant to the
terms set forth herein; and
WHEREAS, Licensor has also agreed that ChiRex may grant Sepracor a
sublicense under the Licensed Patents pursuant to Section 3.3 of the Jacobsen
License Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Assignment. Sepracor hereby assigns its rights and obligations
----------
under the Jacobsen License Agreement to ChiRex, subject to Sepracor's rights to
practice the Licensed Patents pursuant to its sublicense per Section 3 of this
Assignment. Licensor hereby consents to the assignment of Sepracor's rights
and obligations to ChiRex, and ChiRex agrees to abide by the terms of the
Jacobsen License Agreement and assume all of Sepracor's obligations under said
agreement as of the Effective Date.
1
<PAGE>
However, the foregoing shall not effect, or is not intended to effect, a
novation.
2. Notices. Section 9.2 of the Jacobsen License Agreement shall be
-------
amended so that notices to Licensee shall be sent to:
ChiRex America Inc.
300 Atlantic Street, Suite 402
Stamford, CT 06901
Attention: General Counsel
Telephone: (203) 351-2300
Fax: (203) 425-9996
3. Sublicense.
----------
(a) ChiRex hereby grants Sepracor a worldwide, exclusive (even as to
---
ChiRex) sublicense under the Licensed Patents, to develop, make,
use and sell (i) those compounds included in Exhibit C-1 attached
hereto and made a part hereof; (ii) Combinatorial Chemistry
Libraries (as defined below) of chiral or achiral compounds; and
(c) compounds in the Combinatorial Chemistry Libraries in
quantities of less than one (1) kilogram. In addition, ChiRex
further grants to Sepracor a worldwide non-exclusive sublicense
under the Licensed Patents to manufacture pharmaceutical fine
chemical intermediates and pharmaceutical active ingredients for
the clinical and laboratory use of Sepracor and its licensees.
Such sublicenses shall bear other terms and conditions as set
forth in the Jacobsen License Agreement and Sepracor hereby
represents and warrants that it has a copy of the Jacobsen License
Agreement, is familiar with its terms and will comply with such
terms. Notwithstanding Section 6.5 of the Jacobsen License
Agreement, RCT will receive the same royalties on Net Sales Value
of Licensed Products sold by Sepracor as it would receive on Net
Sales Value of Licensed Products sold by ChiRex.
(b) The sublicense granted per subsection (a) above shall include the
---
right to sublicense (within the scope of the rights granted
therein) third parties without ChiRex's consent provided (i) all
sublicenses granted by Sepracor will be in writing, charge
sublicensees royalties per Section 6.5 of the Jacobsen License
Agreement, and expressly require all sublicensees to comply with
the terms of the Jacobsen License Agreement; (ii) Sepracor
provides RCT and ChiRex with notice of and a copy of all written
sublicenses entered into; and (iii) Sepracor and not ChiRex, shall
remain responsible for the performance,
2
<PAGE>
collection and remission of royalties by all its sublicensees.
(c) The sublicense granted to Sepracor under this Assignment shall
---
permit Sepracor, only after prior consultation with ChiRex, to
grant Nagase & Company, Ltd. a non-exclusive sublicense under the
Licensed Patents to manufacture Jacobsen catalyst solely in
connection with the practice of Process Technology (as such term
is defined in Sepracor's July 24, 1990 Development Agreement with
Nagase) to manufacture epoxychromans worldwide with the right to
sell such epoxychromans only in Japan; provided such sublicense
complies with the requirements of subsection (b) above.
(d) Sepracor shall have the right to notify ChiRex in writing, at any
---
time after Sepracor or one of its licensees begins clinical
trials, that it wishes to add to Exhibit C-1 any (i) active
metabolite compound; or (ii) single isomer pharmaceutical
compound; or (iii) other chiral compound which is identified as
being from a Combinatorial Chemistry Library; such compounds shall
be added to Exhibit C-1 subject to the procedures and terms set
out in Exhibit C of the Technology Agreement.
(e) As used herein, "Combinatorial Chemistry Library" shall mean any
---
group of 25 or more compounds related in structure and synthesized
contemporaneously from a common intermediate in quantities of no
more than one hundred grams per compound.
(f) Licensor hereby consents to the grant of the sublicense to
---
Sepracor specified herein.
4. ChiRex Termination. Should ChiRex abandon, breach or otherwise
------------------
fail to maintain the Jacobsen License Agreement, provided Sepracor is not in
breach of the terms of its sublicense, RCT agrees to grant Sepracor a direct
license on the same terms and conditions set forth in Section 3 so that
Sepracor's use of the Licensed Patents is uninterrupted.
5. No Other Changes. Except as is expressly stated in this
----------------
Assignment, the terms of the Jacobsen License Agreement remain in full force and
effect.
6. Definitions. Unless defined specifically herein, all capitalized
-----------
terms used in this Assignment shall have the meaning ascribed to such terms in
the Jacobsen License Agreement.
3
<PAGE>
7. Counterparts. This Assignment may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
* * * * * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representative to execute this Agreement as of the Effective Date.
RESEARCH CORPORATION TECHNOLOGIES, INC.
BY:_______________________
NAME:____________________
TITLE:_____________________
SEPRACOR INC. CHIREX AMERICA INC.
BY:_______________________ BY:______________________
NAME:____________________ NAME:___________________
TITLE:_____________________ TITLE:____________________
5
<PAGE>
Exhibit C-1
-----------
Terfenadine carboxylate (racemate and single isomers)
R-Ketoprofen
S-Ketoprofen (for use in dentifrice or mouthwash formulations)
R-Albuterol
R,R,-Formoterol
R-Fluoxetine
S-Fluoxetine
S-Oxybutynin
R-Onybutynin
S-Doxazosin
Norastemizole
Norcisapride (racemate and single isomers)
R-Ondansetron
S-Ondansetron
(-)-Amlodipine
Pantoprazole single isomers
Ketoconazole single isomers
Itraconazole single isomers
Descarboethoxyloratadine
Lomefloxacin single isomers
Ketorolac single isomers
Etodolac single isomers
Metoprolol single isomers
Cisapride (racemate and single isomers)
Salmeterol single isomers
Zoplicone single isomers
Sibutramine single isomers
Cetirizine single isomers
Zileuton single isomers
Hydroxyitraconazole single isomers (other than racemic
hydroxyitraconazole)
Glycopyrrolate single isomers
Clidinium single isomers
Tridihexethyl single isomers
Trihexplenidyl single isomers
Desformoterol single isomers
Desethyloxybutynin single isomers
Procyclidine single isomers
Lansoprazole single isomers
Bupropion single isomers
Rabeprazole single isomers
Hydroxyomeprazole single isomers
Omeprazole single isomers
6
<PAGE>
EHIBIT 10.43
Execution Copy
ASSIGNMENT
----------
THIS ASSIGNMENT has an effective date of May 19, 1998 (the "Effective
Date") and is made between MASSACHUSETTS INSTITUTE OF TECHNOLOGY, 77
Massachusetts Avenue, Cambridge, MA 02139 ("Licensor"), SEPRACOR INC., 33 Locke
Drive, Marlborough, MA 01752 ("Sepracor") and CHIREX AMERICA INC., 300 Atlantic
Street, Suite 402, Stamford, Connecticut 06901 ("ChiRex").
WHEREAS, Licensor and Sepracor are parties to a License Agreement,
dated June 21, 1991 as amended on June 21, 1991 and by a Letter of Understanding
dated May 20, 1996 (collectively referred to herein as the "License Agreement")
covering MIT Case Number 4253, "Optically Active Derivative of Glycidol" by K.
Barry Sharpless and Tetsuo H. Onami; and MIT Case Number 4310, "Optically Active
Derivatives of Glycidol", by K. Barry Sharpless, Janice Klunder and Tetsuo H.
Onami; and
WHEREAS, ChiRex has practiced the Patent Rights under the License
Agreement as a sublicensee of Sepracor under a Technology Transfer and License
Agreement between Sepracor and SepraChem (a predecessor of ChiRex) effective
January 1, 1995 (the "Technology Agreement") and the aforementioned Letter of
Understanding; and
WHEREAS, since the merger of Sepracor's Seprachem subsidiary into
ChiRex, ChiRex has exploited the Patent Rights to a greater extent than Sepracor
and the parties to this Amendment Agreement have agreed that Sepracor shall
assign the License Agreement to ChiRex, and ChiRex shall, from the Effective
Date, become the Licensee under such agreement pursuant to the terms set forth
herein; and
WHEREAS, Licensor has also agreed that ChiRex may grant Sepracor a
sublicense under the Patent Rights pursuant to Section 2.3 of the License
Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Assignment. Sepracor hereby assigns its rights and obligations
----------
under the License Agreement to ChiRex, subject to Sepracor's
1
<PAGE>
Execution Copy
rights to practice the Patent Rights pursuant to its sublicense per Section 3 of
this Assignment. Licensor hereby consents to the assignment of Sepracor's rights
and obligations to ChiRex, and ChiRex agrees to abide by the terms of the
License Agreement and assume all of Sepracor's obligations under said agreement
as of the Effective Date. The term Licensee as defined in the License Agreement
shall hereinafter mean ChiRex.
2. Notices. Article XIV of the License Agreement shall be amended so
-------
that notices to Licensee shall be sent to:
ChiRex America Inc.
300 Atlantic Street, Suite 402
Stamford, CT 06901
Attention: General Counsel
Telephone: (203) 351-2300
Fax: (203) 425-9996
3. Sublicense.
----------
(a) ChiRex hereby grants Sepracor a worldwide, exclusive (even as to
---
ChiRex) sublicense under the Patent Rights, to develop, make, use
and sell (i) those compounds included in Exhibit C-1 attached
hereto and made a part hereof; (ii) Combinatorial Chemistry
Libraries (as defined below) of chiral or achiral compounds; and
(c) compounds in the Combinatorial Chemistry Libraries in
quantities of less than one (1) kilogram. In addition, ChiRex
further grants to Sepracor a worldwide non-exclusive sublicense
under the Patent Rights to manufacture pharmaceutical fine
chemical intermediates and pharmaceutical active ingredients for
the clinical and laboratory use of Sepracor and its licensees.
Such sublicenses shall bear the terms and conditions as set forth
in Articles II, V. VII, VIII, IX, X, XII and XV of the and
Sepracor hereby represents and warrants that it has a copy of the
License Agreement, is familiar with its terms and will comply
with such terms. Notwithstanding Section 4.1(e) of the License
Agreement, Licensor will receive the same royalties on Net Sales
of Licensed Products by Sepracor as it would receive on Net Sales
on Licensed Products by ChiRex.
2
<PAGE>
Execution Copy
(b) The sublicense granted per subsection (a) above shall include the
---
right to sublicense (within the scope of the rights granted
therein) third parties without ChiRex's consent provided (i) all
sublicenses granted by Sepracor will be in writing, charge
sublicensees royalties per Section 4.1(e) of the License
Agreement, and expressly require all sublicensees to comply with
the terms of the License Agreement; (ii) Sepracor provides
Licensor and ChiRex with notice of and a copy of all written
sublicenses entered into; and (iii) Sepracor and not ChiRex,
shall remain responsible for the performance, collection and
remission of royalties by all its sublicensees.
(c) Sepracor shall have the right to notify ChiRex in writing, at any
---
time after Sepracor or one of its sublicensees begins clinical
trials, that it wishes to add to Exhibit C-1 any (i) active
metabolite compound; or (ii) single isomer pharmaceutical
compound; or (iii) other chiral compound which is identified as
being from a Combinatorial Chemistry Library; such compounds
shall be added to Exhibit C-1 subject to the procedures and terms
set out in Exhibit C of the Technology Agreement.
(d) As used herein, "Combinatorial Chemistry Library" shall mean any
---
group of 25 or more compounds related in structure and
synthesized contemporaneously from a common intermediate in
quantities of no more than one hundred grams per compound.
(e) Licensor hereby consents to the grant of the sublicense to
---
Sepracor specified herein.
4. ChiRex Termination. Should ChiRex abandon, breach or otherwise
------------------
fail to maintain the License Agreement, provided Sepracor is not in breach of
the terms of its sublicense, Licensor agrees to grant Sepracor a direct license
on the same terms and conditions set forth in Section 3 so that Sepracor's use
of the Patent Rights is uninterrupted.
5. No Other Changes. Except as is expressly stated in this
----------------
Assignment, the terms of the License Agreement remain in full force and effect.
3
<PAGE>
Execution Copy
6. Definitions. Unless defined specifically herein, all capitalized
-----------
terms used in this Assignment shall have the meaning ascribed to such terms in
the License Agreement.
7. Nagase Sublicense. The non-exclusive sublicense granted by
-----------------
Sepracor to Nagase & Company, Ltd. Under the Patent Rights per the Amendment
Agreement dated June 5, 1997 between such parties shall continue in full force
and effect; provided however that Sepracor, and not ChiRex, shall be responsible
for ensuring Nagase's compliance with such sublicense and for collecting and
remitting royalties from Nagase to MIT.
8. Counterparts. This Assignment may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
* * * * * * *
4
<PAGE>
Execution Copy
IN WITNESS WHEREOF, the parties have caused their duly authorized
representative to execute this Agreement as of the Effective Date.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
By:______________________
Name:____________________
Title:___________________
Sepracor Inc. ChiRex America Inc.
By:_______________________ By:_______________________
Name:_____________________ Name:_____________________
Title:____________________ Title:____________________
5
<PAGE>
Execution Copy
Exhibit C-1
-----------
Terfenadine carboxylate (racemate and single isomers)
R-Ketoprofen
S-Ketoprofen (for use in dentifrice or mouthwash formulations)
R-Albuterol
R,R,-Formoterol
R-Fluoxetine
S-Fluoxetine
S-Oxybutynin
R-Onybutynin
S-Doxazosin
Norastemizole
Norcisapride (racemate and single isomers)
R-Ondansetron
S-Ondansetron
(-)-Amlodipine
Pantoprazole single isomers
Ketoconazole single isomers
Itraconazole single isomers
Descarboethoxyloratadine
Lomefloxacin single isomers
Ketorolac single isomers
Etodolac single isomers
Metoprolol single isomers
Cisapride (racemate and single isomers)
Salmeterol single isomers
Zoplicone single isomers
Sibutramine single isomers
Cetirizine single isomers
Zileuton single isomers
Hydroxyitraconazole single isomers (other than racemic hydroxyitraconazole)
Glycopyrrolate single isomers
Clidinium single isomers
Tridihexethyl single isomers
Trihexplenidyl single isomers
Desformoterol single isomers
Desethyloxybutynin single isomers
Procyclidine single isomers
Lansoprazole single isomers
6
<PAGE>
Execution Copy
Bupropion single isomers
Rabeprazole single isomers
Hydroxyomeprazole single isomers
Omeprazole single isomers
7
<PAGE>
10.44
EXECUTION COPY
AMENDMENT NO. 3
---------------
TO
--
TECHNOLOGY AND TRANSFER AGREEMENT
---------------------------------
This Amendment No. 3., dated as of the 19th day of May, 1998
("Amendment No. 3"), is to the Technology and Transfer Agreement effective as of
January 1, 1995, as amended by Amendment No. 1 dated July 12, 1995 and Amendment
No. 2 dated February 7, 1996 (the Technology and Transfer Agreement and
Amendments No. 1 and 2 collectively referred to herein as the "Agreement"),
between SEPRACOR INC., ("Sepracor") and SEPRACHEM, INC., ("Seprachem").
WHEREAS, since the 1996 merger of Seprachem into ChiRex Inc.
("ChiRex"), ChiRex is a party to the Agreement; and
WHEREAS, Sepracor has agreed to assign certain third party license
agreements to ChiRex and the parties wish to amend the Agreement to reflect
these assignments and revised payment terms associated therewith.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Sepracor is a party to the following three license agreements:
(a) License Agreement dated September 10, 1992, between Sepracor and
Research Corporation Technologies, Inc. as amended pursuant to a
First Amendment dated September 10, 1992, a Second Amendment
dated January 1, 1995, a Third Amendment dated March 5, 1996 and
a Fourth Amendment dated November 20, 1996 (collectively referred
to herein as the "RCT Agreement");
(b) License Agreement dated May 5, 1989, between Sepracor and
Massachusetts Institute of Technology as amended on March 24,
1995, June 22, 1995, June 26, 1995 and by a Letter of
Understanding dated May 20, 1996 (collectively referred to herein
as the "1989 MIT Agreement");
1
<PAGE>
(c) License Agreement dated June 21, 1991, between Sepracor and
Massachusetts Institute of Technology as amended on June 21, 1991
and by a Letter of Understanding dated May 20, 1996 (collectively
referred to herein as the "1991 MIT Agreement"); and
(d) The RCT Agreement, the 1989 MIT Agreement and the 1991 MIT
Agreement are collectively referred to herein as the "Third Party
Agreements".
Pursuant to three Assignment Agreements dated May 19, 1998 (the "Assignments"),
the Third Party Agreements have been assigned to ChiRex, with a sublicense back
to Sepracor. As of today's date, the Agreement is hereby terminated as it
relates to the Third Party Agreements, including without limitation the division
of payment of fixed maintenance costs per Section 4.2(a) therein; provided
however, that Exhibit C of the Agreement shall not terminate with regard to the
Third Party Agreements as it relates to the addition of certain products under
Sepracor's sublicenses granted under the Assignments.
2. In order to maintain the exclusivity of the sublicense granted to
Sepracor by ChiRex under the RCT Agreement, Sepracor shall reimburse ChiRex in
the amount of fifteen percent (15%) of all License maintenance fees and
exclusivity payments set forth in the RCT Agreement beginning on the date of
this Amendment No. 3 that become due and are paid by ChiRex. If Sepracor falls
to make such payments to ChiRex within thirty (30) days of receipt of an invoice
therefor, ChiRex may convert the exclusive sublicense to a non-exclusive
sublicense upon sixty (60) days prior written notice to Sepracor; provided
however, that Sepracor shall have the right to maintain such exclusivity by
making the required payment in full during such sixty (60) day notice period.
3. In order to maintain the exclusivity of the sublicenses granted to
Sepracor by ChiRex under the 1989 MIT Agreement and the 1991 MIT Agreement,
Sepracor shall reimburse ChiRex in the amount of fifteen percent (15%) of all
License Maintenance Fees set forth in such agreements that beginning on the date
of this Amendment No. 3 that become due and are paid by ChiRex. If Sepracor
falls to make such payments to ChiRex within thirty (30) days of receipt of an
Invoice therefor, ChiRex may convert the exclusive sublicense to a non-exclusive
sublicense upon sixty (60) days prior written notice to Sepracor; provided
however, that Sepracor shall have the right to maintain such exclusivity by
making the required payment in full during such sixty (60) day notice period.
2
<PAGE>
4. It is understood and agreed by the parties that the
70%-30% split of fixed maintenance costs for the Third Party
Agreements per Section 4.2(a) of the Agreement shall apply up to and including
April 30, 1998.
5. Except as expressly stated in this Amendment No. 3, the terms of
the Agreement remain in full force and effect.
6. This Amendment No. 3 may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
* * * * * * * * * * * *
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Amendment No. 3 as of the Effective Date.
SEPRACOR INC.
By:_______________________
Name:
Title:
CHIREX INC.
By:_______________________
Name:
Title:
4
<PAGE>
EXHIBIT 10.45
PINNACLE PROPERTIES MANAGEMENT, INC.
STANDARD FORM
COMMERCIAL LEASE
In consideration of the covenants herein contained, 52 & 56 Roland Street,
L.L.C. (a Delaware limited liability company), hereinafter called LESSOR, does
hereby lease to ChiRex Technology Center, Inc. (a DE corporation) 300 Atlantic
Street, Suite 402, Stamford, CT 06901, hereinafter called LESSEE, the following
described premises, hereinafter called the leased premises: approximately 10,017
square feet (including 17% common area) at 56 Roland Street, Suite 310, (see
attached floor plan) Boston, MA 02129 to have and hold the leased premises for a
term of five (5) years commencing at noon on November 1, 1998 ("Commencement
Date") and ending at noon on October 31, 2003 unless sooner terminated as herein
provided. LESSOR and LESSEE now covenant and agree that the following terms and
conditions shall govern this lease during the term hereof and for such further
time as LESSEE shall hold the leased premises. See Attached Exhibit A.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of one hundred
fifty-nine thousand seven hundred seventy-one (159,771.00) U.S. dollars per
year, drawn on a U.S. Bank, payable in advance in monthly installments of
$13,314.25 on the first day in each calendar month in advance, the first monthly
payment to be made upon LESSEE's execution of this lease, including payment in
advance of appropriate fractions of a monthly payment for any portion of a month
at the commencement or end of said lease term. All payments shall be made to
LESSOR or agent: 52 & 56 Roland Street L.L.C. c/o Pinnacle Properties Management
Inc., 3740 Beach Blvd., Suite 306, Jacksonville, FL 32207, or at such other
place as LESSOR shall from time to time in writing designate. If the "Cost of
Living" has increased as shown by the Consumer Price Index (Boston,
Massachusetts, all items, all urban consumers), U.S. Bureau of Labor Statistics,
the amount of base rent due during each calendar year of this lease and any
extensions thereof shall be annually adjusted in proportion to any increase in
the Index. All such adjustments shall take place with the rent due on January 1
of each year during the lease term, except the first such adjustment shall take
place with rent due on November 1, 2003. The base month from which to determine
the amount of each increase in the Index shall be January 1998, which figure
shall be compared with the figure for November 2002, and each November
thereafter to determine the percentage increase (if any). The increase will be
multiplied by the base rent to determine the increased base rent (if any) to be
paid during the following calendar year. In the event that the Consumer Price
Index as presently computed is discontinued as a measure of "Cost of Living"
changes, any adjustment shall then be made on the basis of a comparable index
then in general use.
