SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number 0-22879
BIORELIANCE CORPORATION
(Exact name of the registrant as specified in its charter)
Delaware 52-1541583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14920 Broschart Road
Rockville, Maryland 20850
(Address of principal executive offices) (Zip code)
Registrants telephone number, including area code:
(301) 738-1000
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
____ ____
As of October 31, 1998, 7,818,466 shares of registrants Common Stock, par value
$.01 per share, were outstanding.
<PAGE>
BIORELIANCE CORPORATION
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998.............................................. 3
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 1997 and 1998................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1998............................... 5
Notes to Consolidated Financial Statements...................... 6
Item 2 - Managements Discussion and Analysis of Financial
Condition and Results of Operations............................. 11
PART II OTHER INFORMATION............................................. 18
SIGNATURES.............................................................. 19
EXHIBIT INDEX........................................................... 20
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
BIORELIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30,
December 31, 1998
1997 (Unaudited)
--------------- ---------------
<S><C>
Assets
Current assets:
Cash and cash equivalents................................................ $ 6,227 $ 11,049
Marketable securities.................................................... 27,554 17,877
Accounts receivable, net................................................. 15,923 21,757
Other current assets..................................................... 1,827 1,814
------------ -----------
Total current assets................................. 51,531 52,497
Property and equipment, net..................................................... 15,601 24,206
Intangible assets, net.......................................................... 256 159
Deposits and other assets....................................................... 286 313
Deferred income taxes........................................................... 977 1,019
------------ -----------
Total assets......................................... $ 68,651 $ 78,194
============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt........................................ $ 1,574 $ 1,543
Accounts payable......................................................... 1,811 1,528
Accrued employee compensation and benefits............................... 2,829 2,674
Other accrued liabilities................................................ 2,302 1,524
Customer advances........................................................ 3,635 3,367
Deferred income taxes.................................................... 1,271 2,337
------------ -----------
Total current liabilities............................ 13,422 12,973
Long-term debt.................................................................. 5,434 11,292
------------
-----------
Total liabilities.................................... 18,856 24,265
------------ -----------
Commitments and contingencies (Note 8)
Stockholders' equity:
Convertible preferred stock, $.01 par value: 6,900,000 shares
authorized; no shares issued and outstanding.......................... --- ---
Common stock, $.01 par value: 15,000,000 shares authorized;
7,685,208 and 7,817,073 shares issued and outstanding.................. 77 78
Additional paid-in capital............................................... 52,457 52,577
Retained earnings/(accumulated deficit).................................. (2,145) 1,306
Equity adjustment from foreign currency translation...................... (594) (32)
------------ -----------
Total stockholders' equity........................... 49,795 53,929
------------ -----------
Total liabilities and stockholders' equity........... $ 68,651 $ 78,194
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S><C>
Revenue.............................................. $ 11,696 $ 12,977 $ 36,060 $ 37,625
---------- ---------- ---------- ----------
Expenses:
Cost of sales............................. 7,294 8,085 22,321 21,842
Selling, general and administrative....... 2,374 2,927 7,703 9,631
Research and development.................. 347 312 973 1,045
---------- ---------- ---------- ----------
10,015 11,324 30,997 32,518
---------- ---------- ---------- ----------
Income from operations............................... 1,681 1,653 5,063 5,107
---------- ---------- ---------- ----------
Other income (expense):
Interest income........................... 312 436 432 1,356
Interest expense.......................... (175) (149) (623) (381)
Other income (expense).................... (6) (138) 5 (409)
---------- ---------- ---------- ----------
131 149 (186) 566
---------- ---------- ---------- ----------
Income before income taxes........................... 1,812 1,802 4,877 5,673
Provision for income taxes........................... 761 675 2,048 2,222
---------- ---------- ---------- ----------
Net income........................................... $ 1,051 $ 1,127 $ 2,829 $ 3,451
========== ========== ========== ==========
Net income per share:
Basic..................................... $ 0.20 $ 0.14 $ 1.33 $ 0.44
========== ========== ========== ==========
Diluted................................... $ 0.14 $ 0.14 $ 0.44 $ 0.42