See Attached Rider.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the
amount of twenty-six thousand (26,000.00) dollars upon the execution of this
lease by LESSEE, which shall be held as security for LESSEE's performance as
herein provided and refunded to LESSEE without interest at the end of this lease
subject to LESSEE's satisfactory compliance with the conditions hereof. LESSEE
may not apply the security deposit to payment of the last month's rent. In the
event of any default or breach of this lease by LESSEE, LESSOR shall immediately
apply the security deposit first to any unamortized improvements completed for
LESSEE's occupancy, then to offset any outstanding invoice or other payment due
to LESSOR, with the balance applied to outstanding rent. If all or any portion
of the security deposit is applied to cure a default or breach during the term
of the lease, LESSEE shall be responsible for restoring said deposit forthwith
and failure to do so shall be considered a substantial default under the lease.
LESSEE's failure to remit the full security deposit or any portion thereof when
due shall also constitute a substantial lease default.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the purpose
of executive and administrative offices, research and development, and
laboratory.
4. ADDITIONAL RENT AND TAX ESCALATION. LESSEE shall pay to LESSOR as
additional rent per annum ("Additional Rent") a proportionate share (8.3%) of
any increase in the Operating Costs (defined below) in the building (including
the building with an address of 52 Roland Street, the building with an address
of 56 Roland Street, the building with an address of 52-R Roland Street, and the
related land, driveways, parking facilities, and similar improvements) of which
the leased premises are a part (hereinafter called the building), for a given
calendar year over the actual Operating Costs in the building for the calendar
year 1999 (the "Operating Expense Stop"). LESSOR may collect such amount in
monthly installments beginning thirty (30) days after LESSOR furnishes to
LESSEE the Operating Costs and Tax Statement (defined below). Alternatively,
LESSOR may make a good faith estimate of the Additional Rent to be due by LESSEE
for any calendar year or part thereof during the lease term, and LESSEE shall
pay to LESSOR at the commencement of the lease and on the first day of each
calendar month thereafter, an amount equal to the estimated Additional Rent for
such calendar year or part thereof divided by the number of months therein.
From time to time, LESSOR may estimate and re-estimate the Additional Rent to be
due by LESSEE and deliver a copy of the estimate or re-estimate to LESSEE.
Thereafter, the monthly installments of Additional Rent payable to LESSEE shall
be appropriately adjusted in accordance with the estimations so that, by the end
of the calendar year in question, LESSEE shall have paid all of the Additional
Rent as estimated by LESSOR. Any amounts paid based on such an estimate shall
be subject to adjustment as herein provided when actual Operating Costs are
available for each calendar year. The term "Operating Costs" shall mean all
expenses and disbursements that LESSOR incurs in connection with the ownership,
operation, and maintenance of the building including, but not limited to, the
following costs: a) wages and salaries (including management fees) of all
employees engaged in the operation, maintenance, and security of the building,
including taxes, insurance, and benefits relating thereto; b) all supplies and
materials used in the operation, maintenance, repair, replacement, and security
of the building; c) costs for improvements made to the building which, although
capital in nature, are expected to reduce the normal operating costs of the
building, as well as capital improvements made in order to comply with any law
hereafter promulgated by any governmental authority, as amortized over the
useful economic life of such improvements as determined in accordance with
Generally Accepted Accounting Principles (GAAP); d) cost of all utilities,
except the cost of utilities reimbursable to LESSOR by the building's tenants;
e) insurance expenses; f) repairs, replacements, and general maintenance of the
building; and g) service or maintenance contracts with independent contractors
for the operation, maintenance, repair, replacement, or security of the building
(including, without limitation, alarm service, window cleaning, and elevator
maintenance).
Operating costs shall not include: (i) costs relating to solicitation of,
advertising for and entering into leases and other occupancy arrangements for
space in the Building, including legal fees, real estate broker's leasing
commissions and advertising expenses, (ii) costs of defending any lawsuits with
any mortgagee (except as the actions of LESSEE may be in issue), costs of
selling, syndicating, financing, any of LESSOR's interest in the Building (or
any part thereof), costs of any disputes between LESSOR and its employees,
disputes of LESSOR with building management, or outside fees paid in connection
with disputes with other tenants, (iii) cost of correcting defects in the
Building or the Building equipment or replacing defective equipment to the
extent such costs are reimbursed or paid by warranties of manufacturers,
suppliers or contractors or are otherwise borne by parties other than LESSOR,
(iv) costs of installations paid by or constructed for a specific tenant, (v)
costs of any major addition to, deletion from or modification of the Building or
any of the other improvements within the Building, including, the addition or
deletion of floors, so long as such costs are of a capital nature, as determined
in accordance with GAAP, consistently applied; provided, however, that the
amortization of such costs shall be permitted to the extent that such costs are
incurred as the result of the replacement of any major system or component of
the Building reasonably made by LESSOR and any improvement reasonably made by
LESSOR for the purpose of reducing operating costs, (vi) costs incurred with
respect to the installation of tenant improvements made for other tenants in the
Building or incurred in renovating or otherwise improving, decorating, painting,
or redecorating vacant space, (vii) interest, points, other finance charges and
principal payments on mortgages, and other costs of indebtedness, (viii) all
amounts which are specially charged to or otherwise paid by any other tenant or
other occupant of the Building or for items or services which LESSOR provides
selectively to one or more tenants (other than LESSEE) without reimbursement,
(ix)
<PAGE>
any bad debt loss, rent loss, or reserves for bad debts or rent loss, (x)
costs, expenses or judgements occasioned by casualty, injury or damage, to the
extent that such costs, expenses or judgements are or are paid by insurance to
be maintained by LESSOR under this lease, provided that all such costs, expense
or judgements not covered under such insurance as a result of any deductible
amount shall be included in operating costs and costs for which LESSOR is
reimbursed by any tenant's(including without limitation LESSEE's) insurance
carrier, (xi) a prorata portion of the salary and indirect compensation of any
employee to the extent such employee devotes his or her time to property other
than the Building, (xii) amounts, if any, paid as ground rental by LESSOR, and
(xiii) expenses relating to third party landlord-tenant disputes.
LESSEE shall also pay to LESSOR as additional rent a proportionate share (6.9%)
(based on square footage leased by LESSEE as compared with the total leaseable
square footage of the building, which the parties agree to be 145,367 square
feet) of any increase in the Taxes ("Tax Escalation") levied against the land
and building. LESSEE shall pay the Tax Escalation in the same manner as
provided above for Additional Rent with regard to Operating Costs. The base
from which to determine the amount of any increase in taxes shall be the rate
and the assessment in effect for fiscal year 1999,which is the period July 1,
1998 through June 30, 1999, ("Real Estate Tax Stop"). "Taxes" shall mean taxes,
assessments, and governmental charges whether federal, state, county or
municipal, and whether they be by taxing districts or authorities presently
taxing or by others, subsequently created or otherwise, and any other taxes and
assessments attributable to the building (or its operation), excluding, however,
penalties and interest thereon and federal and state taxes on income (if the
present method of taxation changes so that in lieu of the whole or any part of
any Taxes, there is levied on LESSOR a capital tax directly on the rents
received therefrom or a franchise tax, assessment, or charge based, in whole or
in part, upon such rents for the building, then all such taxes, assessments, or
charges, or the part thereof so based, shall be deemed to be included within the
term "Taxes" for purposes hereof). Notwithstanding anything to the contrary in
this lease, the initial responsibility for the payment of all real estate taxes
with respect to the building shall be upon the LESSOR and LESSOR agrees to pay
the same as required by law, but in any event so as to assure the LESSEE's right
to occupy the leased premise and to use the common areas of the Building shall
not be disturbed or threatened. LESSOR, at LESSEE's written request, shall
provide LESSEE with copies of all tax bills and a computation of LESSEE's
prorata share thereof; in the event that any special assessments are assessed
and payable, LESSEE's prorata share of the same shall be calculated as if such
assessments are being paid by LESSOR in installments, if LESSOR is permitted to
do so.
By April 1 of each calendar year, or as soon thereafter as practicable, LESSOR
shall furnish to LESSEE a statement of Operating Costs and Taxes for the
previous year (the "Operating Costs and Tax Statement"). With respect to any
calendar year or partial calendar year in which the building is not occupied to
the extent of 95% of the leaseable area thereof, the Operating Costs for such
period shall, for the purposes hereof, be increased to the amount which would
have been incurred had the building been occupied to the extent of 95% of the
rental area thereof. If the Operating Costs and Tax Statement reveals that
LESSEE paid more for Operating Costs than the actual Additional Rent and more
for Taxes than Tax Escalation for the year for which such statement was
prepared, then LESSOR shall promptly credit LESSEE for such excess or if at the
expiration or termination of the term, returned to LESSEE; likewise, if LESSEE
paid less than the actual Additional Rent or Tax Escalation due, then LESSEE
shall promptly pay LESSOR such deficiency, within thirty (30) days after
receiving notice from LESSOR of the amount of such deficiency.
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard
specifications to heat the leased premises in season and cool all office areas
between May 1 and November 1. LESSEE shall pay all charges for utilities used on
the leased premises, including electricity, gas, oil, water, and sewer. LESSEE
shall pay the utility provider or LESSOR, as applicable, for all such utility
charges as determined either by separate meters serving the leased premises or
as a proportionate share of the utility charges as determined by LESSOR if not
separately metered. Electricity and gas for the leased premises will be
separately metered. LESSEE shall also pay LESSOR a proportionate share of any
other taxes, use charges, and charges relating in any way to utility use at the
building. No plumbing, construction or electrical work of any type shall be
done without LESSOR's prior written approval and LESSEE obtaining the
appropriate municipal permit.
6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation,
activity or work shall be conducted in the leased premises or use made thereof
which may be unlawful, improper, noisy, offensive, or contrary to any applicable
statute, regulation, ordinance or bylaw. LESSEE shall keep all employees
working in the leased premises covered by Worker's Compensation Insurance and
shall obtain any licenses and permits necessary for LESSEE's occupancy. LESSEE
shall be responsible for causing the leased premises and any alterations by
LESSEE which are allowed hereunder to be in full compliance with any applicable
statute, regulation, ordinance or bylaw. Notwithstanding the foregoing or any
other provision of this lease, however, LESSEE shall not be responsible for
compliance with any such laws, regulations or the like requiring (I) structural
repairs or modifications, (ii) repairs or modifications to the utility or
building service equipment located outside of and not exclusively serving the
premises or (iii) installation of new building service equipment, such as fire
detection or suppression equipment, unless such repairs, modifications, or
installations shall (a) be due to LESSEE's work, alterations, or repairs in the
leased premises or LESSEE's particular use of the leased premises (as opposed to
commercial office operations, generally), or (b) be due to the negligence or
willful misconduct of LESSEE or any agent, employee, or contractor of LESSEE.
7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the leased
premises, or of the property of which they are a part, be substantially damaged
by fire or other casualty, or be taken by eminent domain, LESSOR or LESSEE may
elect to terminate this lease. When such fire, casualty, or taking renders the
leased premises substantially unsuitable for their intended use, a just and
proportionate abatement of rent shall be made, and LESSEE may elect to terminate
this lease if: (a) LESSOR fails to give written notice within thirty (30) days
of intention to restore the leased premises, or (b) LESSOR fails to restore the
leased premises to a condition reasonably suitable for their intended use
within ninety (90) days of said fire, casualty or taking. LESSOR reserves all
rights for damages or injury to the leased premises for any taking by eminent
domain, except for damage to LESSEE's property or equipment.
8. FIRE INSURANCE. LESSEE shall not permit any use of the leased premises
which will adversely affect or make voidable any insurance on the property of
which the leased premises are a part, or on the contents of said property, or
which shall be contrary to any law or regulation from time to time established
by the Insurance Services Office (or successor), local Fire Department, LESSOR's
insurer, or any similar body. LESSEE shall on demand reimburse LESSOR, and all
other tenants, all extra insurance premiums caused by LESSEE's use of the leased
premises. LESSEE shall not vacate the leased premises or permit same to be
unoccupied other than during LESSEE's customary non-business days or hours.
9. MAINTENANCE OF PREMISES. LESSOR will be responsible for maintenance and
replacement (if necessary) of the existing standard heating and cooling
equipment serving the office portion of the leased premises and all structural
and roof maintenance of the leased premises but specifically excluding damage
caused by the careless, malicious, willful, or negligent acts of LESSEE,
chemical, water or corrosion damage from any source, except caused solely by
LESSOR's gross negligence and maintenance of the space heating, ventilating, and
cooling units exclusively serving the laboratory portion of the leased premises
(collectively, the "Laboratory HVAC Unit") and of any non "building standard"
leasehold improvements. LESSEE agrees to maintain and replace at its expense
the Laboratory HVAC Unit and maintain all other aspects of the leased premises
in the same condition as they are at the commencement of the term or as they may
be put in during the term of this lease, normal wear and tear and damage by fire
or other casualty only excepted, and whenever necessary, to replace light bulbs,
plate glass and other glass therein, acknowledging that the leased premises are
now in good order and the light bulbs and glass whole. LESSEE will properly
control or vent all solvents, degreasers, smoke, odors, etc. and shall not cause
the area surrounding the leased premises to be in anything other than a neat and
clean condition, depositing all waste in appropriate receptacles. LESSEE shall
be solely responsible for any damage to plumbing equipment, sanitary lines, or
any other portion of the building which results from the discharge or use of any
acid or corrosive substance by LESSEE.
<PAGE>
LESSEE shall not permit the leased premises to be overloaded, damaged, stripped
or defaced, nor suffer any waste, and will not keep animals within the leased
premises. LESSEE will protect any carpet with plastic or masonite chair pads
under any rolling chairs. Unless heat is provided at LESSOR's expense, LESSEE
shall maintain sufficient heat to prevent freezing of pipes or other damage. Any
increase in air conditioning equipment or electrical capacity, or any
installation and/or maintenance of equipment which is necessitated by some
specific aspect of LESSEE's use of the leased premises shall be at LESSEE's
expense. All maintenance provided by LESSOR shall be during LESSOR's normal
business hours. LESSOR shall keep in good order, condition, and repair the roof
of the Building (including using reasonable efforts to keep the roof water
tight), all gutters and downspouts, foundations, exterior (including exterior
painting and finish) and structural portions of the Building, all Building
systems serving the Building, and all plumbing lines from the point it is
brought into the Building to the point it services LESSEE and its leased
premises. LESSOR's obligations shall include the obligation to make all
necessary repairs, replacements or alterations to the roof, the exterior walls,
the foundation, the floor slabs, and all other structural elements of the
Building, and to maintain the parking area.
10. ALTERATIONS. LESSEE shall not make structural alterations or additions of
any kind to the leased premises, but may make nonstructural alterations provided
LESSOR consents thereto in writing, such consent not to be unreasonably
withheld, conditioned or delayed. All such allowed alterations shall be at
LESSEE's expense and shall conform to LESSOR's construction specifications. If
LESSOR or LESSOR's agent provides any services or maintenance for LESSEE in
connection with such alterations or otherwise under this lease, any just invoice
will be promptly paid. LESSEE shall not permit any mechanics' liens, or similar
liens, to remain upon the leased premises in connection with work of any
character performed or claimed to have been performed at the direction of LESSEE
and shall cause any such lien to be released or removed forthwith without cost
to LESSOR. Any alterations or additions shall become part of the leased
premises and the property of LESSOR. Any alterations completed by LESSOR shall
be LESSOR's "building standard" unless noted otherwise. LESSOR shall have the
right at any time to change the arrangement of parking areas, stairs, walkways
or other common areas of the building.
11. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet or
allow any other firm or individual to occupy the whole or any part of the leased
premises without LESSOR's prior written consent, such consent shall not be
unreasonably withheld, conditioned, or delayed. Notwithstanding such assignment
or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for the
payment of all rent and for the full performance of the covenants and conditions
of this lease. LESSEE shall pay LESSOR promptly for reasonable legal and
administrative expenses incurred by LESSOR in connection with any consent
requested hereunder by LESSEE.
See Attached Rider
12. SUBORDINATION. This lease shall be subject and subordinate to any and all
mortgages and other instruments in the nature of a mortgage, now or at any time
hereafter, and LESSEE shall, when requested, promptly execute and deliver such
written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage.
See Attached Rider.
13. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable time
enter to view the leased premises, to make repairs and alterations as LESSOR
should elect to do for the leased premises, the common areas or any other
portions of the building, to make repairs which LESSEE is required but has
failed to do, and to show the leased premises to others.
14. SNOW REMOVAL. The plowing of snow from all roadways and unobstructed
parking areas shall be at the sole expense of LESSOR. The control of snow and
ice on all walkways, steps, and loading areas serving the leased premises shall
be the sole responsibility of LESSOR. Notwithstanding the foregoing, however,
to the extent permitted under applicable laws, LESSEE shall hold LESSOR and
OWNER harmless from any and all claims by LESSEE's agents, representatives,
employees, callers or invitees for damage or personal injury resulting in any
way from snow or ice on any area serving the leased premises, except for claims
arising solely out of LESSOR's gross negligence.
15. ACCESS AND PARKING. LESSEE shall have the right to use eighteen (18)
unassigned and undesignated parking spaces in the parking area designated by
LESSOR ("Parking Area") in common with others entitled to the use thereof during
the initial term of this lease subject to such terms, conditions and regulations
as are from time to time charged or applicable to patrons of the Parking Area.
If, for any reason, LESSEE is unable to use all or any portion of the parking
spaces to which it is entitled hereunder, then LESSEE's obligation to pay base
rent shall be abated by $2.00 per day per space for so long as LESSEE does not
have the use of any such parking space; this abatement shall be in full
settlement of all claims that LESSEE might otherwise have against LESSOR because
of LESSOR's failure or inability to provide LESSEE with such parking spaces.
Said Parking Area plus any stairs, walkways, elevators or other common areas
shall in all cases be considered a part of the leased premises when they are
used by LESSEE or LESSEE's employees, agents, callers or invitees. LESSEE will
not obstruct in any manner any portion of the building or the walkways or
approaches to the building, and will conform to all rules and regulations now or
hereafter made by LESSOR for parking, and for the care, use, or alteration of
the building, its facilities and approaches. LESSEE further warrants that
LESSEE will not permit any employee or visitor to violate this or any other
covenant or obligation of LESSEE. No unattended parking will be permitted
between 7:00 PM and 7:00 AM without LESSOR's prior written approval, and from
December 1 through March 31 annually, such parking shall be permitted only in
those areas specifically designated for assigned overnight parking.
Unregistered or disabled vehicles, or storage trailers of any type, may not be
parked at any time. LESSOR may tow, at LESSEE's sole risk and expense, any
misparked vehicle belonging to LESSEE or LESSEE's agents, employees, invitees or
callers, at any time. LESSOR shall not be responsible for providing any
security services for the leased premises.
16. LIABILITY. LESSEE shall be solely responsible as between LESSOR and LESSEE
for deaths or personal injuries to all persons whomsoever occurring in or on the
leased premises from whatever cause arising, and damage to property to
whomsoever belonging arising out of the use, control, condition or occupation of
the leased premises by LESSEE unless directly resulting from the sole gross
negligence of LESSOR; and to the extent permitted under applicable laws, LESSEE
agrees to indemnify and save harmless LESSOR and OWNER from any and all
liability, including but not limited to costs, expenses, damages, causes of
action, claims, judgments and attorney's fees caused by or in any way growing
out of any matters aforesaid, except for death, personal injuries or property
damage directly resulting from the gross negligence of LESSOR.
17. INSURANCE. LESSEE will secure and carry at its own expense a commercial
general liability policy insuring LESSEE, LESSOR and OWNER against any claims
based on bodily injury (including death) or property damage arising out of the
condition of the leased premises or their use by LESSEE, such policy to insure
LESSEE, LESSOR and OWNER against any claim up to One Million (1,000,000) Dollars
in the case of any one accident involving bodily injury (including death), and
up to One Million (1,000,000) Dollars against any claim for damage to property.
LESSOR and OWNER shall be included in each such policy as additional insureds
using ISO form CG 20 26 11 85 or some other form approved by LESSOR. LESSEE
will file with LESSOR prior to occupancy certificates and any applicable riders
or endorsements showing that such insurance is in force, and thereafter will
file renewal certificates prior to the expiration of any such policies. All
such insurance certificates shall provide that such policies shall not be
cancelled without at least ten (10) days prior written notice to each insured.
In the event LESSEE shall fail to provide or maintain such insurance at any time
during the term of this lease, then LESSOR may elect to contract for such
insurance at LESSEE's expense.
18. SIGNS. LESSOR agrees to erect signage for the leased premises in the lobby
of the building and at LESSEE's entry door in accordance with LESSOR's building
standards for style, size, location, etc. LESSEE shall obtain the prior written
consent of LESSOR before erecting any sign on the leased premises, which consent
shall include approval as to size, wording, design, and location. LESSOR may
remove and dispose of any sign not approved, erected or displayed in conformance
with this lease.
<PAGE>
19. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has dealt
with no broker except Joseph Rooney of Hunneman Commercial who will be paid by
LESSOR according to LESSOR's standard fee schedule or third person with respect
to this lease and LESSEE agrees to indemnify LESSOR against any brokerage claims
arising by virtue of this lease. LESSOR warrants and represents to LESSEE that
LESSOR has employed no exclusive broker or agent in connection with the letting
of the leased premises.
20. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) any assignment
for the benefit of creditors, trust mortgage, receivership or other insolvency
proceeding shall be made or instituted with respect to LESSEE or LESSEE's
property; (b) LESSEE shall default in the observance or performance of any of
LESSEE's covenants, agreements, or obligations hereunder, other than substantial
monetary payments as provided below, and such default shall not be corrected
within thirty (30) days after written notice thereof unless the cure cannot be
completed within such period and LESSEE begins promptly to cure within such
period and thereafter diligently completes the correction within sixty (60)
days; or (c) LESSEE vacates the leased premises, then LESSOR shall have the
right thereafter, while such default continues and without demand or further
notice, to re-enter and take possession of the leased premises, to declare the
term of this lease ended, and to remove LESSEE's effects, without being guilty
of any manner of trespass, and without prejudice to any remedies which might be
otherwise used for arrears of rent or other default or breach of the lease. If
LESSEE shall default in the payment of the security deposit, rent, taxes,
substantial invoice from LESSOR or LESSOR's agent for goods and/or services or
other sum herein specified, and such default shall continue for ten (10) days
after written notice thereof, and, because both parties agree that nonpayment of
said sums when due is a substantial breach of the lease, and, because the
payment of rent in monthly installments is for the sole benefit and convenience
of LESSEE, then in addition to the foregoing remedies the entire balance of rent
which is due hereunder shall become immediately due and payable as liquidated
damages. LESSOR, without being under any obligation to do so and without
thereby waiving any default, may remedy same for the account and at the expense
of LESSEE. If LESSOR pays or incurs any obligations for the payment of money in
connection therewith, such sums paid or obligations incurred plus interest and
costs, shall be paid to LESSOR by LESSEE as additional rent. Any sums received
by LESSOR from or on behalf of LESSEE at any time shall be applied first to any
unamortized improvements completed for LESSEE's occupancy, then to offset any
outstanding invoice or other payment due to LESSOR, with the balance applied to
outstanding rent. LESSEE agrees to pay reasonable attorney's fees and/or
administrative costs incurred by LESSOR in enforcing any or all obligations of
LESSEE under this lease at any time. LESSEE shall pay LESSOR interest at the
rate of eighteen (18) percent per annum on any payment from LESSEE to LESSOR
which is past due.
21. NOTICE. Any notice from LESSOR to LESSEE relating to the leased premises
or to the occupancy thereof shall be deemed duly served when sent to the leased
premises by certified mail, return receipt requested, postage prepaid, addressed
to LESSEE with a copy to: 300 Atlantic Avenue, Suite 402, Stamford, CT 06901,
Attn: Beth Hecht, Esq., General Counsel. Any notice from LESSEE to LESSOR
relating to the leased premises or to the occupancy thereof shall be deemed duly
served when served by constable, or delivered to LESSOR by certified mail,
return receipt requested, postage prepaid, addressed to LESSOR c/o Pinnacle
Properties Management, Inc. at 56 Roland Street, Boston, MA 02129 or at LESSOR's
last designated address. No oral notice or representation shall have any force
or effect. Time is of the essence in service of any notice.
22. OCCUPANCY. In the event that LESSEE takes possession of said leased
premises prior to the start of said term, LESSEE will perform and observe all of
LESSEE's covenants from the date upon which LESSEE takes possession except the
obligation for the payment of extra rent for any period of less than one month.
LESSEE shall not remove LESSEE's goods or property from the leased premises
other than in the ordinary and usual course of business, without having first
paid and satisfied LESSOR for all rent which may become due during the entire
term of this lease. LESSOR shall have the right to relocate LESSEE to another
facility upon prior written notice to LESSEE and on terms comparable to those
herein. If LESSOR relocates LESSEE, LESSOR shall reimburse LESSEE for LESSEE's
reasonable out-of-pocket expenses for moving LESSEE's furniture, equipment, and
supplies from the leased premises to the relocation space and for reprinting
LESSEE's stationery of the same quality and quantity as LESSEE's stationery
supply on hand immediately before LESSOR's notice to LESSEE of the exercise of
this relocation right. Upon such relocation, the relocation space shall be
deemed to be the leased premises and the terms of the lease shall remain in full
force and shall apply to the relocation space. In the event that LESSEE
continues to occupy or control all or any part of the leased premises after the
agreed termination of this lease without the written permission of LESSOR, then
LESSEE shall be liable to LESSOR for any and all loss, damages or expenses
incurred by LESSOR, and all other terms of this lease shall continue to apply
except that rent shall be due in full monthly installments at a rate of one
hundred fifty (150) percent of that which would otherwise be due under this
lease, it being understood between the parties that such extended occupancy is
as a tenant at sufferance and is solely for the benefit and convenience of
LESSEE and as such has greater rental value. LESSEE's control or occupancy of
all or any part of the leased premises beyond noon on the last day of any
monthly rental period shall constitute LESSEE's occupancy for an entire
additional month, and increased rent as provided in this section shall be due
and payable immediately in advance. LESSOR's acceptance of any payments from
LESSEE during such extended occupancy shall not alter LESSEE's status as a
tenant at sufferance.
23. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution against
fire and agrees to provide and maintain approved, labeled fire extinguishers,
emergency lighting equipment, and exit signs and complete any other
modifications within the leased premises as required or recommended by the
Insurance Services Office (or successor organization), OSHA, the local Fire
Department, or any similar body.
24. OUTSIDE AREA. No goods, equipment, or things of any type or description
shall be held or stored outside the leased premises at any time without prior
written consent from LESSOR. Any goods, equipment or things left outside the
leased premises without LESSOR's prior written consent shall be deemed abandoned
and may be removed at LESSEE's expense without notice by LESSOR. LESSEE shall
have a building standard size dumpster in a location approved by LESSOR,
provided and serviced at LESSEE's expense by whichever disposal firm may from
time to time be designated by LESSOR, unless a shared dumpster or compactor is
provided by LESSOR, in which case LESSEE shall pay its proportionate share of
any costs associated therewith.
25. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as not
to interfere in any way with the use and enjoyment of other portions of the same
or neighboring buildings by others by reason of odors, smoke, smells, noise,
pets, accumulation of garbage or trash, vermin or other pests, or otherwise, and
will at its expense employ a professional pest control service if necessary.
LESSEE agrees to maintain efficient and effective devices for preventing damage
to heating equipment from solvents, degreasers, cutting oils, propellants, etc.
which may be present at the leased premises. No hazardous materials or wastes
shall be stored, disposed of, or allowed to remain at the leased premises at any
time except in compliance with all applicable statutes, regulations, ordinances
and the like, and LESSEE shall be solely responsible for any and all corrosion
or other damage associated with the use, storage and/or disposal of same by
LESSEE.
See Attached Rider.
26. RESPONSIBILITY. Neither LESSOR nor OWNER shall be held liable to anyone
for loss or damage caused in any way by the use, leakage, seepage or escape of
water from any source, or for the cessation of any service rendered customarily
to said premises or buildings, or agreed to by the terms of this lease, due to
any accident, the making of repairs, alterations or improvements, labor
difficulties, weather conditions, mechanical breakdowns, trouble or scarcity in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for said building, or any cause beyond LESSOR's
immediate control.
See Attached Rider.
<PAGE>
27. SURRENDER. LESSEE shall at the termination of this lease remove all of
LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, whether completed by LESSEE, LESSOR, or
others, including but not limited to any offices, partitions (except movable
partitions supplied and installed by LESSEE), window blinds, floor coverings
(including computer floors), plumbing and plumbing fixtures, air conditioning
equipment and ductwork of any type, exhaust fans or heaters, water coolers,
burglar alarms, telephone wiring, telephone equipment, air or gas distribution
piping, compressors, overhead cranes, hoists, trolleys or conveyors, counters,
shelving or signs attached to walls or floors, all electrical work, including
but not limited to lighting fixtures of any type, wiring, conduit, EMT,
transformers, distribution panels, bus ducts, raceways, outlets and disconnects,
and furnishings (except kitchen-type appliances supplied and installed by
LESSEE) or equipment which have been bolted, welded, nailed, screwed, glued or
otherwise attached to any wall, floor or ceiling, or which have been directly
wired to any portion of the electrical system or which have been plumbed to the
water supply, drainage or venting systems serving the leased premises. LESSEE
shall deliver the leased premises sanitized from any chemicals or other
contaminants, and broom clean and in the same condition as they were at the
commencement of this lease or any prior lease between the parties for the leased
premises, or as they were modified during said term with LESSOR's written
consent, reasonable wear and tear and damage by fire or other casualty only
excepted. In the event of LESSEE's failure to remove any of LESSEE's property
from the leased premises upon termination of the lease, LESSOR is hereby
authorized, without liability to LESSEE for loss or damage thereto, and at the
sole risk of LESSEE, to remove and store any such property at LESSEE's expense,
or to retain same under LESSOR's control, or to sell at public or private sale
(without notice), any or all of the property not so removed and to apply the net
proceeds of such sale to the payment of any sum due hereunder, or to destroy
such abandoned property. In no case shall the leased premises be deemed
surrendered to LESSOR until the termination date provided herein or such other
date as may be specified in a written agreement between the parties,
notwithstanding the delivery of any keys to LESSOR.
See Attached Rider.
28. GENERAL. (a) The invalidity or unenforceability of any provision of this
lease shall not affect or render invalid or unenforceable any other provision
hereof. (b) The obligations of this lease shall run with the land, and this
lease shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that LESSOR and OWNER shall be
liable only for obligations occurring while lessor, owner, or master lessee of
the premises. (c) Any action or proceeding arising out of the subject matter of
this lease shall be brought by LESSEE within two years after the cause of action
has occurred and only in a court of the Commonwealth of Massachusetts. (d) If
LESSOR is acting under or as agent for any trust or corporation, the obligations
of LESSOR shall be binding upon the trust or corporation, but not upon any
trustee, officer, director individually. (e) (f) This lease is made and
delivered in the Commonwealth of Massachusetts, and shall be interpreted,
construed, and enforced in accordance with the laws thereof. (g) This lease was
the result of negotiations between parties of equal bargaining strength, and
when executed by both parties shall constitute the entire agreement between said
parties. No other oral or written representation shall have any effect hereon,
and this agreement may not be altered, extended or amended except by written
agreement attached hereto or as otherwise provided herein. (h) Except as set
forth herein, LESSOR makes no warranty, express or implied, concerning the
suitability of the leased premises for LESSEE's intended use. (i) LESSEE agrees
that if LESSOR does not deliver possession of the leased premises as herein
provided for any reason, LESSOR shall not be liable for any damages to LESSEE
for such failure, but LESSOR agrees to use reasonable efforts to deliver
possession to LESSEE at the earliest possible date, and a proportionate
abatement of rent for such time as LESSEE may be deprived of possession of said
leased premises shall be LESSEE's sole remedy. (j) Neither the submission of
this lease form, nor the prospective acceptance of the security deposit and/or
rent shall constitute a reservation of or option for the leased premises, or an
offer to lease, it being expressly understood and agreed that this lease shall
not bind either party in any manner whatsoever until it has been executed by
both parties. (k) LESSEE shall not be entitled to exercise any option contained
herein if LESSEE is in default of any terms or conditions hereof. (1) The
headings in this lease are for convenience only and shall not be considered part
of the terms hereof. (m) No endorsement by LESSEE on any check shall bind LESSOR
in any way.
29. (This paragraph intentionally deleted.)
30. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to or
of any breach of any covenant, condition or duty of LESSEE shall be construed as
a consent or waiver to or of any other breach of the same or any other covenant,
condition or duty. If LESSEE is several persons, several corporations or a
partnership, LESSEE's obligations are joint or partnership and also several.
Unless repugnant to the context, "LESSOR" and "LESSEE" mean the person or
persons, natural or corporate, named above as LESSOR and as LESSEE respectively,
and their respective heirs, executors, administrators, successors and assigns.
31. (This paragraph intentionally deleted.)
32. JURY TRIAL. LESSOR and LESSEE hereby waive any and all rights to a jury
trial in any summary process or eviction proceeding in any way arising out of
the lease.
33. ESTOPPEL CERTIFICATES. From time to time, LESSOR or LESSEE shall furnish
to any party designated by the other party ("requesting party"), within fifteen
(15) days after a request therefor, a certificate signed by the party confirming
and containing such factual certifications and representations as to this lease
as the requesting party may reasonably request.
34. CORPORATE APPROVAL. Concurrently with its execution of the lease, LESSEE
shall provide LESSOR with duly authorized and executed corporate resolutions (in
form and substance satisfactory to LESSOR) authorizing the entering into and
consummation of the transactions contemplated by this lease and designating the
corporate or other officer or officers to execute this lease on behalf of
LESSEE.
35. FINANCIAL REPORTS. Within thirty (30)days after LESSOR's request, LESSEE
shall furnish LESSEE's most recent audited financial statements (including any
notes to them) to LESSOR, or, if no such audited statements have been prepared,
such other financial statements (and notes to them) as may have been prepared by
an independent certified public accountant or, failing those, LESSEE's
internally prepared financial statements. LESSOR will not disclose any aspect of
LESSEE's financial statements that LESSEE designates to LESSOR as confidential
except (i) to LESSOR's lenders or prospective purchasers of the property, (ii)
in litigation between LESSOR and LESSEE, and (iii) if required by court order.
36. CONFIDENTIALITY. LESSEE acknowledges that the terms and conditions of this
lease are to remain confidential for the LESSOR's benefit, and may not be
disclosed by LESSEE to anyone, by any manner or means, directly or indirectly,
without LESSOR's prior written consent.
37. ADDITIONAL PROVISIONS. (Continued on attached rider if necessary.)
A. A Class B-1 Response Action Outcome ("RAO"), supported by an Activity and
Use Limitation (the "AUL"), has been issued in connection with the building and
filed at both the Suffolk County and Middlesex County Registry of Deeds.
Pursuant to such Class B-1 RAO, a condition of no significant risk has been
determined to exist, and no further response actions are required provided the
AUL is complied with. LESSEE hereby acknowledges and agrees to
<PAGE>
comply with the provisions of the AUL. Pursuant to such AUL, all activities and
uses including without limitation continued commercial, retail or industrial
uses are permitted. The activities and uses not permitted are: residential use,
use for a recreation area, playground, playing field, school, daycare or
excavation landscaping or other disturbance of soil currently at a depth of
greater than three feet.
IN WITNESS WHEREOF, LESSOR AND LESSEE have hereunto set their hands and common
seals and intend to be legally bound hereby this _____ day of ___________.
LESSOR: 52 & 56 ROLAND STREET, L.L.C. LESSEE: CHIREX TECHNOLOGY CENTER, INC.
By: PINNACLE PROPERTIES MANAGEMENT,
INC., its manager
By: By:
-------------------------------- -------------------------------
Vice President
GUARANTY
IN CONSIDERATION of the making of the above lease by 52 & 56 Roland Street,
L.L.C with ChiRex Technology Center, Inc. at the request of the undersigned and
in reliance on this guaranty, the undersigned (GUARANTOR) hereby personally
guarantees the prompt payment of rent by LESSEE and the performance by LESSEE of
all the terms, conditions, covenants and agreements of the lease, any amendments
thereto and any extensions or assignments thereof, and the undersigned promises
to pay all expenses, including reasonable attorney's fees, incurred by LESSOR in
enforcing all obligations of LESSEE under the lease or incurred by LESSOR in
enforcing this guaranty. LESSOR's consent to any assignments, subleases,
amendments and extensions by LESSEE or to any compromise or release of LESSEE's
liability hereunder, with or without notice to the undersigned, or LESSOR's
failure to notify the undersigned of any default and/or reinstatement of the
lease by LESSEE, shall not relieve the undersigned from liability as GUARANTOR.
IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set his/her/its hand
and common seal intending to be legally bound hereby this _____ day of
____________. _________________________________________
2/98
<PAGE>
PINNACLE PROPERTIES MANAGEMENT, INC.
STANDARD FORM
RIDER TO LEASE
The following additional provisions are incorporated into and made a part of the
attached lease:
B. LESSOR, at an expense incorporated entirely into the base rent and at no
further cost to LESSEE, shall construct standard office and R&D space
according to a mutually agreed upon plan attached hereto before or about
the time LESSEE takes possession of the leased premises. Said office space
shall be carpeted and completed with painted drywall partitions, acoustical
tile ceilings or exposed spray painted ceiling, standard lighting, fire
protection sprinklers, and 110V convenience electrical wall outlets at
regular intervals. Said R&D space shall be modified with the existing tile
floor cleaned and prepared, walls completed with painted drywall
partitions, acoustical tile ceilings or exposed spray painted ceilings,
standard lighting, fire protection sprinklers, and 110V convenience
electrical wall outlets at regular intervals. All such work shall be
completed in accordance with all applicable zoning, ordinances, laws,
codes, and regulations for office use. LESSOR shall also, at no additional
cost to LESSEE, demise the leased premises from adjoining space and supply
and install: (1) an entry door with glass, (2) glass sidelights at other
offices, (3) HVAC equipment of ten (10) tons with several zones, (4)
kitchenette, sink, and bathrooms, and (5) install border carpet, additional
lighting, and polymix paint in the reception area. LESSOR shall, at
LESSEE's option, either (1) supply and install an additional ten (10) tons
of HVAC capacity in the R&D portion of the leased premises, or (2)
contribute $15,000 towards LESSEE's cost of HVAC equipment for the R&D
portion of the leased premises.
C. LESSOR, if requested to do so by LESSEE, and if reasonably acceptable to
LESSOR, shall at LESSEE's sole expense, shall make additional alterations
necessitated by LESSEE's use of the leased premises ("Upgrades"), including
larger glass treatment of one wall in each office, retractable projection
screen in conference room, shelving along two walls in the conference room,
and some built-in shelving in other areas of the leased premises according
to a plan to be mutually agreed upon by both parties. At LESSEE's request,
the cost of the Upgrades may be incorporated into the lease by separate
amendment to be attached hereto, with an interest rate of 12% per annum and
fully amortized over the initial five (5) year term of this lease and then
paid for by LESSEE in the same manner as base rent which shall otherwise be
due. With LESSOR's prior written approval of the plans for the same, other
improvements specific to LESSEE's use of the leased premises ("Specialty
Upgrades") shall be at LESSEE's sole cost and expense and in compliance with
all applicable codes, ordinances, laws, and regulations. Such Specialty
Upgrades include roof penetrations with roof mounted venting systems,
laboratory benchwork, hoods, cabinetry, regular and "cup" sinks, emergency
shower, additional HVAC, cold storage prefab room, gas/vacuum distribution
lines, blackboards, floor drains, backup generator, glassware room
treatment, NMR room treatment, and tank storage area.
D. * If LESSOR should make any alterations and amortize the cost thereof under
the preceding paragraph, then LESSEE shall provide LESSOR with additional
security in an amount and form satisfactory to LESSOR and LESSOR's counsel
to ensure payment of all costs to be amortized.
E. Notwithstanding the commencement date herein, the parties acknowledge that
the R&D portion of the leased premises may not be available for LESSEE's
occupancy until after the commencement date. Notwithstanding the delay in
delivery of the leased premises, LESSEE's obligation to pay rent in full
accordance with Section 1 shall commence the later of when the office
portion of the leased premises have been substantially completed or November
1, 1998; however, after substantial completion of the office portion of the
leased premises and until the R&D portion of the leased premises is
substantially complete, LESSEE's rent shall be discounted by $110.76 per
day.
F. During the initial term of this Lease and provided LESSEE is not in default
under the terms of this Lease, LESSEE shall have the one-time right of first
lease of third floor contiguous space to the leased premises as it becomes
available (and the unassigned and undesignated parking spaces referred to in
Section 15 of this lease shall be increased by one (1) parking space for
every 556 additional leasable square feet (including 17% common area)
leased)at LESSOR's then current published rental rate for said space as it
becomes available for lease directly from LESSOR, subject to the right of
the current lessee to extend or otherwise renegotiate its current lease and
subject to rights of any other tenant of LESSOR. LESSEE shall have forty-
eight (48) hours from receipt of notice from LESSOR of said availability to
execute LESSOR's then current standard form lease or amendment to lease for
said additional space; failure of LESSEE to execute and return the Lease or
amendment to Lease to LESSOR within such 48-hour period shall automatically
cause such right of first lease to be forever waived and if LESSOR fails to
notify LESSEE of the availability of said space and leases said space to
others, and if LESSEE notifies LESSOR of its desire to lease said space and
immediately executes LESSOR's then current standard form lease for said
space, LESSOR shall thereafter have sixty (60) days to relocate the other
party. If LESSOR fails to relocate the other party within said sixty days
and execute the new lease with LESSEE, then LESSEE may elect, by serving
LESSOR written notice within thirty (30) days after expiration of
<PAGE>
the relocation period to occupy a similar amount of additional space on a
no-charge basis until the earlier to occur of (i) such time as LESSOR
delivers possession of said space or (ii) six (6) months from occupancy.
Time is of the essence.
G. Notwithstanding Section 1 of this lease, LESSEE shall pay rent during the
initial term of this lease in accordance with the following schedule and
with no "Cost of Living" adjustments:
November 1, 1998 to October 31, 1999: $159,771.00 per year and $13,314.25
per month
November 1, 1999 to October 31, 2000: $165,280.00 per year and $13,773.33
per month
November 1, 2000 to October 31, 2001: $169,788.00 per year and $14,149.00
per month
November 1, 2001 to October 31, 2002: $175,297.00 per year and $14,608.08
per month
November 1, 2002 to October 31, 2003: $179,805.00 per year and $14,983.75
per month
H. Provided LESSEE is not then in default of this Lease or in arrears of any
rent or invoice payment, LESSEE shall have the right to extend the term of
this Lease, upon the same terms, conditions, escalations, etc. as provided
herein, except for base rent, for one additional period of five (5) years
("the extended lease term") by serving LESSOR with written notice of its
desire to so extend the Lease. The time for serving such written notice
shall be not more than twelve (12) months or less than six (6) months prior
to the expiration of the initial lease term. Time is of the essence.