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BIORELIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1997 1998
----------- ----------
<S><C>
Cash flows from operating activities:
Net income..................................................................... $ 2,829 $ 3,451
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation............................................................... 2,238 2,436
Amortization of intangibles................................................ 95 162
Amortization of bond premiums and discounts................................ --- (115)
Loss on disposal of fixed assets........................................... 163 24
Deferred income taxes, net................................................. 1,756 1,024
Changes in current assets and liabilities:
Accounts receivable, net............................................... (4,859) (5,858)
Other current assets................................................... (319) 118
Accounts payable....................................................... (108) (290)
Accrued employee compensation and benefits............................. 645 (158)
Other accrued liabilities.............................................. 686 (782)
Customer advances...................................................... 1,641 (462)
Deposits and other assets.................................................. 367 (63)
----------- ----------
Net cash provided by (used in) operating activities............... 5,134 (513)
----------- ----------
Cash flows from investing activities:
Purchases of marketable securities........................................... (23,421) (28,358)
Proceeds from the maturities of marketable securities........................ --- 38,150
Purchases of property and equipment.......................................... (2,710) (3,880)
----------- ----------
Net cash provided by (used in) investing activities............... (26,131) 5,912
----------- ----------
Cash flows from financing activities:
Net proceeds from initial public offering .................................. 32,464 ---
Proceeds from exercise of stock options..................................... 101 260
Proceeds from debt.......................................................... --- ---
Payments on debt............................................................ (581) (675)
Repayment of note payable to stockholder.................................... (1,900) ---
Payments on capital lease obligations....................................... (667) (493)
Repurchase and cancellation of treasury stock............................... --- (139)
----------- ----------
Net cash provided by (used in) financing activities............... 29,417 (1,047)
----------- ----------
Effect of exchange rate changes on cash and cash equivalents..................... (504) 470
----------- ----------
Net increase in cash and cash equivalents........................................ 7,916 4,822
Cash and cash equivalents, beginning of period................................... 2,965 6,227
----------- ----------
Cash and cash equivalents, end of period......................................... $ 10,881 $ 11,049
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BIORELIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Description of the Business
BioReliance Corporation (the "Corporation") is a contract research
organization providing nonclinical testing and contract manufacturing services
for biologics to biotechnology and pharmaceutical companies worldwide.
(2) Interim Financial Statements Presentation
The accompanying interim financial statements are unaudited and have been
prepared by the Corporation pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") regarding interim financial
reporting. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements, and therefore these consolidated financial statements should be read
in conjunction with the audited consolidated financial statements, and the notes
thereto, included in the Corporation's Annual Report on Form 10-K. In the
opinion of management, the unaudited consolidated financial statements for the
three-month and nine-month periods ended September 30, 1997 and 1998 include all
normal and recurring adjustments which are necessary for a fair presentation of
the results of the interim period. The results of operations for the three-month
and nine-month periods ended September 30, 1997 and 1998 are not necessarily
indicative of the results for the entire year ending December 31, 1998.
(3) Revenue Recognition
Revenue recognized from commercial contracts, which are principally
fixed-price or fixed-rate, is recorded using the percentage-of-completion over
time or the completed-contract method, depending on the nature and duration of
the contract. The percentage-of-completion over time method is used for
nonclinical testing services that are completed generally in greater than three
days and for manufacturing contracts that do not provide for delivery of
product. The completed-contract method is used for nonclinical testing services
that are completed generally within three days and for contract manufacturing
services that provide for delivery of product. The percentage-of-completion over
time is determined using total project costs as a cost input measure over the
estimated term of the project. Revenue recognized from government contracts,
which are principally cost-plus-fixed-fee, is recognized in an amount equal to
reimbursable costs plus a pro-rata portion of the earned fee. Losses, if any,
are provided for at the time at which they become known.