I. Notwithstanding the provisions of Section 1, annual base rent commencing
November 1, 2003 shall be recalculated at the then fair "Market Rent" for
similar space. Section 1 shall continue to apply in all other respects
during the extended lease term. The "Market Rent" for the leased premises
for the Extended lease term shall be established pursuant to the provisions
set forth below. As used herein, the "Market Rent" of the leased premises
for the Extended lease term shall mean the product of the then rental rate
per square foot of rentable space for new leases of comparable space (for
both office and laboratory use) in Boston, Massachusetts (where the
landlords and tenants have freely negotiated such rates and where neither
is under any compulsion to lease such space), multiplied by the rentable
area of the leased premises. In determining the rental rate for comparable
office space pursuant to the preceding sentence, it shall assume a willing
landlord, not compelled to lease, and a willing tenant, not compelled to
rent, and due consideration shall be given to the size of the space,
rentable area of the leased premises, the services provided by the
landlord, the benefits and burdens of the lease and the length of the
Extended lease term. Following the delivery by LESSEE of its notice to
exercise a Renewal Option set forth above, LESSOR and LESSEE shall enter
into good faith negotiations and shall attempt to agree on the Market Rent
for the leased premises. If LESSOR and LESSEE have not agreed upon the
Market Rent for the leased premises by the 15th day following the date of
delivery of LESSEE's notice, then the Market Rent for the leased premises
shall be determined by a qualified appraiser or appraisers as follows:
If LESSOR and LESSEE have agreed upon a single qualified appraiser within
15 days after such 15 day period, then the Market Rent for the leased
premises shall be as determined by such appraiser who shall be instructed
to immediately proceed with his appraisal and to simultaneously furnish the
results thereof to LESSOR and LESSEE. If LESSOR and LESSEE cannot agree
upon a single appraiser within such 15-day period, each of LESSOR and
LESSEE shall select within 10 days thereafter a qualified appraiser and two
the two qualified appraisers so selected shall be instructed to make their
appraisals within 30 days after the expiration of such 10-day period (and
if either party shall fail to select an appraiser within such 10-day
period, then the Market Rent for the leased premises shall be determined
solely by the appraiser selected by the other party). If such two
appraisers agree on the Market Rent, then the Market Rent shall be the
amount as so agreed. In the event that the appraisers appointed by LESSOR
and LESSEE cannot agree on the Market Rent of the leased premises within
the aforesaid 30-day period, then such appraisers shall immediately select
a third qualified appraiser who shall select the determination of one of
the original two appraisers as the Market Rent. If the two appraisers are
unable to agree on the selection of the third appraiser, then either party
may cause such third appraiser to be appointed by any court having
jurisdiction over the leased premises. If the Market Rent for the leased
premises is determined by a single appraiser agreed upon by LESSOR and
LESSEE, LESSOR and LESSEE shall each pay one-half of the fees and costs of
the appraiser. If the Market Rent for the leased premises is determined by
two appraisers, LESSOR shall pay the fees and costs of the appraiser
selected by LESSOR, and LESSEE shall pay the fees and costs of the
appraiser selected by LESSEE. If a third appraiser is appointed in
accordance with the foregoing provisions, LESSOR shall pay the fees and
costs of the appraiser selected by LESSOR, LESSEE shall pay the fees and
costs of the appraiser selected by LESSEE, and the fees and costs of the
third appraiser shall be paid by the party whose determination of Market
Rent was not selected by the third appraiser. Any appraiser selected to
determine the Market Rent for the leased premises shall be independent and
unaffiliated with either LESSOR or LESSEE, and shall be an MAI qualified
appraiser with at least ten years' experience in the metropolitan Boston,
Massachusetts, area.
J. LESSEE, at LESSEE's sole cost and expense, and subject to any and all
applicable zoning, ordinances, laws, regulations or other restrictions or
guidelines may install one (1) exterior illuminated sign on the west side
of the
<PAGE>
building (facing The Holiday Inn) for LESSEE's use during the term
of this lease and in a location, size, design, and color to be approved by
LESSOR, which approval shall not be unreasonably withheld.
K. Approximately three (3) weeks from the execution of this Lease, and until
the improvements to be installed by LESSOR within the office portion of the
leased premises is substantially completed (as determined by LESSOR),
LESSOR shall provide LESSEE with use of one secured office at a location to
be designated by LESSOR ("the temporary premises"). LESSEE shall be
responsible for all utility charges for the temporary premises during its
occupancy by LESSEE, but otherwise shall have no obligation to pay rent
with respect to the temporary premises. LESSEE shall vacate the temporary
premises within five (5) days after notice from LESSOR of substantial
completion of the office portion of the leased premises.
L. LESSOR represents that, to its actual knowledge and belief, the use of the
leased premises for the purposes set forth in Section 3 hereinabove is
permitted under the Massachusetts General Laws and the Zoning Ordinance. In
the event, however, that LESSOR is unable to obtain a building permit for
the modifications at the leased premises, or the City of Boston issues a
citation to LESSEE prohibiting such use, LESSOR shall have the right, at
its sole expense, to appeal any such decision. If LESSOR declines to
prosecute said appeal or if any such decision is upheld after all
applicable appeals have been exhausted, then LESSEE may as its sole and
exclusive remedy cancel this Lease by serving LESSOR with thirty (30) days
prior written notice to that effect, and neither party shall thereafter
have any further obligation to the other.
M. Within two (2) months of delivery of the leased premises to LESSEE, either
party may, at its sole cost and expense, have the leased premises measured
by a licensed architect or engineer and provide the other party with
written notice of such measurement. If such measurement reveals that the
area of the leased premises (including 17% common area and using LESSOR's
standard measurement criteria) is different from that specified in this
Lease, then effective as of the Commencement Date, the amounts set forth in
this Lease for base rent and other charges based upon the size of the
leased premises shall be revised based upon such measurement and the
parties hereto shall promptly execute an amendment to this Lease evidencing
the revised amount.
N. Prior to the termination date of this Lease and provided LESSEE is not in
default under the terms of the Lease, LESSEE may remove laboratory hoods
and the prefabricated "cold storage box" supplied and installed by LESSEE
at its sole cost and expense if LESSEE has satisfactorily complied with all
other conditions of this Lease and if LESSEE repairs any and all damage
resulting from such removal on a timely basis prior to the end of the lease
term. Time is of the essence.
O. LESSEE's agreement to subordinate this Lease to any and all mortgages
and/or other instruments in the nature of a mortgage, now or at any time
hereafter, is conditional upon LESSOR using reasonable efforts and due
diligence to obtain the mortgagee's agreement that LESSEE's possession will
not thereafter be disturbed so long as LESSEE is not in default in the
payment of rent or other covenants or obligations hereof.
P. LESSEE shall reasonably and quietly have, hold and enjoy the premises for
the term hereof without hindrance or molestation from LESSOR, and LESSOR
shall use reasonable efforts to permit LESSEE to have, hold, and enjoy the
leased premises for the term hereof without any such hindrance or
molestation from third parties, provided LESSEE is not in arrears of any
rent or invoice payment and is in full compliance with all terms,
conditions and obligations provided herein.
Q. * LESSOR agrees to maintain casualty insurance in a commercially reasonable
amount for the building of which the leased premises are a part.
R. * With respect to any condition existing prior to the commencement of
LESSEE's occupancy hereunder, LESSOR shall hold LESSEE harmless from any
and all suits, judgments, or liabilities, for any "release", as defined in
Section 101(22) of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLAII), of any "hazardous
substance" as defined in Section 101(14) of CERCLA, or any petroleum
(including crude oil or any fraction thereof) as a result of any activity
on the property of which the leased premises are a part occurring prior to
LESSEE's occupancy and not caused by LESSEE.
S. LESSEE, at LESSEE's sole expense, shall be solely responsible for remedying
any and all damage, removing any and all contamination, and properly
disposing of any hazardous substances to the extent generated by LESSEE's
use of such materials. In addition, LESSEE shall indemnify, defend, and
hold LESSOR harmless with respect to any claim, damages, liability,
litigation, attorney's fees, or expenses relating to the same. Time is of
the essence.
<PAGE>
T. If LESSEE receives written notice from any enforcement authority that the
common areas serving the leased premises for LESSEE's use as set forth in
Section 3 hereinabove, are not in compliance with the Americans with
Disabilities Act of 1990 ("ADA") as now written, then LESSEE shall serve
LESSOR with written notice thereof. LESSOR shall then have sixty (60) days
to formally contest any such enforcement action. If LESSOR declines to do
so or commence to correct any non-complying element, and if LESSOR fails to
complete, or to be diligently pursuing completion of, any necessary
corrective action if the enforcement action is finally upheld, then LESSOR
shall be in breach hereof.
U. * LESSOR and LESSEE do hereby mutually release and discharge each other of
and from all liability and responsibility to the other for any loss, damage
or liability covered by insurance if and to the extent that the written
release and discharge does not invalidate or adversely affect any
applicable insurance, provided both parties secure and maintain all
insurance required hereunder.
V. If LESSOR fails to make any repairs to the building or leased premises it
is required to do under this Lease or complete any work or perform any
other obligation hereunder it is required to do under this Lease, and such
failure continues for thirty (30) days after notice thereof from LESSEE
(unless such failure cannot with diligent efforts be cured within thirty
(30) days, in which event LESSOR shall commence such cure and thereafter
diligently prosecute such cure to completion), LESSEE shall have the right
to bring an action at law or in equity against LESSOR for its breach of the
Lease.
W. The sale, assignment or transfer of more than fifty percent (50%) of the
stock of LESSEE shall be deemed to be an assignment under this Lease, for
which LESSOR's prior written consent shall be required; provided, however,
any public offering of stock in LESSEE shall not constitute an assignment
of LESSEE's interest in this Lease. LESSOR's consent shall not be required
for an assignment of this Lease or subletting of all or any portion of the
leased premises to an entity now or hereafter affiliated with LESSEE or to
any company which may result from a reorganization, merger or consolidation
by or with LESSEE, or to any company to which LESSEE is selling all or
substantially all of its assets or stock. For purposes of this lease, the
term "affiliate" shall mean any entity which controls, is controlled by, or
under common control with LESSEE. Further, LESSOR's consent shall not be
required for the transfer of any stock in LESSEE, to the holder or holders
of the majority of the issued or outstanding capital stock of LESSEE or for
the transfer of any stock that is publicly traded on a recognized national
stock exchange or over the counter. However, any such proposed assignee or
sublessee shall execute and deliver to LESSOR an instrument reasonably
acceptable to LESSOR whereby such entity assumes all of the obligations of
LESSEE named therein. Furthermore, any such assignment or subletting shall
in no way release LESSEE from its obligations hereunder. In the event of
such assignment or subletting, LESSEE shall reimburse LESSOR the cost of
LESSOR's attorney's fees up to $1,000.00.
X. With respect to Section 26, LESSOR shall use reasonable efforts to restore
any interrupted service or utilities. Notwithstanding any provisions in
this lease to the contrary, if (1) the leased premises or any material
portion thereof are rendered untenantable by reason of the interruption of
service or utilities and (2) such untenantability continues for more than
five consecutive business days, then to the extent such untenantability is
not covered by LESSEE's business interruption insurance policy, a fair and
just proportion of the base rent and other charges, according to the nature
and extent of such untenantability, shall abate for the period of such
untenantability, to the extent that such interruption in service and
utilities are under the reasonable control of LESSOR.
LESSOR: 52 & 56 ROLAND STREET, L.L.C. LESSEE: CHIREX TECHNOLOGY CENTER, INC.
BY: PINNACLE PROPERTIES MANAGEMENT,
INC., its manager
By: ______________________________ By:_______________________________
Vice President
Date: ______________________
<PAGE>
PINNACLE PROPERTIES MANAGEMENT, INC.
STANDARD FORM
AMENDMENT TO LEASE #1
In connection with a lease currently in effect between the parties hereto at 56
Roland Street, Suite 310, Boston, Massachusetts, executed on August 31, 1998
("Lease") and the initial lease term expiring October 31, 2003, and in
consideration of the mutual benefits to be derived herefrom, 52 & 56 Roland
Street, L.L.C., LESSOR and ChiRex Technology Center, Inc., LESSEE, hereby agree
to amend said lease as follows:
1. On January 15, 1999, the size of the leased premises will be increased by
approximately 327 square feet (including 17% common area), from
approximately 10,017 square feet (including 17% common area) to a new total
of approximately 10,344 square feet (including 17% common area), with the
addition of Suite 202A and the right to install electric equipment in the
building's third floor common electric closet according to a plan and size
approved by LESSOR at Suite 302A. Both Suite 202A and 302A shall be
considered to be part of the leased premises for all purposes under the
Lease. The parties acknowledge and agree that the square feet for Suite
302A was calculated by multiplying the actual square feet of Suite 302A
(including 17% common area) by 50%, even though LESSEE may not actually
utilize 50% of the space.
2. The percentages referred to in Paragraph 4 of the lease are increased to
8.6% from 8.3% and to 7.1% from 6.9% to reflect the change in the size of
the leased premises to the new total of approximately 10,344 square feet
(including 17% common area).
3. LESSEE shall accept the Expansion Space in "AS IS" "WHERE IS" condition,
without warranty or representation.
4. Section G of the Rider to the Lease is deleted in its entirety.
5. Notwithstanding Section 1 of this Lease, LESSEE shall pay rent during the
initial term of this lease in accordance with the following schedule and
with no "Cost of Living" adjustments:
November 1, 1998 to January 14, 1999: $159,771.00 per year and
$13,314.25 per month
January 15, 1999 to October 31, 1999: $164,986.65 per year and
$13,748.89 per month
November 1, 1999 to October 31, 2000: $170,675.48 per year and
$14,222.96 per month
November 1, 2000 to October 31, 2001: $175,330.65 per year and
$14,610.89 per month
November 1, 2001 to October 31, 2002: $181,019.48 per year and
$15,084.96 per month
November 1, 2002 to October 31, 2003: $185,674.65 per year and
$15,472.89 per month
6. LESSEE and LESSOR each warrants and represents to the other party that it
has dealt with no broker or third person with respect to this lease
amendment (although both parties acknowledge Hunneman Commercial as the
broker on the original lease transaction) and LESSEE and LESSOR each agrees
to indemnify the other party against any brokerage claims arising by any
person or entity claiming by, through or under such party.
7. Time is of the essence with respect to this Amendment.
<PAGE>
Except as specifically amended herein, the lease shall remain in full force and
effect and all other terms, conditions, and covenants of the present lease shall
continue to apply. except that adjusted base rent shall be increased by
$_________ annually, from a total of $________ to a new annual total of
$________, or $________ per month. Annual base rent for the purposes of
computing any future escalations thereon shall be $___________. This Amendment
shall be effective upon full execution by all parties and shall continue through
the balance of the lease and any extensions thereof unless further modified by
written amendment(s). All terms capitalized herein and not defined herein shall
have the meaning given to such term in the Lease.
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common
seals this _________ day of _____________, 1999.
LESSOR: 52 & 56 ROLAND STREET, L.L.C. LESSEE: CHIREX TECHNOLOGY CENTER, INC.
By: PINNACLE PROPERTIES MANAGEMENT,
INC.,
its manager
By: _________________________________ By:__________________________________
Vice President
GUARANTY
--------
IN CONSIDERATION of the making of the Lease by 52 & 56 Roland Street, L.L.C.
with ChiRex Technology Center, Inc. at the request of the undersigned and in
reliance on this Guaranty, the undersigned (GUARANTOR) hereby personally
guarantees the prompt payment of rent by LESSEE and the performance by LESSEE of
all the terms, conditions, covenants and agreements of the Lease, this
Amendment, any other amendments thereto and any extension or assignments
thereof, and the undersigned promises to pay all expenses, including reasonable
attorney's fees, incurred by LESSOR in enforcing all obligations of LESSEE under
the Lease or this Amendment or incurred by LESSOR in enforcing this Guaranty.
LESSOR's consent to any assignments, subleases, amendments and extensions by
LESSEE or to any compromise or release of LESSEE's liability hereunder, with or
without notice to the undersigned, or LESSOR's failure to notify the undersigned
of any default and/or reinstatement of the Lease by LESSEE, shall not relieve
the undersigned from liability as GUARANTOR.
IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set its hand and
common seal intending to be legally bound hereby this _____ day of January,
1999.
CHIREX, INC.
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
PINNACLE PROPERTIES MANAGEMENT, INC.
STANDARD FORM
AMENDMENT TO LEASE #2
In connection with a lease currently in effect between the parties hereto at 56
Roland Street, Suite 310, Boston, Massachusetts, executed on August 31, 1998
("Lease") and the initial lease term expiring October 31, 2003, and in
consideration of the mutual benefits to be derived herefrom, 52 & 56 Roland
Street, L.L.C., LESSOR and ChiRex Technology Center, Inc., LESSEE, hereby agree
to amend said lease as follows:
1. On January 15, 1999, the size of the leased premises will be increased by
approximately 1,183 square feet (including 17% common area), from
approximately 10,344 square feet (including 17% common area) to a new total
of approximately 11,527 square feet (including 17% common area), with the
addition of Suite 312 ("Expansion Space"). The Expansion Space shall be
considered to be part of the leased premises for all purposes under the
Lease.
2. The parties acknowledge and agree that the Expansion Space is presently
under lease to a third party ("existing tenant") whose lease terminates on
or about February 28, 2002. Upon full execution of this amendment to lease,
LESSOR will use reasonable efforts to execute a termination agreement
("Termination Agreement") with the existing tenant upon terms and
conditions acceptable to LESSOR whereby the existing tenant will agree to
vacate the Expansion Space on or before February 1, 1999. In the event
LESSOR fails to deliver a fully executed copy of the Termination Agreement
to LESSEE on or before January 30, 1999, then at any time thereafter prior
to delivery of the fully executed Termination Agreement, LESSEE may elect
to cancel this Amendment without penalty by serving notice (which in this
case may be by facsimile) to LESSOR and in such event neither party shall
thereafter have any further obligation to the other with respect to the
terms of this Amendment. In any event, this Amendment shall automatically
and without further notice be null, void and of no effect if the LESSOR
fails to deliver the fully executed Termination Agreement to LESSEE on or
before March 1, 1999, and in such event neither party shall thereafter have
any obligation to the other with respect to the terms of this Amendment.
3. The percentages referred to in Paragraph 4 of the lease are increased to
9.6% from 8.6% and to 7.9% from 7.1% to reflect the change in the size of
the leased premises to the new total of approximately 11,527 square feet
(including 17% common area).
4. The number of unassigned and undesignated parking spaces referred to in
Section 15 of the lease is increased by two (2) spaces to twenty (20)
spaces from eighteen (18) spaces.
5. LESSEE shall accept the First Expansion Space and the Second Expansion
Space in "AS IS" "WHERE IS" condition, without warranty or representation.
6. Sections F and G of the Rider to the Lease are deleted in their entireties.
7. Paragraph 5 of Amendment to Lease #1 is deleted in its entirety.
<PAGE>
8. The Security Deposit referred to in Section 2 of the Lease shall be
increased to $31,000.00 from $26,000.00. LESSEE shall pay the balance of
$5,000.00 upon execution of this Amendment and, upon notification by LESSOR
of any deduction from the transferred Security Deposit, LESSEE shall
promptly restore the full $31,000.00 Security Deposit as provided in
Section 2 of the Lease. Time is of the essence.
9. Notwithstanding Section 1 of this Lease, LESSEE shall pay rent during the
initial term of this lease in accordance with the following schedule and
with no "Cost of Living" adjustments:
November 1, 1998 to January 14, 1999: $159,771.00 per year and
$13,314.25 per month
January 15, 1999 to October 31, 1999: $192,136.50 per year and
$16,011.37 per month
November 1, 1999 to October 31, 2000: $198,475.98 per year and
$16,539.67 per month
November 1, 2000 to October 31, 2001: $203,663.50 per year and
$16,971.96 per month
November 1, 2001 to October 31, 2002: $210,002.98 per year and
$17,500.25 per month
November 1, 2002 to October 31, 2003: $215,190.50 per year and
$17,932.54 per month
10. LESSEE and LESSOR each warrants and represents to the other party that it
has dealt with no broker or third person with respect to this lease
amendment and LESSEE and LESSOR each agrees to indemnify the other party
against any brokerage claims arising by any person or entity claiming by,
through or under such party.
11. Time is of the essence with respect to this Amendment.
Except as specifically amended herein, the lease shall remain in full force and
effect and all other terms, conditions, and covenants of the present lease shall
continue to apply. except that adjusted base rent shall be increased by
$_________ annually, from a total of $________ to a new annual total of
$________, or $________ per month. Annual base rent for the purposes of
computing any future escalations thereon shall be $___________. This Amendment
shall be effective upon full execution by all parties and shall continue through
the balance of the lease and any extensions thereof unless further modified by
written amendment(s). All terms capitalized herein and not defined herein shall
have the meaning given to such term in the Lease.
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common
seals this _________ day of _____________, 1999.
LESSOR: 52 & 56 ROLAND STREET, L.L.C. LESSEE: CHIREX TECHNOLOGY CENTER, INC.
By: PINNACLE PROPERTIES MANAGEMENT,
INC.,
its manager
By: _________________________________ By:____________________________________
Vice President
<PAGE>
GUARANTY
--------
IN CONSIDERATION of the making of the Lease by 52 & 56 Roland Street, L.L.C.
with ChiRex Technology Center, Inc. at the request of the undersigned and in
reliance on this Guaranty, the undersigned (GUARANTOR) hereby personally
guarantees the prompt payment of rent by LESSEE and the performance by LESSEE of
all the terms, conditions, covenants and agreements of the Lease, this
Amendment, any other amendments thereto and any extension or assignments
thereof, and the undersigned promises to pay all expenses, including reasonable
attorney's fees, incurred by LESSOR in enforcing all obligations of LESSEE under
the Lease or this Amendment or incurred by LESSOR in enforcing this Guaranty.
LESSOR's consent to any assignments, subleases, amendments and extensions by
LESSEE or to any compromise or release of LESSEE's liability hereunder, with or
without notice to the undersigned, or LESSOR's failure to notify the undersigned
of any default and/or reinstatement of the Lease by LESSEE, shall not relieve
the undersigned from liability as GUARANTOR.
IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set its hand and
common seal intending to be legally bound hereby this _____ day of January,
1999.
CHIREX, INC.
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
PINNACLE PROPERTIES MANAGEMENT, INC.
STANDARD FORM
AMENDMENT TO LEASE #4
In connection with a lease currently in effect between the parties hereto at 56
Roland Street, Suite 310, Boston, Massachusetts, executed on August 31, 1998
("Lease") and the initial lease term expiring October 31, 2003, and in
consideration of the mutual benefits to be derived herefrom, 52 & 56 Roland
Street, L.L.C., LESSOR and ChiRex Technology Center, Inc., LESSEE, hereby agree
to amend said lease as follows:
1. On or about February 19, 1999, LESSOR shall provide LESSEE with the
temporary use of approximately 1,052 square feet (including 17% common
area) at Suite 303 (the "Temporary Suite"). LESSEE shall be responsible for
all utility charges for the Temporary Suite during its occupancy by LESSEE,
and LESSEE shall pay LESSOR $1,227.33 per month in additional rent for the
use of the Temporary Suite. The additional rent for the Temporary Suite
shall be paid by LESSEE at the same time and in the same manner as monthly
rent under the lease. LESSEE shall vacate the Temporary Suite on or before
noon on April 30, 1999. The Temporary Suite shall be considered to be part
of the leased premises for all purposes under the Lease.