(4) Foreign Currency Translation
The accounts of foreign subsidiaries are measured using local currency as
the functional currency. Assets and liabilities of these subsidiaries are
translated into U.S. dollars at period-end
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<PAGE>
exchange rates, and income and expense accounts are translated at average
monthly exchange rates. Net gains and losses resulting from such translations
are included in comprehensive income and are accumulated in a separate component
of stockholders equity.
(5) Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
This statement replaces the presentation of primary earnings per share (EPS)
with a presentation of basic EPS, and requires dual presentation of basic and
diluted EPS on the face of the income statement. Basic EPS excludes dilution and
is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Dilutive securities are excluded from the computation in periods in
which they have an anti-dilutive effect, and net income available to common
stockholders is adjusted accordingly for the effect of cumulative dividends on
Convertible Preferred Stock. The Corporation adopted this statement during the
fourth quarter of 1997, as required. Accordingly, all prior period EPS data has
been restated as required by SFAS 128.
In February 1998, the SEC issued Staff Accounting Bulletin 98 ("SAB 98").
SAB 98 rescinded SAB 83, which required common shares and common share
equivalents issued or granted by the Corporation at prices below the public
offering price during the twelve months immediately preceding the filing of the
Corporation's initial Registration Statement and through the effective date of
such Registration Statement to be calculated using the treasury stock method
based upon the estimated initial public offering price, and to be included for
all periods presented regardless of whether they are dilutive. The Corporation
has adopted SAB 98 and, accordingly, all EPS data has been restated as required.
The following is a reconciliation between net income and net income
available to common stockholders used in the numerator for basic EPS for the
three and nine months ended September 30:
<TABLE>
<CAPTION>
Three Months Ended Nine Months
September 30, Ended September 30,
1997 1998 1997 1998
---- ---- ---- ----
(In thousands)
<S><C>
Net income $1,051 $1,127 $2,829 $3,451
Assumed dividends paid to preferred
stockholders --- --- 70 ---
------ ------ ------ ------
Net income available to common
stockholders $1,051 $1,127 $2,899 $3,451
====== ====== ====== ======
</TABLE>
7
<PAGE>
The following is a reconciliation between net income available to common
stockholders and net income available per common and common equivalent
stockholders used in the numerator for diluted EPS for the three and nine months
ended September 30:
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1998 1997 1998
---- ---- ---- ----
(In thousands)
Net income available to common
stockholders $1,051 $1,127 $2,899 $3,451
Assumed dividends paid to preferred
stockholders --- --- (70) ---
------ ------ ------ ------
Net income available to common and
common equivalent stockholders $1,051 $1,127 $2,829 $3,451
====== ====== ====== ======
The following is a reconciliation between the weighted average common stock
outstanding denominator used in basic EPS and the weighted average common and
common equivalent shares outstanding denominator used in diluted EPS for the
three and nine months ended September 30:
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1998 1997 1998
---- ---- ---- ----
(In thousands)
Weighted average common stock
outstanding 5,358 7,815 2,043 7,782
Preferred stock, as if converted 1,402 --- 3,640 ---
Stock options, as if converted 806 409 794 468
----- ----- ----- -----
Weighted average common and common
equivalent shares outstanding 7,566 8,224 6,477 8,250
===== ===== ===== =====
(6) Initial Public Offering
On August 1, 1997, the Corporation completed its initial public offering of
2,102,014 shares of its common stock (plus an additional 297,986 shares by a
selling stockholder) at an offering price of $15.00 per share. On August 7,
1997, the underwriters exercised an over-allotment option to purchase an
additional 315,302 shares. The net proceeds to the Corporation from the public
offering and the exercise of the over-allotment option by the underwriters,
after deducting the underwriting discounts and commissions and offering expenses
payable by the Corporation, were approximately $32.5 million. Upon the closing
of the offering, all outstanding shares of the Corporations convertible
preferred stock were automatically converted into 4,778,072 shares of common
stock.