2. In the event that LESSEE continues to occupy or control all or any part of
the Temporary Suite after noon, April 30, 1999 without the written
permission of LESSOR, then LESSEE shall be liable to LESSOR for any and all
loss, damages or expenses incurred by LESSOR, and all other terms of this
lease shall continue to apply except that rent shall be due in full monthly
installments at a rate of two hundred fifty percent (250%) of that which
would otherwise be due under this lease, it being understood between the
parties that such extended occupancy is as a tenant at sufferance and is
solely for the benefit and convenience of LESSEE and as such has greater
rental value. LESSEE's control or occupancy of all or any part of the
leased premises beyond noon on the last day of any monthly rental period
shall constitute LESSEE's occupancy for an entire additional month, and
increased rent as provided in this section shall be due and payable
immediately in advance. LESSOR's acceptance of any payments from LESSEE
during such extended occupancy shall not alter LESSEE's status as a tenant
at sufferance.
3. LESSEE shall accept the Temporary Suite in "AS IS" "WHERE IS" condition,
without warranty or representation.
4. Section K of the Rider to the Lease is deleted in its entirety.
5. LESSEE and LESSOR each warrants and represents to the other party that it
has dealt with no broker or third person with respect to this lease
amendment and LESSEE and LESSOR each agrees to indemnify the other party
against any brokerage claims arising by any person or entity claiming by,
through or under such party.
6. Time is of the essence with respect to this Amendment.
7. Paragraph 2 of Amendment to Lease #2 is deleted in its entirety.
Except as specifically amended herein, the lease shall remain in full force and
effect and all other terms, conditions, and covenants of the present lease shall
continue to apply. This Amendment shall be effective upon full execution by all
-------------------
parties and shall continue through the balance of the lease and any extensions
thereof unless further modified by written amendment(s). All terms capitalized
herein and not defined herein shall have the meaning given to such term in the
Lease.
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and common
seals this _________ day of _____________, 1999.
LESSOR: 52 & 56 ROLAND STREET, L.L.C. LESSEE: CHIREX TECHNOLOGY CENTER, INC.
By: PINNACLE PROPERTIES MANAGEMENT,
INC.,
its manager
By: _______________________________ By:____________________________________
Vice President
<PAGE>
GUARANTY
--------
IN CONSIDERATION of the making of the Lease by 52 & 56 Roland Street, L.L.C.
with ChiRex Technology Center, Inc. at the request of the undersigned and in
reliance on this Guaranty, the undersigned (GUARANTOR) hereby personally
guarantees the prompt payment of rent by LESSEE and the performance by LESSEE of
all the terms, conditions, covenants and agreements of the Lease, this
Amendment, any other amendments thereto and any extension or assignments
thereof, and the undersigned promises to pay all expenses, including reasonable
attorney's fees, incurred by LESSOR in enforcing all obligations of LESSEE under
the Lease or this Amendment or incurred by LESSOR in enforcing this Guaranty.
LESSOR's consent to any assignments, subleases, amendments and extensions by
LESSEE or to any compromise or release of LESSEE's liability hereunder, with or
without notice to the undersigned, or LESSOR's failure to notify the undersigned
of any default and/or reinstatement of the Lease by LESSEE, shall not relieve
the undersigned from liability as GUARANTOR.
IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set its hand and
common seal intending to be legally bound hereby this _____ day of February,
1999.
CHIREX, INC.
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Exhibit 13
FRONT COVER
- -----------
Vertically-Integrated Pharmaceutical Supply-Chain Solutions From
Discovery Through Active Ingredient
INSIDE FRONT
- ------------
COVER
- -----
[Full-length graphic of a chiral structure created by Eric
Jacobsen]
MISSION STATEMENT
ChiRex is one of only a few companies to offer both contract
manufacturing of primary pharmaceutical ingredients and contract
research and development of pharmaceutical fine chemical
processes. ChiRex is a service company that delivers value for
its customers by speeding their entry to market and for its
shareholders by capturing the growth of supply chain outsourcing.
ChiRex holds a leading portfolio of patented process chemistry
technologies and intends to exploit its technology and
manufacturing assets to be the leading source of supply chain
solutions from IND (investigational new drug) through API (active
pharmaceutical ingredient).
PAGE 1
- ------
FINANCIAL SUMMARY
[Graphic of an archer. Graph of 1995, 1996, 1997, 1998 revenues,
core revenues, gross profit and earnings (loss) per share.]
1
<PAGE>
PAGES 2-5
- ---------
TO OUR SHAREHOLDERS
During 1998, ChiRex's third year as a public company, our core
revenues grew by 68% to $114.7 million. At the same time, we made
significant strides toward our strategic objectives: we expanded
our pharmaceutical outsourcing services upstream to include
contract research and development; we added to our portfolio of
proprietary process chemistry technologies; we opened our second
FDA-regulated manufacturing site in Annan, Scotland; we adopted
Product Management as the central organizational philosophy of
the Company; and we recruited important new managers from outside
the Company.
During the year, ChiRex became the first company to offer both
contract manufacturing of primary pharmaceutical ingredients and
contract research and development of pharmaceutical fine chemical
processes. We believe that these combined competencies add value
and innovation to one another, and that in-house technology
transfer will give our customers a faster and less risky route to
market. Today, ChiRex has a distinct competitive advantage over
both the dedicated contract laboratory service company and the
dedicated contract manufacturing company.
Technology Focus
In September of 1998, we established the ChiRex Technology Center
(CTC) in Boston, Massachusetts. When it opens in April of 1999
the Technology Center will fulfill our mission to support post-
discovery, early-stage drug development--a unique capability for
a pharmaceutical contract manufacturing organization. The CTC
will give us three new revenue streams: contract research and
development, royalties for the use of our patented process
chemistries, and sales of proprietary chemical building blocks.
Professor Eric Jacobsen, Professor of Chemistry and Chemical
Biology at Harvard University and member of the ChiRex Board of
Directors and Scientific Advisory Board, will serve as Scientific
Director of the Technology Center. Dr. Alexander "Sandy"
McKillop, ChiRex's Director of Research and Development at our
Development Center in Dudley, England, will work closely with CTC
management to establish the Center, and will serve as one of the
important links between our Technology Center in Boston and our
Development Center in England.
In May of 1998, ChiRex received an exclusive license for aromatic
carbon heteroatom bond-forming technologies (ABT), a chemical
technology developed by Dr. Stephen Buchwald of the Massachusetts
Institute of Technology and a member of the ChiRex Scientific
Advisory Board. A perfect fit for our chemical toolbox, ABT
allows difficult-to-make chemical bonds to form between carbon
and other atoms. ABT is our first non-chiral technology and
enables us to manufacture an even broader range of products at
lower cost and with higher purity.
Manufacturing Capability
In 1998 ChiRex successfully introduced seven new products into
full-scale manufacture. Additionally, we expanded our FDA-
inspected manufacturing capacity by bringing our Annan, Scotland
manufacturing facility on line. This site, which comprises three
major production buildings, delivered positive operating profit
in the fourth quarter of 1998 as we produced the first two
products under our five-year, approximately $450 million supply
agreement with Glaxo Wellcome. The Glaxo contract will be
fulfilled in just two of Annan's three buildings, while the third
building (comprising half of the site's production capacity) is
available for contract to other customers. It is our intention to
introduce additional customers into the third building, and we
expect to produce FDA-validated batches of material by early in
the year 2000.
We also are committed to improving productivity at our
manufacturing site in Dudley, England. Dudley is already a
profitable performer, but we believe the plant can be configured
and loaded more efficiently, thereby freeing capacity for more
products and making the site even more profitable. With our two
state-of-the-art
2
<PAGE>
manufacturing facilities, ChiRex can grow to $400 million of
revenues utilizing installed capacity.
Product Management
Serving customers with increasingly complex process development
and manufacturing requirements means having the capability to
deliver product that is right-first-time, every time. Often the
customer's purchase decision is based on security of supply,
product quality and supplier regulatory expertise rather than
price. Additionally, innovation is crucial to our customers: of
ChiRex's 630 employees, more than 130 hold advanced technical
degrees, and more than 75 hold Ph.D.s.
In order to best serve our customers, we adopted Product
Management as our central organizational philosophy. By
reorganizing our activities around "product as profit center"
instead of "department as cost center," we have been able to
improve operating performance and customer service levels while
reducing headcount and overhead costs, allowing us to bring the
best ideas to the customer without internal departmental
resistance. While our managers have always been highly skilled
in the manufacture of regulated pharmaceuticals, this new
approach emphasizes return-on-capital and profit performance.
Additionally, all of our employees participate in a stock option
program that reinforces the dual messages of highest quality
services and profit per share.
Management Team
As ChiRex has grown our need for new ideas and outside
perspective has led to a significant change in the leadership of
the Company. Alan Clark retired as Chairman and Chief Executive
in July, and I was elected to follow him in those roles. In
addition to the implementation of Product Management, one of my
initial priorities has been to expand the breadth and depth of
our management team. On September 1, Ian D. Shott was appointed
Chief Operating Officer. Ian joined ChiRex from Alusuisse Lonza
where he was previously General Manager of Lonza Fine Chemicals
and Head of International Supply Chain Management. At the same
time, Frank J. Wright, formerly Vice President, Annan Operations,
was appointed to the new position of Executive Vice President,
Corporate Development. Frank joined ChiRex in September of 1997
after sixteen years at Glaxo Wellcome where he served in senior
positions in outsourcing and procurement, manufacturing strategy
and corporate development. Frank was instrumental in delivering
the Annan acquisition to operating status and is uniquely
qualified to pursue the further strategic development of the
Company.
At the beginning of 1999, ChiRex appointed Michael J. Nicholds,
Ph.D., as Vice President, Sales and Marketing, based in the
United Kingdom, and Stuart E. Needleman, as Vice President,
Business Development based in Boston. Dr. Nicholds was formerly
Business Manager, Pharmaceutical Intermediates at Zeneca
LifeScience Molecules in Manchester, England, where he was
responsible for worldwide strategy development and
implementation, market positioning and Customer Key Account
Management within the intermediates manufacturing business.
3
<PAGE>
Mr. Needleman formerly served as Vice President of Business
Development, North America, for Oxford Asymmetry International,
managing the company's sales and marketing programs and
establishing alliances and collaborations, concentrating on the
life sciences industry. These two professionals will work as
partners to deliver the full service offerings of ChiRex to our
customers worldwide.
In addition, we replaced the managers of several important
functions with internal promotions and external hires including
purchasing, product management, plant management, human resources
management, regulatory management and financial management.
Financial Performance
For 1998, ChiRex achieved gross revenues of $119.7 million,
compared with $94.1 million in 1997. Core revenues grew by 68% to
$114.7 million from $68.1 million in 1997. Gross profit at $31.8
million (27% of revenues) rose above 1997 levels of $22.7 million
(24% of revenues). Net income (before restructuring charges) was
$4.8 million, or $0.41 per share for 1998, compared to earnings
of $4.8 million, or $0.42 per share in 1997. Without the effect
of the Annan acquisition, net income would have been $12.2
million, or $1.04 per share. Finally, ChiRex earned only $0.09
per share during the first three quarters of 1998, but we earned
$0.33 per share during the fourth quarter.
The 1998 fourth quarter results were driven by several
complementary factors: We completed the first phase of the $30
million Annan re-conditioning project and commenced production of
two new products under our estimated five year $450 million
supply agreement with Glaxo Wellcome, we more effectively
controlled costs and operating performance through the
implementation of product management, and our cost reduction and
efficiency programs initiated earlier in 1998 began to be
realized. ChiRex delivered earnings consistent with our top-line
growth in the third and fourth quarters of 1998, and with the
Annan facility on line, we intend to deliver consistent results
in the year ahead.
4
<PAGE>
ChiRex People
1998 was a year of continuous management challenge created by
extraordinary growth, and monumental accomplishments delivered by
a tireless team of men and women. On behalf of the shareholders,
I congratulate each of the 630 employees of ChiRex for their
persistence, dedication and professionalism in the face of rapid
change.
1999 Goals
During 1999, ChiRex will open and expand the ChiRex Technology
Center, establish a Development business in North America to
complement the Technology Center, seek partnerships with other
technology-focused companies, maximize our full range of
manufacturing capabilities, and pursue strategic value-adding
acquisitions to extend our customer breadth, core capabilities
and geographic reach. I look forward to achieving these goals by
delivering innovation to our pharmaceutical customers from IND to
API.
Sincerely,
[SIGNATURE SCAN]
Michael A. Griffith
Chairman and Chief Executive Officer
[DATE OF LETTER]
5
<PAGE>
Page 6-7
- --------
The Highs--Arms reaching up
Highlights of 1998
. Establishing of the ChiRex Technology Center in Boston,
Massachusetts
. Acquiring the exclusive license for aromatic carbon heteroatom
bond forming technologies (ABT) from MIT
. Bringing the Annan manufacturing facility online
. Introducing seven new full-scale products to Annan and Dudley
. Upgrading the management team with seasoned outside
professionals
6
<PAGE>
Pages 8-9 A Technological Leap
- ---------
[Photo of foot jumping off a spring board, Photo of Professor
Jacobsen at Harvard]
Quote from Professor Jacobsen:
"ChiRex has a rich portfolio of valuable proprietary technologies
based on selective catalytic reactions. The goal of the ChiRex
Technology Center is to develop the commercial potential of these
technologies through process research, contract process
development and small-scale synthesis. This will reinforce
ChiRex's singularly strong position for serving the outsourcing
needs of the pharmaceutical industry at the earliest stage and
leading the industry in technological innovation."
Eric Jacobsen, Ph.D.
Professor, Department of Chemistry and Chemical Biology, Harvard
University Scientific Director, ChiRex Technology Center Member,
ChiRex Board of Directors and ChiRex Scientific Advisory Board
Receptor sites in the human body are specifically designed to
accept particular isomers of a given compound. These isomers, or
"hands" from the Greek (cheiros) fit each receptor site as
specifically as a glove fits a right or left hand. An isomeric
"hand" that doesn't fit a receptor correctly can produce
undesirable side effects or toxicity. In the United States, the
FDA has become increasingly stringent about demanding single
isomer pharmaceuticals rather than mixed isomeric compounds. As
some 70% of pharmaceutical products currently in development are
single isomer compounds, pharmaceutical companies are under
increasing pressure to produce single isomer compounds
efficiently and economically. Thus, pharmaceutical companies look
to partner with a service provider who will expertly apply the
right technology for their products. Chiral and enzymatic
technologies employ "single-handed" catalysts to recognize and
isolate a single-handed ingredient that is safer and purer. The
flexibility of chiral technology allows the "recycling" of the
material to derive more of the desired isomers from raw material.
Pages 10-11
- -----------
[Photo of Professor Jacobsen writing formula on blackboard spread
across two pages.]
Early Stage Development Services
The ChiRex Technology Center (CTC), a wholly-owned subsidiary of
ChiRex Inc., is located in Boston, Massachusetts and occupies
11,000 square feet. The Technology Center will accelerate the
development and application of our proprietary technologies, thus
reinforcing ChiRex's position as a highly innovative service
organization to the pharmaceutical industry. The Technology
Center will establish additional revenue streams for ChiRex:
contract research and development, royalty income through the
infusion of ChiRex technologies in products developed at the
Center, and the sale of proprietary chiral building blocks.
The Technology Center offers early-stage development services,
such as synthesis design, route development and optimization,
scale-up and clinical trial supply of product. The Technology
Center will open in April of 1999, with an operating budget of $3
million. The demand for high-quality process development
7
<PAGE>
capabilities has been overwhelming, and the Technology Center was
completely booked to projected capacity before the end of 1998.
ChiRex already has expanded its hiring projections from twelve
scientists to approximately thirty-five by the end of 1999, and
plans to secure additional facilities to meet customer demand.
The Technology Center's chemistry and development expertise
complements ChiRex's manufacturing services, offering customers a
single source for the supply-chain solution they now have to seek
from multiple organizations. In-house, early-stage development
services provide a seamless technology transfer to facilitate
crucial speed-to-market, and to minimize potential risk
transition between the laboratory, pilot plant and commercial
scale manufacture.
8
<PAGE>
Establishing the Technology Center in the United States enables
ChiRex to bring vertically-integrated services to North American
customers, and its Boston location is in close proximity to some
of the finest research institutions in the world. This allows the
Development Center at Dudley to focus its activities on the
development, introduction and manufacture of customers' new
products at both the Dudley and Annan manufacturing sites.
The Boston location also increases the hands-on involvement of
Professor Jacobsen, one of the most brilliant innovators in
chiral chemistry today. Dr. Sandy McKillop, Director of Research
and Development at the ChiRex Development Center in Dudley, will
serve as the most influential link between Boston, Dudley and
Annan.
9
<PAGE>
Pages 12-13
-----------
[Flexibility Drawing
Photo of Sandy McKillop
Photo of Pilot Plant]
Major Heading Development Flexibility
Dr. McKillop Quote:
"The main objective for the Development Center is to prepare
processes for manufacturability and conduct economic, hazard and
engineering evaluations in the search for new and improved routes
to molecules. In this stage of creating processes, speed and
accuracy are vital."
Alexander McKillop, Ph.D.
Director of Research and Development
Chairman, ChiRex Scientific Advisory Board
Development Flexibility
ChiRex's facility in Dudley, England includes a Development
Center and pilot plant opened in 1996. The Dudley facility has
the ability to produce and handle bulk intermediates,
pharmaceuticals and extremely potent materials. Dudley's range of
chemical capabilities is impressive, incorporating the most
recent advances in chiral technology. Halogenations,
organometallics, liquid ammonia technology, low temperature
capability, Friedel Crafts, nitration, cyanide handling,
oxidation, reduction, asymmetric dihydroxylation, asymmetric
epoxidation, kinetic resolution and enzymatic bio-resolution are
all carried out routinely.
All projects are supported by ChiRex's comprehensive key account
management system, which accelerates the technology transfer from
the laboratory to the pilot plant through to full-scale
manufacture.
Both the Dudley and Annan manufacturing facilities benefit from
the expertise of the Development Center's research and dedicated
Hazard Evaluation scientific staff. ChiRex draws on the Center's
formidable knowledge of both classical and revolutionary
chemistry advancements to assess and create any configuration a
customer's product requires.
New Routes to Molecules
ChiRex's customers utilize the collective acumen and talents of
the Dudley Development Center's staff of approximately fifty-five
scientists. Four members of this staff are dedicated to hazard
evaluation. Dudley's four state-of-the-art development suites
enable the staff to manage three product streams simultaneously
and separately from ongoing bulk intermediate activity. All
projects entering the facility undergo an initial feasibility
study and hazard evaluation. The project is then closely
supervised by a dedicated member of the Center's scientific staff
through its life cycle at Dudley and transport to its final
destination.
The Development Center, pilot plant and the larger manufacturing
buildings can accommodate a range of production amounts, from 100
kg to multi-ton quantities. In addition to assisting clients with
early-stage molecule design and development, the Development
Center can also assist clients in producing clinical trial
supplies in quantities too large to be produced in a laboratory
and too small for regular manufacture. With a comprehensive
database of current worldwide scientific research, the Dudley
Development Staff stays apprised of innovations which can be
applied to specific scientific challenges, to increase the
potency, efficiency and overall value of each customer's product.
10
<PAGE>
Pages 14-15 Strength and Dependability
-----------
[Photo of Ian Shott]
Muscle Flexibility Photography
Quote:
"ChiRex has a substantial track record of over 30 years of
simultaneously manufacturing products with different
specifications and interdependencies on behalf of a large
customer base. Throughout this time, all operations have been
undertaken within the most rigorous regulatory environment, and
the strength of our Quality Assurance and operational compliance
provides a validation framework which removes the uncertainty
from manufacturing."
Ian D. Shott
Chief Operating Officer
Pages 16-17 Flexible Capacity
-----------
[Panoramic shot of Annan, photo of glove box technology]
Manufacturing Capability-Annan
The ChiRex manufacturing facility in Annan, Scotland, is one of
the world's best-equipped cGMP facilities, specializing in bulk
pharmaceutical active ingredients. With the acquisition of the
Annan site from Glaxo Wellcome in November of 1997 for a total
renovated cost of $110 million, ChiRex also acquired the services
of approximately one hundred and fifty highly-trained
pharmaceutical professionals.
ChiRex's five-year, estimted $450 million contract with Glaxo
Wellcome included the introduction of three additional new full-
scale products in the Annan facility, which will add a
significant stream of revenue to ChiRex. Products manufactured at
Annan feature as major therapies in the treatment of AIDS,
Hepatitis B, hypertension and duodenal ulcers.
11
<PAGE>
Annan is a unique manufacturing site in ChiRex's portfolio of
assets as it was designed, constructed and operated to the
highest standards throughout its life by a major pharmaceutical
company dedicated to the manufacture of finished products. ChiRex
has integrated Annan's systems, procedures, disciplines, records
and culture to deliver products that are consistently on target
from the initial manufacture onwards. Annan's computer-controlled
operations and high integrity product containment systems
contribute to the highest level of process reliability.
In the fourth quarter of 1998 Annan turned the corner towards
becoming a major profit center for ChiRex, and its potential for
expansion will serve ChiRex for many years--only twenty-seven of
its one hundred and fifty acres have been developed to date.
Though Annan is ready to become profitable, more than half of its
manufacturing capacity remains untapped. The Company has set as
one of its strategic objectives the introduction into Annan of
several new customers with full-scale established products to
meet the increasing industry demands for high-purity active
ingredients.
Manufacturing Capability - Dudley
The Dudley manufacturing facility specializes in the scale-up and
commercial-scale production of bulk intermediates and final
products. Whether ChiRex designs the initial synthesis or
evaluates and adapts a customer's process to the Company's
regulatory and efficiency standards, the Dudley scientific and
operating staff produce intermediates and pharmaceutical active
ingredients with speed and economic efficiency in a fully
regulated environment. Dudley's 650 cubic meter capacity is as
spacious and well-equipped as any of ChiRex's competitors. The
site operates to cGMP standards and was inspected by the FDA in
November 1998 without receiving any citations. The facility also
operates management systems certified to ISO 9002 standards.