(7) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). This
8
<PAGE>
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. SFAS 130 requires that all components of comprehensive income
be reported in the financial statements in the period in which they are
recognized. The statement requires reclassification of earlier statements in
comparative financial statements and is effective for fiscal years beginning
after December 15, 1997.
The Corporation adopted this statement during the first quarter of 1998.
Total comprehensive income amounted to $1,678,000 for the quarter ended
September 30, 1998 and $924,000 for the quarter ended September 30, 1997. For
the nine months ended September 30, 1998 and 1997, total comprehensive income
amounted to $4,013,000 and $2,074,000, respectively.
(8) Commitments
Capital Lease Obligations
In April 1998, the Corporation entered into certain third-party leasing and
subleasing arrangements relating to the construction of new laboratory space.
These arrangements require the Corporation to make certain noncancelable lease
payments over the next twenty years and to guarantee indebtedness of
approximately $4.4 million. The terms of the arrangements require that the
leases be accounted for as capital leases. The assets underlying such
capitalized leases are included with the Corporations owned property and
equipment and are summarized as follows as of September 30, 1998 (in thousands):
Land $ 720
Construction in progress 6,035
------
Total assets at cost 6,755
Less accumulated depreciation ---
------
Net assets $6,755
======
The future minimum lease payments under the capital lease obligations at
September 30, 1998 were as follows (in thousands):
Year ending December 31:
1998 $ 27
1999 459
2000 607
2001 607
2002 607
Thereafter 10,495
------
Total minimum lease payments 12,802
Less amount representing interest (6,061)
------
Present value of minimum lease payments 6,741
Less current portion (92)
------
Long-term portion $6,649
======
9
<PAGE>
The Corporations obligation for future lease payments will increase as
additional costs are incurred for the construction of the space. Such
additional amounts are estimated to total $364,000 including interest.
Operating Leases
In October 1997, the Corporation entered into a lease agreement with a
developer to construct a new facility in Rockville, MD. The new facility is
being used as the Corporation's headquarters and will provide expanded
laboratories and other capacities for operational businesses. The lease
requires the Corporation to make certain noncancelable lease payments over the
next 15 years. The terms of the agreement require that the lease be accounted
for as an operating lease. Future minimum lease payments under the lease are as
follows at September 30, 1998 (in thousands):
Year ending December 31:
1998 $ 135
1999 572
2000 672
2001 693
2002 713
Thereafter 9,159
-------
Total minimum lease payments $11,944
=======
(9) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and for Hedging Activities". SFAS No.
133 requires all derivatives to be recorded on the balance sheet at fair value
and establishes "special accounting" for the following three different types of
hedges: hedges of changes in the fair value of assets, liabilities or firm
commitments; hedges of the variable cash flows of forecasted transactions; and
hedges of foreign currency exposures of net investments in foreign operations.
SFAS No. 133 is effective for years beginning after June 15, 1999, with earlier
adoption permitted. The Corporation believes that the effect of adoption of
SFAS No. 133 will not be material.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements made in this release are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 ("the
Act"). Forward-looking statements include, without limitation, any statement
that may predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe", "anticipate", "expect",
"estimate", "project", "will be", "will continue", "will likely result", or
similar words or phrases. Forward-looking statements involve risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statements. The risks and uncertainties are detailed from time
to time in reports filed by BioReliance with the Securities and Exchange
Commission, including in its Prospectus, dated July 28, 1997, and its Forms 10-K
and 10-Q, and include, among others, the following: general economic and market
conditions; the size and growth of the overall markets for biopharmaceuticals,
including the amounts spent on research and development by biotechnology and
pharmaceutical companies; changes in government regulations; the size, timing
and mix of contracts for the Corporation's products and services; the ability of
BioReliance to attract and retain qualified technical and management personnel;
seasonal demand for the Corporation's products and services; fluctuations and
difficulty in forecasting operating results; the ability of BioReliance to
sustain, manage or forecast its growth and utilize its facilities; the loss of
significant contracts or customers; business disruptions and other factors
referenced in the above reports. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors, nor can it
assess the impact of all such risk factors on the Corporation's business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results.