Regulatory expertise is a hallmark of ChiRex's operations. It is
applied during the life cycle of the product and ultimately in
delivery to the customer. Each product's unique characteristics
may be dictated by specific transport regulations that can vary
as the amount of product increases to commercial scale. ChiRex's
staff guides the customer through regulatory requirements with
its characteristic dedication to perfection.
Partners
[Photo of Chain of arms in which one is pulling the other up.]
Pulling Together
Pharmaceutical manufacturing is a global business. It is no
longer unusual for a pharmaceutical company in one country to
outsource discovery, development, clinical trials and
manufacturing to several external organizations in a number of
other countries. ChiRex, with a significant presence on two
continents, is equipped to provide services from Investigational
New Drug (IND) filing to Active Pharmaceutical Ingredient (API)
manufacturing to customers anywhere in the world. Moreover, the
ChiRex Technology Center will establish the Company as a
technology leader with pharmaceutical industry customers in North
America, a huge geographic region in which the Company's
expertise has traditionally been underexploited.
Customer Quotes:
Outsourcing Trends -
"A solid track record has been the foundation of the long
standing relationship between Glaxo Wellcome and ChiRex. This
extends beyond the secure manufacture of white powder and
embraces high quality process development, adherence to strict
regulatory standards and a positive approach to customer care.
ChiRex's acquisition of the Glaxo Wellcome facility at Annan
further enhanced our relationship. We operate in partnership with
their facilities effectively seen as an
12
<PAGE>
extension of our own. This is a relationship that is increasing
becoming the outsourcing model for our industry."
Alan Edwards
Purchasing Manager
International Actives Supply
Glaxo Wellcome
13
<PAGE>
Customer Quotes:
Long term relationships -
"One of the sustaining features of our long relationship with
ChiRex has been their focused commitment to our process
development needs. ChiRex is always looking for ways to
streamline the process and to improve costs."
Dr. William S. Hurt
Global Product Manager
Rohm and Haas
Technology -
"The excellent cooperation with ChiRex helped Pharmacia & UpJohn
solve serious issues that had affected our supply assurance. We
have been impressed by the adaptability, flexibility and strength
of the ChiRex team."
Dr. Sanjay Amin
Vice President, Global Sourcing and Pharmaceutical Launch Plants,
Global Supply-Active Pharmaceutical Ingredients
Pharmacia & UpJohn
14
<PAGE>
CHIREX INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Management's Discussion and Analysis of Results of Operations
and Financial Condition 1
Reports of Independent Public Accountants 9
Consolidated Balance Sheets as of December 31, 1997 and 1998 10
Consolidated Statements of Operations for the years ended December 31, 1996, 1997
and 1998 11
Consolidated Statements of Comprehensive Operations for the years ended December 31, 1996, 1997
and 1998 11
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997
and 1998 12
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997
and 1998 13
Notes to Consolidated Financial Statements 14
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto included herein.
Introduction
ChiRex Inc. (the "Company" or "ChiRex") is an integrated outsourcing company
that provides an extensive range of services to pharmaceutical and life science
companies. The Company's services span a broad range of outsourcing services
sought by our customers from the early stages of drug development, from post-
discovery to full-scale manufacture of active ingredients. Specifically the
Company provides contract process research and development and pharmaceutical
fine chemical manufacturing services and offers our customers access to our
extensive portfolio of proprietary technologies. The Company's contract
manufacturing services developed over the past thirty years, include process
research and development, hazard evaluation, analytical methods development,
clinical quantity production and pilot-scale and commercial-scale manufacturing
at its world-class, current Good Manufacturing Practices ("cGMP") facilities in
Dudley, England and Annan, Scotland. In addition we utilize our proprietary
technologies to solve problems for our customers and reduce drug development
time.
In April 1997, the Company disposed of its acetaminophen (paracetamol, an
over-the-counter analgesic) business and in September 1997, the Company ceased
production of acetaminophen. At the time of the disposition, acetaminophen was
the largest volume product manufactured by the Company, representing
approximately 31% of the Company's 1996 pro-forma as adjusted revenues, but was
not highly profitable at the gross margin level. In connection with the
disposition of the business, the Company recorded a $8.1 million pre-tax
restructuring charge net of proceeds on disposition in the second quarter of
1997, and implemented measures designed to offset the effect of the disposal on
operating performance. 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 would continue to erode.
On October 31, 1997, the Company completed the purchase of a Glaxo Wellcome
FDA cGMP pharmaceutical production facility located in Annan, Scotland. The
Company paid approximately $66.8 million ((Pounds)40.0 million) for the facility
plus an additional payment for certain working capital of approximately $1.7
million ((Pounds)1.0 million). As part of the transaction, Glaxo Wellcome
awarded the Company a five-year contract to supply certain pharmaceutical
intermediates and active ingredients which we estimate will provide for
approximately $450 million of aggregate sales volume. ChiRex purchased all of
the buildings, land and equipment at the 154-acre Annan, Scotland property,
encompassing three main production facilities plus certain working capital. The
Company has invested approximately $24.0 million in 1998 and plans to invest an
additional $10 million in 1999 to accommodate newly contracted products and to
continue the modification of the facility for multi-product pharmaceutical fine
chemical manufacturing. Under the Supply Agreement, ChiRex will manufacture up
to ten products at Annan and Dudley. The acquisition has been accounted for as a
purchase and, accordingly, the operating results of the Annan facility have been
included in the Company's consolidated financial statements from the date of
acquisition.
In 1998 the Company recorded restructuring and other expenses of $3.2 million.
In July 1998, the Company announced a restructuring, including management
changes and the transition to a product management structure. The Company
recorded restructuring and other expenses of $3.2 million in 1998. The 1998
restructuring and other expenses consist of $2.9 million of severance costs
related to management changes associated with implementing the product
management structure and $0.3 million of other costs.
Substantially all of the Company's revenues and expenses are denominated in
Great Britain pounds sterling, and to prepare the Company's consolidated
financial statements such amounts are translated into US Dollars at average
exchange rates in accordance with generally accepted accounting principles. The
average exchange rates used to make this translation in 1996, 1997 and 1998 was
$1.56, $1.65 and $1.66, respectively, per (Pounds)1.00. Period-to-period
changes in exchange rates can affect the comparability of the Company's
consolidated financial statements.
16
<PAGE>
Results of Operations
In order to make the comparison of financial information more meaningful, the
following tables set forth (i) the historical results of the Company for 1997
and 1998 adjusted to exclude various restructuring and other non-recurring
expenses, (ii) the historical results for 1996 and the pro forma 1996 results as
further adjusted of the Company, adjusted to exclude various charges resulting
from the formation of the Company consisting of adjustments to restate inventory
at fair value, write-off of acquired in-process research and development and an
expense relating to certain stock compensation. All intercompany transactions
requiring elimination have been eliminated. The pro forma as adjusted, and as
adjusted financial data for 1996 set forth in the following tables are not
necessarily 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 as adjusted results of operations for 1996
and the as adjusted results of operations for 1997 and 1998 set forth in the
following tables for the periods indicated and not the actual results of
operations of any of the constituent entities. For a more complete description
of the formation of the Company see Notes 1 and 2 of the notes to consolidated
financial statements.
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.
17
<PAGE>
ChiRex Inc.
Comparative Operating Results
For Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
1998 ChiRex Inc. Adjustments As Adjusted
- ------------------------------------- ----------- --------------- -------------
<S> <C> <C> <C>
Revenues $ 119,663 $ - $ 119,663
Cost of goods sold 87,876 - 87,876
--------- ----------- ------------
Gross profit 31,787 - 31,787
Research and development 4,389 - 4,389
Selling, general and administrative 12,622 - 12,622
Goodwill amortization 1,164 - 1,164
Restructuring and other expenses 3,242 (3,242)(1) -
Interest expense, net 5,829 - 5,829
--------- ----------- ------------
Income before income taxes 4,541 3,242 7,783
Provision for income taxes (2,373) (621)(2) (2,994)
--------- ----------- ------------
Net income $ 2,168 $ 2,621 $ 4,789
========= =========== ============
1997 ChiRex Inc. Adjustments As Adjusted
- ------------------------------------- ----------- ----------- ------------
Revenues $ 94,100 $ - $ 94,100
Cost of goods sold 71,440 - 71,440
--------- ----------- ------------
Gross profit 22,660 - 22,660
Research and development 3,937 - 3,937
Selling, general and administrative 9,423 - 9,423
Goodwill amortization 1,164 - 1,164
Restructuring expenses, net of proceeds 8,069 (8,069)(3) -
Interest expense, net 1,052 - 1,052
--------- ----------- ------------
Income (loss) before income taxes (985) 8,069 7,084
Benefit (provision) for income taxes 335 2,572 (4) (2,237)
--------- ----------- ------------
Net income (loss) $ (650) $ 5,497 $ 4,847
========= =========== ============
<CAPTION>
ChiRex
(Holdings)
Limited
January 1,
1996
through Pro
ChiRex March 11 Forma Pro Pro Forma
1996 Inc. 1996 Adjustments Forma Adjustments As adjusted
---- -------- ------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $74,615 $15,212 $ - $ 89,827 $ - $89,827
Cost of goods sold 56,508 12,564 112 (5) 69,184 (1,372)(9) 67,812
------- ------- --------- ----------- ------------ -------
Gross profit 18,107 2,648 (112) 20,643 1,372 22,015
Research and development 9,307 558 - 9,865 (5,790)(10) 4,075
Selling, general and administrative 13,563 1,300 - 14,863 (5,611)(11) 9,252
Goodwill amortization 924 - 225 (6) 1,149 - 1,149
Interest expense, net 755 690 (440)(7) 1,005 - 1,005
------- ------- --------- ----------- ------------ -------
Income (loss) before income taxes (6,442) 100 103 (6,239) 12,773 6,534
Benefit (provision) for income taxes (1,867) (33) (108)(8) (2,008) (453)(12) (2,461)
------- ------- --------- ----------- ------------ -------
Net income (loss) $(8,309) $ 67 $ (5) $ (8,247) $ 12,320 $ 4,073
======= ======= ========= =========== ============ =======
</TABLE>
(1) To reverse the effect of the restructuring and other expenses.
(2) Tax effect of tax deductible adjustments described in note (1) above.
(3) To reverse the effect of the restructuring and asset impairment charge net
of proceeds received on the disposal of the acetaminophen business.
(4) Tax effect of the adjustment described in note (3) above.
(5) Increase in depreciation reflecting the increased valuation of ChiRex
(Holdings) Limited's fixed assets for the period prior to the formation of
the Company.
(6) Increase in amortization of goodwill related to the period prior to the
formation of the Company.
(7) Reduction in interest expense related to debt retired in connection with
the formation of the Company.
(8) Income tax effect of pro forma adjustments, excluding amortization of
goodwill, which is not deductible for tax purposes.
(9) To reverse the effect of the purchase method of accounting step-up of
inventory to fair value at the time of the Contribution.
(10) To reverse the effect of the write-off of research and development
expenses that were in process at the time of the formation of the company.
(11) To reverse the effect of stock compensation charge associated with
granting of stock and options to purchase stock in connection with the
formation of the Company.
(12) Tax effect of the adjustment described in note (9) above.
18
<PAGE>
The table below sets forth the revenues by type for the Company for the
years-ended December 31, 1996 (pro forma as adjusted), 1997 and 1998 (in
thousands):
<TABLE>
<CAPTION>
Revenue by Type 1996 % 1997 % 1998 %
---- -- ---- -- ---- --
<S> <C> <C> <C> <C> <C> <C>
Core $48,445 54.0% $68,130 72.4% $114,686 95.8%
Acetaminophen 27,874 31.0% 19,205 20.4% 782 0.7%
Non-core 12,333 13.7% 6,029 6.4% 3,742 3.1%
Licenses and royalties 1,175 1.3% 736 0.8% 453 0.4%
------- ------- --------
Total $89,827 $94,100 $119,663
======= ======= ========
</TABLE>
Years ended December 31, 1997 and 1998
Substantially all of the Company's revenues in 1998 were generated from the
manufacture and sale of products. Total revenues increased $25.6 million or
27.2%, to $119.7 million in 1998, from $94.1 million in 1997, as new products
were introduced and shipments under the Glaxo Wellcome supply contract
increased, partly offset by the unfavorable effect on revenues from the sale of
the acetominophen business which contributed $19.2 million in 1997 or 20.4% of
total revenues. Existing core-product revenue increased by $41.3 million, and
seven new core products contributed $5.3 million of revenues in 1998. Revenues
from core products of $114.7 million, which accounted for 95.8% of revenues in
1998, increased by $46.6 million or 68.3%, while revenues from non-core products
of $3.7 million accounted for 3.1% of revenues in 1998, decreased by $2.3
million or 37.9%. The Company expects core revenues to increase in 1999 due to
higher shipments under the Glaxo Wellcome supply agreement and revenues from new
core products. License fee and royalty income declined $0.3 million due to the
decline in demand for the products generating such revenue. Product price
changes did not contribute significantly to changes in revenue between the two
periods.
Cost of goods sold increased $16.4 million, or 23.0%, to $87.9 million in
1998 from $71.4 million in 1997. This increase is due to the higher volume of
new products and expenses associated with new product introductions, partly
offset by lower acetominophen and non-core product sales. Gross margin
percentage increased to 26.6% in 1998 from 24.1% in 1997 due to higher margin
new product sales and the inclusion in 1997 of a $1.2 million inventory reserve.
The 1998 gross margin was adversely affected by the under-utilization of the
Annan facility during its refurbishment into a multi-product pharmaceutical fine
chemical manufacturing facility.
Research and development expenses increased $0.5 million, or 11.5%, to $4.4
million in 1998 from $3.9 million in 1997. This increase was due primarily to
the cost of additional research chemists and pilot plant costs to support the
new product pipeline, partly offset by lower technology support expenses.
Research and development expenses are expected to increase in 1999 due to the
formation of the CTC. The Company is committed to improving and expanding its
research and development activities, including commercializing its proprietary
process technologies.
Selling, general and administrative expenses increased $3.2 million, or 33.9%
to $12.6 million in 1998. The increase is attributable to additional costs
associated with the Annan facility acquired in the fourth quarter of 1997,
senior management recruitment expenses and costs associated with the formation
of the Technology Center.
Interest expense was $5.8 million in 1998 compared to $1.1 million in 1997.
This is a result of higher borrowing levels resulting from the acquisition of
the Annan facility in the fourth quarter of 1997.
Income tax expense was $3.0 million in 1998, an effective tax rate of 38.5%,
compared to $2.2 million in 1997, an effective tax rate of 31.6%. The effective
tax rate in 1998 is greater than 1997 primarily due to incremental non-
deductible charges incurred during the year.
As a result of the factors described above, the as adjusted net income was
$4.8 million in 1998, comparable to net income in 1997.
19
<PAGE>
Years ended December 31, 1996 and 1997
Substantially all of the Company's revenues in 1997 were generated from the
manufacture and sale of products. Revenues of $94.1 million in 1997 increased
$4.3 million, or 4.8%, from $89.8 million in 1996. Revenues from core products
of $68.1 million, which accounted for 72.4% of revenues in 1997, increased by
$19.7 million or 40.6%, while revenues from non-core products (excluding
acetaminophen) of $6.0 million, which accounted for 6.4% of revenues in 1997,
decreased by $6.3 million or 51.1%. Existing core-product revenues increased by
$15.6 million, and seven new products contributed $4.1 million of revenues in
1997. Revenues of $19.2 million attributable to acetaminophen, which accounted
for 20.4% of revenues in 1997, declined by $8.7 million or 31.1% compared to
1996 due primarily to the sale of the business in 1997. License fee and royalty
income declined $0.4 million due to the decline in demand for the products
generating such revenue. Product price changes did not contribute significantly
to changes in revenue between the two periods.
Cost of goods sold increased $3.6 million, or 5.4%, to $71.4 million in 1997.
Of the increase, approximately $1.2 million relates to reserves recorded in 1997
for certain inventory including Phentermine Hydrochloride, one of the active
ingredients in the dietary suppressant combined therapy commonly known as "Fen-
Phen", that was the subject of an FDA action resulting in significantly reduced
demand for the drug. The remainder of the increase can be attributable to the
higher level of sales and the Company's introduction of new products.
Research and development expenses decreased $0.1 million, or 3.4%, to $3.9
million in 1997 from $4.0 million in 1996. Development activity in 1997
remained at a high level to support new product development.
Selling, general and administrative expenses increased $0.2 million, or 1.9%,
to $9.4 million in 1997. The increase is attributable to approximately $0.4
million of additional expenses generated at the Annan facility after its
acquisition partly offset by a reduction in fixed costs following changes to the
Company's organizational structure.
Interest expense, net in 1997 of $1.1 million was $0.1 million higher than
1996 because of lower debt borrowings early in the year as proceeds received
from the Secondary Offering (see Note 2 to the consolidated financial
statements) were used to reduce bank borrowings, which more than offset higher
borrowing requirements in the fourth quarter of 1997 following the acquisition
of the Annan facility which was financed by bank borrowings.
Income tax expense was $2.2 million in 1997, an effective tax rate of 31.6%,
compared to $2.5 million in 1996, an effective tax rate of 37.7%. The effective
tax rate in 1997 is less than 1996 due to the recognition of a $0.4 million
deferred tax benefit, resulting from the enactment of a statutory rate reduction
in the UK from 33% to 31% in 1997. The Company's effective tax rate generally
exceeds the statutory rates primarily due to non-deductible amortization of
goodwill.
As a result of the factors described above, the pro forma as adjusted net
income was $4.8 million in 1997 compared to pro forma as adjusted net income of
$4.1 million in 1996.
Liquidity and Capital Resources
Cash provided from operations was $22.4 million in 1998. The Company generated
$24.2 million in cash from operations before $1.8 million of cash restructuring
charges incurred in 1998. Operating working capital (working capital excluding
cash and current portion of long-term debt) decreased $3.0 million in 1998
primarily due to a decrease in accounts receivable. Cash provided by operations
of $4.3 million in 1997 reflects the overall profitability of the business prior
to the impact of the sale of the acetaminophen business less the cash costs of
restructuring charges incurred in 1997. The Company generated $10.5 million in
cash from operating activities before $6.2 million of cash restructuring charges
incurred in 1997 related to the disposal of the acetaminophen business.
Operating working capital increased $5.3 million in 1997 largely due to an
increase in accounts receivable in the fourth quarter.
20
<PAGE>
Net cash used in investing activities was $41.1 million in 1998, consisting of
capital spending for the modification of the Annan facility for multi-product
pharmaceutical fine chemical manufacturing, and capacity expansion for new
products and maintenance capital expenditures at the Dudley facility.
Net cash used in investing activities was $77.5 million in 1997, consisting of
the acquisition of the Annan facility for $69.5 million and $12.1 million in
capacity expansion and maintenance capital expenditures primarily at the Dudley
facility. These expenditures were partly offset by $4.1 million in proceeds
received from the sale of the acetaminophen business.
Net cash generated from financing activities in 1998 was $13.4 million
primarily from additional borrowings on the Company's credit facility. The
Company also received $0.9 million in proceeds from the exercise of stock
options in 1998.
The Company entered into a senior secured term-loan and revolving credit
agreement in October 1997, with a group of banks allowing it to borrow up to
(Pounds)62.0 million (approximately $103.0 million at December 31, 1998) for a
five-year period (the "Facilities Agreement"). The Facilities Agreement
consists of a (Pounds)40.0 million (approximately $66.4 million) term loan and a
(Pounds)22.0 million (approximately $36.5 million) revolving credit facility.
At December 31, 1998, (Pounds)40.0 million (approximately $66.4 million) was
outstanding under the loan and (Pounds)15.0 million (approximately $24.9
million) was outstanding under the revolving credit facility.
The Company believes that the funds generated from operations and funds
available under the Facilities Agreement will be sufficient to expand and grow
its business in accordance with its current plans. The Company's ability to
make acquisitions and to meet its long-term capital requirements and obligations
in 1999 and beyond will depend on many factors, including but not limited to,
the rate, if any, at which the Company's cash flow increases, the ability and
willingness of the Company to accomplish acquisitions with its capital stock and
the availability to the Company of public and private debt and equity financing.
No assurance can be given that additional financing, if required, will be
available or that if available, it will be available on terms favorable to the
Company. The Company anticipates capital expenditures will be approximately
$20.0 million during 1999. Of this, approximately $10.0 million will be used
for the completion of the Annan facility and approximately $10.0 million will
be normal maintenance of the Dudley and Annan sites.
Foreign Currency
For 1996, 1997 and 1998, net sales of the Company's products outside the
United States totaled approximately $73 million on a pro forma basis, $93
million and $119 million, respectively, representing 98% 99% and 99%,
respectively, 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 believes it has a natural
cash currency hedge because its operating expenses and revenues tend to be
denominated in matched currencies. Also, the Company has partly offset 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 US 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 US dollars at average monthly exchange rates. In addition, the
US 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 Great Britain pounds sterling and Euros.
Year 2000 Disclosure
The Company has dedicated internal resources to identify and resolve "Year
2000" compliance issues with respect to computer systems and applications
utilized by the Company. The Company has also engaged external resources,
including hiring an independent consulting firm, and will purchase necessary
computer software upgrades to become year 2000 compliant. The Company will
develop comprehensive testing procedures once necessary software and equipment
have been installed to validate year 2000 compliance. The Company is
implementing a year 2000 compliant management information system at its Annan
facility in
21
<PAGE>
connection with its business plans for this location. The Company's plan is to
implement these systems at the Company's other locations, including the Dudley
facility, in 1999. The Company expects to spend approximately $7.1 million on
systems and equipment, which are year 2000 compliant and will expense these
costs in accordance with current accounting guidance.
The Company believes that the systems at two of the three production
facilities at Annan are year 2000 compliant. At present, the Company is not
utilizing the third production facility at Annan. In the event that the Company
commences operations at this third facility, it expects to spend approximately
$1.0 million upgrading the facility's computer systems and applications and will
expense these costs in accordance with current accounting guidance.
No assurance can be given that the year 2000 compliance issues will be
resolved without any future disruption or that the Company will not incur
significant additional expense in resolving the issue. In addition, the failure
of certain of the Company's significant suppliers and customers to address the
year 2000 compliance issues could have a material adverse effect on the Company.
Contingency plans have been addressed for all major computer systems and
applications, and they include manual capability of certain business areas if
necessary, and the controlled shutdown and start-up of the manufacturing plant
for a minimum period of days during the date change. The approach, methodology,
plans and contingencies for internal processes have been reviewed by our
independent computer consultant and are subject to further development and
testing. With regards to external factors such as supply of raw materials,
access to funds and potential utility disruption, the Company's contingency
plans are at a preliminary stage and require further development.
New Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards ("SFAS"), No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variability in cash flows attributable to a particular risk, or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available for sale security and a
forecasted transaction. The Company will be required to implement SFAS No. 133
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company expects the adoption of this pronouncement will not have a material
effect on the Company's financial statements.
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of ChiRex Inc.:
We have audited the accompanying consolidated balance sheets of ChiRex Inc. (a
Delaware corporation) and its subsidiaries as of December 31, 1997 and 1998, and
the related consolidated statements of operations, comprehensive operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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 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 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 audits 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, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1999
23
<PAGE>
CHIREX INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(dollars in thousands except per-share amounts)
<TABLE>
<CAPTION>
1997 1998
---------------- ----------------
ASSETS
- ------
Current assets:
<S> <C> <C>
Cash $ 5,347 $ 128
Trade and other receivables 18,811 16,285
Inventories 23,225 32,295
Other current assets 3,774 4,012
-------- --------
Total current assets 51,157 52,720
Property, plant and equipment, net 120,755 154,070
Intangible asset, net 27,564 26,398
Other assets 3,591 5,350
-------- --------
Total Assets $203,067 $238,538
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 8,763 $ 15,123
Accrued expenses 11,587 17,122
Current portion of long-term debt 7,311 14,756
Income taxes payable 348 389
-------- --------
Total current liabilities 28,009 47,390
Long-term debt 69,675 76,544
Deferred income taxes 7,955 10,640
Deferred income 4,333 6,751
-------- --------
Total Liabilities 109,972 141,325
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock ($0.01 par value, 4,000,000 shares authorized;
none issued and outstanding in 1997 and 1998) - -
Common stock ($0.01 par value, 30,000,000 shares authorized; 11,792,990
and 11,881,377 issued and outstanding at December 31, 1997 and 1998) 118 119
Additional paid-in capital 100,788 102,354
Accumulated deficit (11,411) (9,243)
Cumulative translation adjustment 3,600 3,983
-------- --------
Total Stockholders' Equity 93,095 97,213
-------- --------
Total Liabilities and Stockholders' Equity $203,067 $238,538
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
24
<PAGE>
CHIREX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
Revenues:
<S> <C> <C> <C>
Product sales $ 73,440 $93,362 $119,210
License fee and royalty income 1,175 738 453
-------- ------- --------
Total revenues 74,615 94,100 119,663
-------- ------- --------
Costs and expenses:
Cost of goods sold 56,508 71,440 87,876
Research and development 3,517 3,937 4,389
Selling, general and administrative 7,952 9,423 12,622
Goodwill amortization 924 1,164 1,164
Restructuring and other expenses, net of proceeds from
disposition of Acetaminophen business in 1997 5,611 8,069 3,242
Write-off of in-process research and development 5,790 - -
-------- ------- --------
Total operating expenses 80,302 94,033 109,293
-------- ------- --------
Operating income (loss) (5,687) 67 10,370
Interest expense, net 755 1,052 5,829
-------- ------- --------
Income (loss) before income taxes (6,442) (985) 4,541
(Provision) benefit for income taxes (1,867) 335 (2,373)
-------- ------- --------
Net income (loss) $ (8,309) $ (650) $ 2,168
======== ======= ========
Net income (loss) per common share:
Basic $(0.88) $(0.06) $0.18
======== ======= ========
Diluted $(0.88) $(0.06) $0.18
======== ======= ========
Weighted average shares outstanding:
Basic 9,485 11,407 11,820
======== ======= ========
Diluted 9,485 11,407 12,330
======== ======= ========
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
<S> <C> <C> <C>
Net income (loss) $(8,309) $ (650) $2,168
Change in cumulative translation adjustment 5,241 (1,641) 383
------- ------- ------
Comprehensive income (loss) $(3,068) $(2,291) $2,551
======= ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
25
<PAGE>
CHIREX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------------- ---------------- ----------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (8,309) $ (650) $ 2,168
Adjustments to reconcile net (loss) to cash provided by
operating activities:
Depreciation and amortization 8,371 10,062 12,509
Non-cash restructuring and other expenses 5,611 7,743 1,463
(Gain) loss on sale of assets - 30 (40)
Proceeds from sale of acetaminophen - (7,159) -
Benefit (provision) for deferred income taxes (1,468) (495) 2,767
Provision for doubtful accounts 434 - -
Write-off of in-process research and development 5,790 - -
Changes in assets and liabilities:
Trade and other receivables (1,970) (6,500) 2,777
Inventories (855) 2,749 (9,615)
Other current assets 973 947 673
Other assets - (500) (1,885)
Accounts payable and accrued expenses 1,101 (562) 9,127
Income taxes payable 1,614 (1,929) 51
Deferred income 682 517 2,402
Other assets and liabilities - - (25)
-------- -------- --------
Net cash provided by operations 11,974 4,253 22,372
-------- -------- --------
Cash flows from investing activities:
Proceeds on sale of assets - 4,100 54
Purchase of assets and transaction costs - (69,495) -
Capital expenditures (4,290) (12,067) (41,183)
-------- -------- --------
Net cash used in investing activities (4,290) (77,462) (41,129)
-------- -------- --------
Cash flows from financing activities:
Borrowings on term-loan and revolving credit facility, net - 77,983 13,396
Proceeds from the issuance of common stock 83,149 4,180 34
Proceeds from exercise of stock options 136 1,138 892
(Payments) borrowings on revolving line of credit, net 3,588 (3,772) -
Deferred financing costs - (1,404) (875)
Repayment of subordinated note (53,534) - -
Redemption of common stock (40,472) - -
-------- -------- --------
Net cash provided by (used in) financing activities (7,133) 78,125 13,447
-------- -------- --------
Effect of exchange rate changes on cash (261) 140 91
-------- -------- --------
Net (decrease) increase in cash 290 5,056 (5,219)
Cash at beginning of period 1 291 5,347
-------- -------- --------
Cash at end of period $ 291 $ 5,347 $ 128
======== ======== ========
Supplemental Cash Flow Information :
Cash paid for:
Interest, net of amounts capitalized $ 755 $ 1,241 $ 5,945
Income taxes paid (refunded), net $ 1,081 $ 1,647 $ (432)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
26
<PAGE>
CHIREX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Total
---------------- Paid-In Accumulated Translation Stockholders'
Shares Amount Capital Deficit Adjustment Equity
------- ------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 8,015 $ 80 $ 5,064 $ (2,452) $ - $ 2,692
Net loss - - - (8,309) - (8,309)
Issuance of common stock, net 10,414 104 125,065 - - 125,169
Effect of stock compensation charge 25 - 5,611 - - 5,611
Redemption of common stock (3,091) (31) (40,441) - - (40,472)
Exchange of ChiRex Inc. shares
for ChiRex America shares (4,519) (45) 45 - - -
Options exercised 90 1 135 - - 136
Translation adjustment - - - - 5,241 5,241
------ ---- -------- -------- -------- --------
Balance at December 31, 1996 10,934 109 95,479 (10,761) 5,241 90,068
Net loss - - - (650) - (650)
Issuance of common stock, net 524 5 4,175 - - 4,180
Options exercised 335 4 1,134 - - 1,138
Translation adjustment - - - - (1,641) (1,641)
------ ---- -------- -------- -------- --------
Balance at December 31, 1997 11,793 118 100,788 (11,411) 3,600 93,095
Net income - - - 2,168 - 2,168
Issuance of common stock, net - - 34 - - 34
Options exercised 88 1 891 - - 892
Effect of stock compensation charge - - 641 - - 641
Translation adjustment - - - - 383 383
------ ---- -------- -------- -------- --------
Balance at December 31, 1998 11,881 $119 $102,354 $ (9,243) $ 3,983 $ 97,213
====== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
27
<PAGE>
CHIREX INC.
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 owned by the same stockholders as the Company (the Merger), and
acquired the business of Crossco (157) Limited ("Crossco"), including its
wholly-owned subsidiary Sterling Organics Limited, a pharmaceutical fine
chemical manufacturer located in Dudley, England. 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. Limited is a wholly-owned subsidiary of
Holdings, and Holdings and ChiRex America are wholly-owned subsidiaries of the
Company. During 1997, Limited changed its name to ChiRex (Dudley) Limited
("Dudley") and a new wholly-owned subsidiary of Holdings, ChiRex (Annan) Limited
("Annan"), was formed. In 1998, the Company formed ChiRex Technology Center
("CTC") a full-service chemical process development organization. CTC is a
wholly-owned subsidiary of ChiRex Inc.
SepraChem was established in November 1994 as a wholly-owned subsidiary of
Sepracor Inc. (the "Former Affiliate"). SepraChem manufactured and sold fine
chemical intermediaries and bulk active pharmaceuticals to pharmaceutical
companies worldwide. SepraChem also leased pharmaceutical separation modules to
a company in Japan.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
The consolidated financial statements of the Company combine the historical
results of ChiRex America for the three years ended December 31, 1998 with the
results of ChiRex Inc. and CTC from the date of incorporation. The results of
Holdings and Dudley are included from the date of their acquisition on March 11,
1996 and the results of Annan from the date of its incorporation.
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 generally 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.
28
<PAGE>
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.
Research and Development
Research and development costs are expensed as incurred.
Stock Based Compensation Plans
With respect to stock options granted to employees, Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
permits companies to continue using the accounting method promulgated by the
Accounting Principles Board Opinion No. 25, ("APB 25"), "Accounting for Stock
Issued to Employees," to measure compensation or to adopt the fair value based
method prescribed by SFAS 123. If a company continues to apply APB 25 for
accounting purposes, pro forma footnote disclosures are required to present net
income as if SFAS No. 123 accounting provisions were applied for accounting
purposes. Management has not adopted the SFAS No. 123's accounting recognition
provisions and has included the required pro forma disclosures.
Income Taxes
The Company accounts for income taxes in accordance with the liability method
as prescribed by 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 Income (Loss) per Common Share
The Company determines net income (loss) per share in accordance with SFAS No.
128, "Earnings Per Share". This statement establishes the standards for
computing and presenting earnings per share.
Basic income (loss) per common share was computed by dividing the net income
(loss) by the weighted average number of shares of common stock outstanding
during the year. Since the effect of the assumed exercise of stock options of
420,000 shares and 581,000 shares in 1996 and 1997 respectively, are anti-
dilutive, basic and diluted loss per share as presented on the consolidated
statement of operations are the same. In 1998, 510,000 diluted shares related to
stock options are included in diluted shares outstanding.
Postretirement Benefits
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosure About
Pensions and Other Postretirement Benefits." This statement changes current
financial statement disclosure requirements from those required under previous
accounting pronouncements. The statement does not change the existing
measurement or recognition provisions. The Company has included the required
disclosure requirements under this standard.
29
<PAGE>
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>
1997 1998
---------- ----------
(in thousands)
<S> <C> <C>
Raw materials $ 8,688 $ 8,922
Work in progress 6,608 11,024
Finished goods 7,929 12,349
------- -------
Total $23,225 $32,295
======= =======
</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 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.
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
(in thousands)
<S> <C> <C>
Land $ 6,037 $ 6,092
Buildings 27,347 29,088
Machinery and equipment 104,510 147,082
-------- --------
137,894 182,262
Less accumulated depreciation (17,139) (28,192)
-------- --------
$120,755 $154,070
======== ========
</TABLE>
Depreciation expense was $7,447,000, $8,898,000 and $11,345,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
Other Current Assets
At December 31, 1997 and 1998, other current assets consist primarily of
prepaid expenses and other miscellaneous non-trade receivables.
Intangible Assets
Intangible assets primarily relate to the excess cost over the fair value of
net assets of Holdings and Dudley acquired on March 11, 1996. This intangible
asset is being amortized using the straight-line method over 25 years.
Accumulated amortization at December 31, 1997 and 1998 was $2,088,000 and
$3,252,000, respectively. 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 Holdings and Dudley in assessing the recoverability of this asset. If
impairment has occurred, any excess of carrying value over fair value would be
recorded as an impairment charge.
Foreign Currency
The accounts of the Company's UK subsidiaries are recorded in their functional
currency, Great Britain pounds sterling, and are translated into US dollars
using year-end exchange rates for assets and liabilities and average exchange
rates during the year for revenues and expenses. Resulting translation
adjustments are reflected as a separate component of stockholders' equity titled
cumulative translation adjustment. Foreign currency transaction gains and
losses are included in the accompanying consolidated statements of operations
and are not material for the three years presented.
30
<PAGE>
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and a balance due under a term loan and revolving
line of credit. Their respective carrying amounts in the accompanying
consolidated balance sheets approximate fair value due either to the short-term
nature of the balances, or in the case of the term loan and 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 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 SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of " in 1996. 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.
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.
Comprehensive Income
In 1998, the Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting and
display of comprehensive income and its components. Components of comprehensive
income are net income and all other non-owner changes in equity such as the
change in the cumulative translation adjustment. This statement requires that
an enterprise: (a) classify items of other comprehensive income by their nature
in a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a balance sheet.
Segment Information
In 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information". This statement
establishes the standards for reporting information about segments in annual and
interim financial statements. The statement introduces a new model for segment
reporting, the "management approach". The management approach is based on the
way the chief operating decision-maker organizes segments within a company for
making operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management structure
- - any manner in which management desegregates a company. The Company has
included the required disclosure requirements under this standard. The Company
has one reportable segment: the development and manufacture of pharmaceutical
fine chemicals. (See note 11).
Recently Issued Accounting Standards
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to
31
<PAGE>
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variability in cash flows
attributable to a particular risk, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available for sale security and a forecasted transaction. The
Company will be required to implement SFAS No. 133 for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company expects the adoption of
this pronouncement will not have a material effect on the Company's financial
statements.
2. Significant Transactions
Shelf Registration
On December 14, 1998, the Company filed with the Securities and Exchange
Commission to register for the sale an indeterminate principal amount of debt
securities, Preferred Stock, Common Stock and Warrants, (representing rights to
purchase Debt Securities, Preferred Stock, or Common Stock) with initial
offering price not to exceed $100,000,000. Costs associated with this filing
have been deferred and included in other assets.
Restructuring and Other Expenses
The Company announced in July 1998 a restructuring including management
changes and the transition to a product management structure. The Company
recorded restructuring and other expenses of $3.2 million in 1998. The 1998
restructuring and other expenses consists of $2.9 million of severance costs
related to management changes to implement the product management structure and
$0.3 million of other costs.
Purchase of Annan, Scotland Manufacturing Site
On October 31, 1997, the Company through its Annan subsidiary completed the
purchase of Glaxo Wellcome's FDA cGMP pharmaceutical production facility located
in Annan, Scotland. The Company paid approximately $66.8 million ((Pounds)
40.0 million) for the facility plus an additional payment for certain working
capital of approximately $1.7 million ((Pounds) 1.0 million).
As part of the transaction, Glaxo Wellcome awarded the Company a five-year
contract to supply certain pharmaceutical intermediates and active ingredients
with an aggregate estimated intended sales value of approximately $450 million.
Under the Asset Purchase Agreement, ChiRex purchased all of the buildings,
land and equipment at the 154-acre Annan, Scotland property, encompassing three
main production facilities plus certain working capital. Under the Supply
Agreement, ChiRex will continue to manufacture most of the products currently
made at Annan. The Company has invested approximately $24.0 million in 1998 and
plans to invest an additional $10.0 million in the year 1999 to accommodate
newly contracted products and to complete the modification of the facility for
multi-product pharmaceutical fine chemical manufacturing. The acquisition has
been accounted for as a purchase and, accordingly, the operating results of the
Annan facility have been included in the Company's consolidated financial
statements from the date of acquisition. The total purchase price including
expenses of the transaction was allocated to the assets purchased.
To finance the acquisition and provide for the general cash requirements of
the business, Holdings entered into a senior secured term-loan and revolving
credit agreement (see Note 7).
The following table presents pro forma revenues, net loss and basic and
diluted loss per common share for the Company assuming the acquisition of the
Annan facility had occurred on January 1, 1996 as follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Revenues $103,652 $113,411
Net loss (10,338) (1,163)
Net loss per common share:
Basic and diluted net loss per common share (1.09) (0.10)
</TABLE>
32
<PAGE>
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisition of the Annan
facility been made at the beginning of 1996.
Sale of Acetaminophen Business and Restructuring Charge
In April 1997, the Company sold its acetaminophen business and related
intellectual property to Rhone-Poulenc Chimie S. A., a French pharmaceutical
company, for net proceeds of approximately $7.1 million ((Pounds)4.3 million),
of which $4.1 million ((Pounds)2.5 million) was received during 1997 with the
balance due over three years. Amounts due from Rhone-Poulenc Chimie
of $2.5 million ((Pounds)1.5 million) at December 31, 1998, are reflected in
other current assets and other assets on the consolidated balance sheets and
have been discounted at a market interest rate. Under terms of the agreement,
ChiRex continued to manufacture acetaminophen for the purchaser pursuant to a
Supply Agreement for a period after the sale to effect a seamless transfer of
customers. The Company ceased manufacture of acetaminophen in September 1997.
In connection with the disposal of the acetaminophen business, the Company
recorded an asset impairment and restructuring charge totaling $7.7 million to
write down the equipment associated with the acetaminophen business to their net
realizable value and to provide for severance and other costs of $7.5 million
due to the elimination of employees involved with the manufacture and support of
the acetaminophen business. As of December 31, 1998, approximately $1.1 million
of the restructuring charge remains in accrued expenses on the balance sheet for
future obligations associated with the divestiture of the Acetaminophen
business.
Secondary Public Offering of The Company's Common Stock
On February 26, 1997, the Company filed with the Securities and Exchange
Commission to register the sale by the Former Affiliate of its 3,489,301 shares
of the Company's common stock at $9.50 per common share (the "Secondary
Offering"). In connection with the Secondary Offering, the Company granted the
underwriters a 30-day option to purchase up to 523,395 additional shares of the
Company's common stock on the same terms as set forth in the Secondary Offering
to cover over allotments. In April 1997, the underwriters exercised their
option and the Company issued 523,395 shares of its common stock and received
proceeds of $4,180,000 net of associated expenses.
Initial Public Offering, Acquisition and Merger
On March 11, 1996 the Company completed the sale of 6,675,000 shares of its
common stock, pursuant to an underwritten initial public offering (the Initial
Public Offering). Concurrent with the Initial Public Offering, ChiRex America
was contributed to the Company in exchange for the issuance of 3,520,889 shares
of common stock of the Company 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.
Concurrent with the Initial Public Offering, the Company acquired Holdings and
Dudley in exchange for 3,739,206 shares of Company stock and promissory notes,
which were subsequently repaid with proceeds from the Initial Public Offering.
This acquisition was accounted for using the purchase method of accounting and
their results of operations are included in the accompanying consolidated
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.
33
<PAGE>
3. Employee Benefit Plans
Stock-Based Compensation Plans
ChiRex Inc. Stock Option Plans
In December 1995, the Company adopted an incentive stock-based compensation
plan which permits the grant of up to 1,500,000 shares of the Company's common
stock (the "1995 Plan") and in February 1997 the Company adopted an incentive
stock-based compensation plan which permits the grant of up to 2,000,000 shares
of the Company's common stock (the "1997 Plan"). The 1995 Plan and 1997 Plan
allow for the grant of a variety of stock and stock-based awards to be granted
to employees or consultants 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 the 1995
Plan and 1997 Plan are determined by the Compensation Committee. Options
granted generally vest ratably over a five-year period from the date of grant
and expire after seven to ten years from the date of grant. 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 in December 1995
and amended in February 1997, which permits the grant of up to 100,000 options
to purchase shares of the Company's common stock to outside directors. Options
granted under this plan generally vest ratably over a five-year period from the
date of grant and expire after seven to ten years from the date of grant.
To date, all options from the Company's stock option plans and directors stock
option plan have been granted at fair market value, except for stock options
granted in conjunction with the Merger, which are discussed below. Certain of
these options have been granted to Scientific Advisory Board members and
consultants. Under SFAS 123, these options are required to be measured at their
fair market value and charged to earnings over the period of service. In one
instance relating to stock options for 100,000 shares, the fair market value is
not fixed and determinable until vesting occurs.
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.
In connection with management changes in 1998, the Company amended certain
stock option grants to extend their term, accelerate vesting or both. These
amendments constituted a remeasurement of the stock option grants and resulted
in compensation expense included in restructuring and other expenses totaling
$641,000.
34
<PAGE>
A summary of stock option activity under the ChiRex Inc. plans in 1996, 1997
and 1998 is summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Number of Shares Exercise Price
------------------------ ------------------
<S> <C> <C>
1996
- ----
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
during period $ 7.35
1997
- ---
Options outstanding beginning of period 850,741 $ 6.89
Granted 902,350 11.23
Exercised (334,566) 3.23
Lapsed/Canceled (43,730) 13.30
---------
Options outstanding end of period 1,374,795 $10.43
=========
Options exercisable 342,067 $ 8.33
=========
Options available for grant 1,800,308
=========
Weighted average fair value of options granted
during period $ 3.62
1998
- ----
Options outstanding beginning of period 1,374,795 $10.43
Granted 854,000 13.81
Exercised (81,177) 10.59
Lapsed/Canceled (275,575) 10.34
---------
Options outstanding end of period 1,872,043 11.98
=========
Options exercisable 536,383 9.69
=========
Options available for grant 1,221,883
=========
Weighted average fair value of options granted
during period $ 3.44
</TABLE>
A summary of the status of the Company's stock options at December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
Weighted Average
Range of Exercise Number Remaining Weighted Average Options Weighted Average
Prices of Options Contractual Life Exercise Price Exercisable Exercise Price
------ ---------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.48 - $ 1.48 95,760 5.85 years $ 1.48 95,760 $ 1.48
9.75 - 15.00 1,486,783 6.32 years 11.53 430,023 11.27
16.00 - 21.75 289,500 6.48 years 17.78 10,600 20.66
--------- -------
$ 1.48 - $21.75 1,872,043 6.32 years $11.98 536,383 $ 9.71
========= =======
</TABLE>
35
<PAGE>
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. Currently no eligible employees
participate in this plan.