Investors should also be aware that while BioReliance does, from time to
time, communicate with securities analysts, it is against BioReliance's policy
to disclose to them any material non-public information or other confidential
commercial information. Accordingly, shareholders should not assume that
BioReliance agrees with any statement or report issued by any analyst
irrespective of the content of the statement or report. Furthermore,
BioReliance has a policy against issuing or confirming financial forecasts or
projections issued by others. Thus, to the extent that reports issued by
securities analysts contain any projections, forecasts or opinions, such reports
are not the responsibility of BioReliance.
Results of Operations
Three months ended September 30, 1998 compared with three months ended September
30, 1997
Revenue was $13.0 million in the three months ended September 30, 1998, an
increase of 11% over revenue of $11.7 million in the three months ended
September 30, 1997. The increase was attributable to broad gains by most
operations throughout the United States and Europe.
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Cost of sales was $8.1 million in the three months ended September 30, 1998,
an increase of 11% over cost of sales of $7.3 million in the three months ended
September 30, 1997. The increase was primarily due to increased material,
facility and other ancillary indirect costs.
Selling, general and administrative expense was $2.9 million in the three
months ended September 30, 1998, an increase of 23% over selling, general and
administrative expense of $2.4 million in the three months ended September 30,
1997. This increase was due primarily to investments in information systems,
systems development and legal costs.
Research and development expense was $312,000 in the three months ended
September 30, 1998, a decrease of 11% over research and development expense of
$347,000 in the three months ended September 30, 1997. The decrease primarily
was attributable to adjustments in accrued compensation costs.
Operating income remained constant at $1.7 million in the three months ended
September 30, 1998, and in the three months ended September 30, 1997. This
resulted from higher gross profit in the three months ended September 30, 1998
being offset by similarly higher operating expenses.
The Corporation earned net interest income and other expense of $149,000 in
the three months ended September 30, 1998, compared to net interest income and
other expense of $131,000 in the three months ended September 30, 1997. The
small improvement was due primarily to the net of higher interest income as
offset by higher levels of other corporate expenses.
The provision for income taxes was $675,000 in the three months ended
September 30, 1998, compared to a provision of $761,000 in the three months
ended September 30, 1997. The effective tax rate was 37% for the three months
ended September 30, 1998 and 42% for the three months ended September 30, 1997.
The tax rate declined primarily due to the implementation of certain tax
strategies in Europe.
Net income was $1.1 million in the three months ended September 30, 1998,
and in the three months ended September 30, 1997. No material variances arose.
Nine months ended September 30, 1998 compared with nine months ended September
30, 1997
Revenue was $37.6 million in the nine months ended September 30, 1998, an
increase of 4% over revenue of $36.1 million in the nine months ended September
30, 1997. The increase was attributable to the strength of the BioSafety
Testing business in the United States offset primarily by volume declines in
German manufacturing and BioTrials revenue.
Cost of sales was $21.8 million in the nine months ended September 30, 1998,
a decrease of 2% over cost of sales of $22.3 million in the nine months ended
September 30, 1997. The decrease was attributable primarily to volume mix
variances in favor of higher margin business. Costs of approximately $0.46
million, previously included in selling, general and administrative expense for
the six months ended June 30, 1998, have been reclassified to Cost of Sales for
comparative purposes.
12
<PAGE>
Selling, general and administrative expense was $9.6 million in the nine
months ended September 30, 1998, an increase of 25% over selling, general and
administrative expense of $7.7 million in the nine months ended September 30,
1997. This increase was due to investment in information systems, systems
development, European infrastructure and the costs of being a public company.
Research and development expense remained fairly constant at $1.0 million in
the nine months ended September 30, 1998, and in the nine months ended September
30, 1997. No material variances arose.
Operating income was $5.1 million in the nine months ended September 30,
1998, and in the nine months ended September 30, 1997. Higher gross profit in
the nine months ended September 30, 1998 was offset by similarly higher selling,
general and administrative expense.
The Corporation earned net interest and other expense of $566,000 in the
nine months ended September 30, 1998, compared to net interest and other expense
of $186,000 in the nine months ended September 30, 1997. The improvement was
due primarily to interest earned on cash investments net of a higher level of
other corporate expenses.
The provision for income taxes was $2.2 million in the nine months ended
September 30, 1998, compared to a provision of $2.0 million in the nine months
ended September 30, 1997. The effective tax rate was 39% for the nine months
ended September 30, 1998 and 42% for the nine months ended September 30, 1997.
The tax rate declined primarily due to the decreased incidence of high rate
Germany taxes occasioned by both lower pretax income and the implementation of
certain tax strategies in Europe.
Net income was $3.5 million in the nine months ended September 30, 1998, an
increase of 22% over net income of $2.8 million in the nine months ended
September 30, 1997. The improvement primarily was due to higher interest
income.
Liquidity and Capital Resources
At September 30, 1998, the Corporation had cash, cash equivalents and
marketable securities of $28.9 million, compared to cash, cash equivalents and
marketable securities of $33.8 million at December 31, 1997.
The Corporation used cash flows in operations of $513,000 in the nine months
ended September 30, 1998, compared to a generation of $5.1 million in the nine
months ended September 30, 1997. Net income, as adjusted for depreciation and
amortization, loss on disposal of fixed assets, and deferred income taxes,
provided $7.0 million and $7.1 million in the nine months ended September 30,
1998 and 1997, respectively. The decrease in adjusted net income was due
primarily to a decrease in the deferred income tax provision for the nine months
ended September 30, 1998 which more than offset an increase in net income for
the nine months ended September 30, 1998 compared to the same period in 1997.
Changes in current assets and
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<PAGE>
liabilities used cash of $7.4 million and $2.3 million in the nine months ended
September 30, 1998 and 1997, respectively.
Working capital increased to $39.5 million at September 30, 1998, compared
to $38.1 million at December 31, 1997. The net increase in working capital
primarily was due to a reduction in payment of accounts payable and other
current liabilities and an increase in accounts receivable. Such items are
offset by a decrease in marketable securities and an increase in the current
deferred tax liability.
The Corporation spent $3.9 million for capital expenditures for the nine
months ended September 30, 1998, compared to $2.7 million for the nine months
ended September 30, 1997. The increase in capital expenditures reflects the
Corporation's investment in information systems and expansion of the
Corporation's laboratory facilities and related equipment, and equipping and
furnishing of the Corporation's new headquarters building.
In October 1997, the Corporation entered into a lease agreement with a
developer to construct and lease a facility adjacent to one of the Corporation's
existing facilities in Rockville, Maryland. The new facility is being used as
the Corporation's headquarters to consolidate existing research and development
and administrative activities, and will provide expanded laboratory and other
capacity for operational businesses. The lease agreement requires the
Corporation to make certain noncancelable lease payments totaling approximately
$11.9 million over the next 15 years.
In April 1998, the Corporation entered into certain third-party leasing and
subleasing arrangements relating to the construction of the exterior shell of
new biomanufacturing space. These arrangements require the Corporation to make
certain net noncancelable lease payments totaling approximately $11.8 million
over the next twenty years and to guarantee indebtedness of approximately $4.4
million. In addition, the Corporation intends to incur approximately $20.0
million over the next 12-18 months in leasehold improvements and laboratory
equipment relating to the new laboratory. The terms of the arrangements require
that the leases be accounted for as capital leases. The assets underlying such
capitalized leases are included with the Corporation's owned property and
equipment as of September 30, 1998. Property and equipment at September 30, 1998
includes approximately $6.8 million related to such leases. The related
obligation is included in the Corporation's liabilities at September 30, 1998.