UK Employee Stock Purchase Plan
Substantially all of the Company's full-time UK employees at its Dudley
facility 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. At December 31, 1998, approximately 470 eligible employees
participate in the plan.
Pro Forma Stock-Based Compensation Plan Expense
In October 1995, the Financial Accounting Standards Board issued 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 granted to employees. Had compensation cost for
awards in 1996, 1997 and 1998 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 income
(loss) and net income (loss) per common share would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(in thousands, except per-share amounts)
Net income (loss):
<S> <C> <C> <C>
As reported $(8,309) $ (650) $2,168
Pro forma (9,001) (1,442) 1,364
Basic and diluted net income (loss)
per common share:
As reported:
Basic $ (0.88) $(0.06) $0.18
Diluted (0.88) (0.06) 0.18
Pro forma:
Basic $ (0.95) $ (0.13) $ 0.12
Diluted (0.95) (0.13) 0.11
</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.
36
<PAGE>
The pro forma net income (loss) and pro forma net income (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. In
addition, any benefit from deductibility of non-qualifying stock options is
subject to the Company's realization of net operating loss carryforwards.
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 1997 1998
---- ---- ----
<S> <C> <C> <C>
Volatility 30.0% 30.0% 30.0%
Risk-free interest rate 6.2% 6.0% 5.25%
Expected dividend payout - - -
Expected life of options 10 years 7 years 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.
At December 31, 1996, 1997 and 1998, the Company had reserved 658,178,
1,800,308 and 1,221,883, respectively, of unissued shares of its common stock
for possible issuance under the stock-based compensation plans.
37
<PAGE>
Defined Benefit Pension Plan
The Company's UK subsidiaries have a defined benefit pension plan covering
substantially all of their 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Change in benefit obligation: 1997 1998
- ---------------------------- ------- -------
Benefit obligation at beginning of year $46,370 $53,181
Service cost 2,298 3,043
Interest cost 3,826 3,795
Employee contributions 545 923
Curtailments / settlements - 3,665
Actuarial loss 5,661 1,255
Exchange adjustment (1,783) 485
Actual benefit payments (3,838) (2,611)
------- -------
Benefit obligation at end of year $53,181 $63,736
======= =======
Change in Plan Assets:
- ---------------------
Plan assets at beginning of year $54,817 $58,662
Curtailments / settlements - -
Actual return 7,470 9,307
Actual employer contribution 1,663 1,967
Actual employee contribution 545 923
Actual distributions (3,731) (2,611)
Exchange adjustment (2,102) 536
------- -------
Plan assets at end of year $58,662 $68,784
======= =======
Net amount recognized:
- ---------------------
Funded status $ 5,481 $ 5,048
Unrecognized transition (asset) / obligation (4,892) (1,180)
Unrecognized loss / (gain) 594 (2,055)
Unrecognized prior service cost - -
------- --------
Prepaid expense $ 1,183 $ 1,813
======= =======
<CAPTION>
Components of Net Periodic Pension Cost: 1996 1997 1998
- --------------------------------------- ------ ------- -------
<S> <C> <C> <C>
Service cost $ 2,008 $ 2,298 $ 3,043
Interest cost 3,217 3,826 3,795
Expected return (3,878) (4,859) (5,398)
Amortization of: (332) (351) (92)
Transition asset ------- ------- -------
Total pension expense $ 1,015 $ 914 $ 1,348
======= ======= =======
<CAPTION>
Assumptions as of December 31, 1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Discount rate 8.5% 8.0% 6.5%
Expected return 9.0% 9.0% 9.0%
Compensation increase 6.0% 6.0% 3.5%
</TABLE>
38
<PAGE>
4. Income Taxes
The components of income (loss) before (provision) benefit for income taxes
for the years ended December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Domestic $(5,832) $ 724 $(2,254)
Foreign (610) (1,709) 6,795
------- ------- -------
Total $(6,442) $ (985) $ 4,541
======= ======= =======
</TABLE>
The components of the (provision) benefit for income taxes for the years ended
December 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ----- --------
(in thousands)
<S> <C> <C> <C>
Current (provision) benefit for income taxes:
Federal $ - $ - $ -
State - (205) (150)
Foreign (2,530) 45 544
------- ----- -------
(2,530) (160) 394
------- ----- -------
Deferred benefit (provision) for income taxes:
Federal - 10 -
State - - -
Foreign 663 485 (2,767)
------- ----- -------
663 495 (2,767)
------- ----- -------
Total (provision) benefit for income taxes $(1,867) $ 335 $(2,373)
======= ===== =======
</TABLE>
The (provision) benefit for income taxes in the accompanying consolidated
statements of operations for the periods ended December 31, 1996, 1997 and 1998
is different from the benefit calculated by applying the statutory federal
income tax rate of 34% to the loss before income taxes due to the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ -------
(in thousands)
<S> <C> <C> <C>
(Provision) benefit for income taxes at statutory rate $ 2,190 $ 335 $(1,544)
Effect of change in statutory tax rate - 410 300
US net operating loss carryforwards - 202 -
Foreign tax rate differential 61 (43) 204
State income taxes, net of federal tax benefit - (135) (99)
Non-deductible amortization of goodwill (314) (396) (396)
Valuation allowance on US tax net operating loss
carryforwards and stock compensation (1,953) - (813)
Non-deductible research and development expenses (1,811) - -
Other, net (40) (38) (25)
------- ----- -------
(Provision) benefit for income taxes $(1,867) $ 335 $(2,373)
======= ===== =======
</TABLE>
Deferred income tax assets and liabilities reflected in the accompanying
consolidated balance sheet consist of the
39
<PAGE>
following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
(in thousands)
Deferred income tax assets:
<S> <C> <C>
Net operating loss carryforwards and stock
compensation $ 2,023 $ 6,313
Reserves and other accruals 2,025 2,025
Accrued pensions 1,057 892
Other, net 112 808
Valuation allowance (2,186) (3,789)
------- --------
Total deferred tax assets, net 3,031 6,249
------- --------
Deferred income tax liabilities:
Depreciation and basis differences (9,300) (15,253)
------- --------
Total deferred tax liabilities (9,300) (15,253)
------- --------
Net deferred tax liabilities $(6,269) $ (9,004)
======= ========
</TABLE>
At December 31, 1997 and 1998, the Company had US federal and state tax net
operating loss carryforwards of approximately $6.0 million and $10.5 million,
respectively. In addition, at December 31, 1998, the Company had net operating
loss carryforwards in the U.K. of $9.2 million. Of the total tax net operating
loss carryforwards, $3.4 million in 1997 and 1998, represent the tax benefit of
disqualifying dispositions and the exercise of non-qualified stock options. The
tax benefit related to disqualifying dispositions and exercise of non-qualified
stock options has been fully reserved for through a valuation allowance due to
the uncertainty of realization. If this tax benefit is realized or if the
valuation allowance is reduced in future periods, the tax benefit will be
recorded in additional paid-in capital. The remaining tax net operating loss
carryforwards of $2.6 million and $7.1 million in 1997 and 1998, respectively,
have been fully reserved for through a valuation allowance since the Company is
uncertain if it will generate future taxable income in the U.S. sufficient to
realize the deferred tax benefit.
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.
5. Commitments
The Company leases equipment and executive office and warehouse space under
various operating arrangements. The accompanying consolidated statements of
operations includes expenses from operating leases of $148,000 in 1996, $748,000
in 1997, and $687,000 in 1998. Future minimum lease payments due under non-
cancelable operating leases net of non-cancelable sub-lease rental income at
December 31, 1998 are $1,868,000 in 1999; $2,367,000 in 2000; $2,313,000 in
2001; $2,083,000 in 2002; $1,119,000 in 2003; and $105,000 thereafter. Total
future minimum net lease payments are $9,855,000.
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.
40
<PAGE>
7. Long-Term Debt and Revolving Credit Facility
To finance the acquisition of the Annan facility, repay existing indebtedness
and provide for the general cash requirements of the business, Holdings entered
into a senior secured term-loan and revolving credit agreement on October 29,
1997, with a group of banks (the "Facilities Agreement"). The agreement allows
the Company to borrow up to (Pounds)62.0 million (approximately $103 million)
for a five-year period. The Facilities Agreement is comprised of a (Pounds)40.0
million (approximately $66 million) term loan and a (Pounds)22.0 million
(approximately $37 million) revolving credit facility each bearing interest at
LIBOR plus 1% (8.4% at December 31, 1997). The requirements of the Facilities
Agreement called for repayment of the term loan in nine equal semi-annual
installments, beginning on December 31, 1998 and annual mandatory prepayments
from excess cash flow, as defined under the credit facility. The maximum
borrowings under the revolving credit facility step down by (Pounds)3.0 million
(approximately $5 million) at both December 31, 2000 and 2001 and terminate on
December 31, 2002. Borrowings under the Facilities Agreement are secured by the
real and personal property of and guaranteed by the Company and its
subsidiaries. The Facilities Agreement contains certain financial covenants and
limitations on indebtedness, dividends, capital expenditures, repurchase of
common stock and certain other transactions.
At certain points during 1998, the Company was not in compliance with certain
financial covenants under the Facilities Agreement, which the lenders have
permanently waived. In conjunction with these permanent waivers, the Company
agreed to certain modifications to the terms of the Facilities Agreement,
including a change in certain financial covenants, a modification in the
interest rate and deferral of the initial principal installment payment due
December 31, 1998 until May 2000. The first principal repayment is now
scheduled for June 30, 1999. The interest rate was modified to LIBOR plus a
margin of 0.75% to 2.00% depending on certain financial ratios, as specified in
the Facilities Agreement. This rate was LIBOR plus 2.00% (8.25%) at December
31, 1998. In connection with these modifications, the Company agreed to pay the
lenders fees and reimbursed the lenders for costs incurred, which totaled
(Pounds)1.8 million ($3.0 million). The effective interest rate under the
Facilities Agreement considering the additional costs and fees incurred is 10.1%
in 1998. In addition, the Company agreed to use reasonable endeavors to either
restructure or refinance this debt. In the event the debt is not restructured
or refinanced by certain dates in 1999, beginning with March 31, 1999, the
Company is required to pay additional fees to the lenders. Maximum fees due
under this provision of the Facilities Agreement are (Pounds)0.6 million ($1.0
million). Management believes that with these waivers and modifications to the
Facilities Agreement, the Company is in compliance at December 31, 1998 with all
terms of the Facilities Agreement and expects to be in compliance with the
current terms for the foreseeable future.
Long-term debt is comprised of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Revolving credit facility $11,186 $24,900
Term loan 65,800 66,400
------- -------
Total debt 76,986 91,300
Less current portion of long-term debt 7,311 14,756
------- -------
Long-term debt $69,675 $76,544
======= =======
</TABLE>
The Company has classified all of the outstanding borrowings under the
revolving-credit facility as long-term at December 31, 1997 and 1998 because
borrowings are not re-payable within one year as of the balance sheet date.
41
<PAGE>
Long-term debt maturities during the next four years as of December 31, 1998
is as follows (in thousands):
1999 $14,756
2000 22,132
2001 14,756
2002 39,656
-------
Total $91,300
=======
Interest costs incurred during 1996, 1997 and 1998 were $755,000, $1,397,000
and $7,739,000 respectively. Interest costs totaling $150,000 and
$1,765,000 were capitalized in 1997 and 1998, respectively.
8. Non-cash Investing and Financing Activities
As discussed in Note 2, 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 wholly-owned subsidiary of the Company on March 11,
1996. The net assets contributed by ChiRex America were recorded at historical
cost basis of $3,123,000.
In addition, as discussed in Note 2, the shareholders of Holdings contributed
to the Company all outstanding equity capital of Holdings for 3,739,206 shares
of common stock and promissory notes of the Company. Certain of the shares were
repurchased and all of the promissory notes were repaid with the proceeds from
the Initial Public Offering. The net assets of Holdings were initially recorded
at its purchase price for $48,610,000.
Included in accrued expenses at December 31, 1998 are $2,344,000 related to
capital expenditures and $2,158,000 related to deferred financing costs.
9. Agreements with Former Affiliate
ChiRex America and the Former Affiliate entered into a Technology Transfer
Agreement as of January 1, 1995 (the "Technology Agreement"). Under the
Technology Agreement, the Former Affiliate granted to ChiRex America an
exclusive, royalty-free right and license to use and practice the ChiRex
Technologies licensed and sublicensed thereunder (the"Licensed Technologies") on
a worldwide basis in a field defined as the development, manufacture, use and
sale of pharmaceutical intermediaries, acive ingredients, agrichemicals,
flavors, fragrances and other chemicals and compounds (the"Company Field").
Pursuant to an amendment to the Technology Agreement dated May 19, 1998, the
Former Affiliate assigned three third party license agreements (formerly
included in the Licensed Technologies) directly to ChiRex America with a
sublicense back to the Former Affiliate for a defined field. The Technology
Agreement expired on December 31, 1998 but the license granted therein is
perpetual to ChiRex America and survives expiration of such agreement. The
three third party license agreements assigned to ChiRex America in the May 19,
1998 amendment continue in effect for the respective life of each agreement in
accordance with the specific terms and conditions set forth in each agreement.
42
<PAGE>
In 1996, 1997 and 1998 the Company incurred $158,000, $346,000 and $313,000
respectively, to the Former Affiliate under the Technology Transfer and License
Agreement for legal expenses and has received $609,000, $460,000 and $453,000,
respectively, in license royalty income.
ChiRex America sold certain pharmaceutical compounds to the Former Affiliate
in 1996. Total revenue from these transactions amounted to $38,600 in 1996.
10. Significant Customers
In 1998, the Company's three largest customers accounted for approximately 85%
of total revenues. Glaxo Wellcome plc, Sanofi S.A. ("Sanofi"), Rohm and Haas
Company ("Rohm and Haas") and accounted for approximately 57%, 16%, and 12%,
respectively, of the Company's 1998 revenues. In 1997, the Company's four
largest customers accounted for approximately 76% of total revenues. Sanofi,
Glaxo Wellcome plc, Rohm and Haas and Smithkline Beecham plc ("Smithkline")
accounted for approximately 36%, 17%, 13% and 10%, respectively, of the
Company's 1997 revenues. In 1996, the Company's three largest customers
accounted for approximately 66% of total revenues. Sanofi, SmithKline and Rohm
and Haas accounted for approximately 36%, 19% and 11%, respectively, of the
Company's 1996 revenues.
11. Segment Information
The following table shows data for the Company by geographical area.
<TABLE>
<CAPTION>
1996 1997 1998
-------------- ------------ --------------
Revenues : (in thousands)
<S> <C> <C> <C>
United States $ 1,175 $ 758 $ 453
United Kingdom 73,440 93,342 119,210
------- -------- --------
$74,615 $ 94,100 $119,663
======= ======== ========
Long-lived assets :
United States $ 309 $ 569 $ 526
United Kingdom 89,644 147,750 179,942
------- -------- --------
$89,953 $148,319 $180,468
======= ======== ========
</TABLE>
Revenues are allocated to geographic area based on the country of origination.
43
<PAGE>
12. Price Range of Common Stock and Dividend Policy (Unaudited)
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>
1997:
First Quarter $13.25 $ 9.50
Second Quarter 12.75 9.88
Third Quarter 25.50 11.63
Fourth Quarter 26.25 16.63
1998:
First Quarter $19.31 $11.63
Second Quarter 23.25 14.19
Third Quarter 19.00 9.75
Fourth Quarter 21.38 10.50
</TABLE>
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 cash dividends in
the foreseeable future.
44
<PAGE>
13. Quarterly Information (Unaudited)
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
1997
- ----
Revenues $26,506 $20,157 $21,605 $25,832
Gross profit 5,835 6,050 5,286 5,489
Restructuring charges, net of
proceeds - (6,599) (a) - (1,470) (a)
Net income (loss) 1,198 (2,698) 1,600 (750)
Net income (loss) per common
share:
Basic $ 0.11 $ (0.24) $ 0.14 $ (0.06)
Diluted $ 0.11 $ (0.24) $ 0.13 $ (0.06)
Weighted average shares
outstanding 10,944 11,352 11,534 11,786
1998
- ----
Revenues $23,658 $28,554 $31,715 $35,736
Gross profit 4,356 7,098 6,849 13,484 (b)
Restructuring and other expenses - - (2,802) (c) (440)(c)
Net income (loss) (1,096) 609 (744) 3,399
Net income (loss) per common
share:
Basic $ (0.09) $ (0.05) $ (0.06) $ 0.29
Diluted $ (0.09) $ (0.05) $ (0.06) $ 0.28
Weighted average shares
outstanding:
Basic 11,797 11,809 11,817 11,856
Diluted 11,797 11,809 11,817 12,307
</TABLE>
(a) Restructuring and fixed asset impairment charge net of proceeds received
on the sale of the acetaminophen business.
(b) Gross margin improved due to contribution from production from the Annan
facility, and improved performance at the Dudley facility reflecting higher
sales volumes and lower expenses.
(c) Restructuring and other expenses for management changes and the transition
to a product management structure.
45
<PAGE>
IBC:Corporate Information
- -------------------------
Board of Directors
------------------
Michael A. Griffith, Chairman and Chief Executive Officer
Dirk Detert, Ph.D., Former General Manager of Wellcome GmbH
Eric N. Jacobsen, Ph.D., Professor of Chemistry, Harvard
University
W. Dieter Zander, Managing Director, Arnhold and S.
Bleichroeder
Corporate Officers
------------------
Michael A. Griffith, Chairman and Chief Executive Officer
Ian D. Shott, Chief Operating Officer
Frank J. Wright, Executive Vice President, Corporate
Development
Roger B. Pettman, Ph.D., Vice President, General Manager
ChiRex Technology Center
David F. Raynor, Vice President, Dudley Operations
Michael J. Nicholds, Ph.D., Vice President, Sales and Marketing
Stuart E. Needleman, Vice President, Business Development
Jon E. Tropsa, Vice President, Finance
Ian M. Brown, Vice President, Annan Operations
Scientific Advisory Board
-------------------------
Alexander McKillop, 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
Roger B. Pettman, Ph.D., ChiRex Inc.
William H. Pirkle, Ph.D., University of Illinois
K. Barry Sharpless, Ph.D., The Scripps Research Institute
Annual Meeting
--------------
The 1999 Annual Meeting of Shareholders will be held on April 21,
1999, at 5:00 p.m., Eastern Standard Time, at the Ritz-Carlton,
Amelia Island, Florida, following the fourth semi-annual ChiRex
Technology Symposium.
SEC Form 10-K
-------------
A copy of the Company's Form 10-K filed with the Securities and
Exchange Commission may be obtained by contacting the Company at
its Stamford, Connecticut headquarters.
Independent Public Accountants
------------------------------
Arthur Andersen LLP, One International Place, Boston,
Massachusetts 02110
Outside General Counsel
-----------------------
Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New
York, New York 10019
46
<PAGE>
Transfer Agent
--------------
Boston Equiserve, L.P., Shareholder Services Division, 150 Royall
Street, Canton, Massachusetts 02021. Telephone: (781) 575-2559
Investor Relations
------------------
ChiRex Inc., Investor Relations Department, 300 Atlantic Street,
Suite 402, Stamford, Connecticut 06901. Telephone: (203) 351-2300
Homepage: http://www.chirex.com
---------------------
-or-
Feinstein Kean Partners Inc., Douglas MacDougall, 245 First
Street, 14th Floor, Cambridge, Massachusetts 02142. Telephone:
(617) 577-8110. E-mail: Doug [email protected]
------------------------
Safe Harbor Statement
---------------------
Statements in this annual report that are not strictly historical
are "forward looking" statements as defined in Section 27A of the
Securities Act and 21E of the Exchange Act. These forward looking
statements involve risks and uncertainties, including, but not
limited to, product development and market acceptance risks,
product manufacturing risks, the impact of competitive products
and pricing, the results of current and future licensing and
other collaborative relationships, the results of financing
efforts, developments regarding intellectual property rights and
litigation, risks of product non-approval or delays or post-
approval reviews by the FDA or foreign regulatory authorities,
and other risks identified in the Company's filings with the
Securities and Exchange Commission.
47
<PAGE>
Exhibit 21
Subsidiaries of ChiRex Inc.
---------------------------
ChiRex America, Inc.
ChiRex Technology Center, Inc.
ChiRex (Holdings) Limited
ChiRex (Dudley) Limited
ChiRex (Annan) Limited
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 19, 1999 included in or incorporated by
reference into ChiRex Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998, into ChiRex Inc.'s previously filed Registration Statement
No. 333-02216 on Form S-8, Registration Statement No. 333-02218 on Form S-8,
Registration Statement No. 333-02220 on Form S-8 and Registration Statement No.
333-68849 on Form S-3.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 5347 128
<SECURITIES> 0 0
<RECEIVABLES> 18833 16304
<ALLOWANCES> 22 19
<INVENTORY> 23225 32295
<CURRENT-ASSETS> 51157 52720
<PP&E> 137894 182262
<DEPRECIATION> 17139 28192
<TOTAL-ASSETS> 203067 238538
<CURRENT-LIABILITIES> 28009 47390
<BONDS> 69675 76544
0 0
0 0
<COMMON> 118 119
<OTHER-SE> 92977 97094
<TOTAL-LIABILITY-AND-EQUITY> 203067 238538
<SALES> 94100 119663
<TOTAL-REVENUES> 94100 119663
<CGS> 71440 87876
<TOTAL-COSTS> 22593 21417
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1052 5829
<INCOME-PRETAX> (985) 4541
<INCOME-TAX> 335 (2378)
<INCOME-CONTINUING> (650) 2168
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (650) 2168
<EPS-PRIMARY> (0.06) 0.18
<EPS-DILUTED> (0.06) 0.18
</TABLE>