The Corporation financed the acquisition of BIOMEVA in July 1996 and
obtained additional funds for working capital and expansion of its business
through a promissory note with NationsBank, N.A. ("NationsBank") in the amount
of $1.8 million and a subordinated note from Sidney R. Knafel, the Corporation's
largest stockholder, in the amount of $1.9 million, which was repaid on March
28, 1997. The NationsBank promissory note has a maturity date of June 30, 1999,
requires monthly principal payments of $30,000, and at September 30, 1998,
approximately $1.0 million was outstanding on the note. The note bears
interest at the same rate as the Mortgage Loan. At September 30, 1998, the
interest rate was 6.4%.
14
<PAGE>
In December 1994, the Corporation's existing loan agreement with NationsBank
was modified to provide term loan financing in the amount of $4,300,000 with a
maturity date of November 30, 1999 (the "Mortgage Loan"). In October 1997 and on
April 1, 1998, the Mortgage Loan was modified and restated to release the
foreign subsidiaries from joint and several liability, to include all the U.S.
subsidiaries as joint and several makers, to release the liens created by the
first security interest in all of its tangible and intangible assets, and to
modify the interest rate terms. The Mortgage Loan is secured by a deed of trust
on one of the Corporation's facilities in Rockville, Maryland. In addition to a
principal payment of $30,000 per month, the note bears interest at the London
Inter-Bank Offering Rate ("LIBOR") plus the applicable LIBOR Rate Additional
Percentage ("LIBOR Rate Option"). The LIBOR Rate Option ranged from 0.85% to
2.15% depending on the Corporation achieving certain funded debt to EBITDA
ratios. At September 30, 1998 the applicable interest rate was 6.4%. At
September 30, 1998, approximately $2.6 million was outstanding on the loan.
In May 1995, the Corporation entered into an interest rate swap agreement
whereby the variable interest rate of the Mortgage Loan was effectively
converted into debt with a fixed rate of 9.05% per annum. Amounts to be paid or
received under the interest rate swap agreement are recognized as interest
income or expense in the periods in which they accrue and are recorded in the
same category as that arising from the Mortgage Loan. This agreement expires on
November 30, 1999. The effect of the interest rate swap agreement on interest
expense was not material in the quarters ended September 30, 1997 and 1998.
In addition to the Mortgage Loan, the Corporation has entered into a
revolving loan agreement with NationsBank with a maximum available balance not
to exceed $1,000,000. Amounts to be paid include interest only on the unpaid
principal sum, payable monthly, and unless paid sooner, the unpaid principal
sum, together with unpaid accrued interest payable in full on May 31, 1998.
The note bears interest at the same rate as the Mortgage Loan. The Corporation
has also agreed to pay a quarterly commitment fee equaling 0.25% of the average
unused portion of the revolving bank loan. At September 30, 1998, no amounts
were outstanding under the facility. This line of credit expires in May 1999.
The various agreements with NationsBank are cross collateralized and are
secured by a deed of trust on one of the Corporation's facilities in Rockville,
Maryland. The agreements require the Corporation to meet certain financial and
restrictive covenants, including maintaining certain tangible net worth levels
and funded debt to equity ratios.
At September 30, 1998, the Corporation had commitments to spend
approximately $200,000 for computer systems, software and integration related to
the development of new information and telecommunication systems, approximately
$100,000 for furniture and building fixtures, and approximately $275,000 for
laboratory equipment.
The Corporation expects to continue expanding its operations through
internal growth, geographic expansion and possible strategic acquisitions. The
Corporation expects that such activities will be funded from existing cash, cash
equivalents and marketable securities; cash flows from operations; and bank
borrowings and lease financing. Although the Corporation has
15
<PAGE>
no agreements or arrangements in place with respect to any future acquisition,
there may be acquisition or other growth opportunities that require additional
external financing, and the Corporation may, from time to time, seek to obtain
funds from public or private issuances of equity or debt securities. There can
be no assurances that such financing will be available on terms acceptable to
the Corporation.
Based on its current operating plan, the Corporation believes that available
liquid resources are sufficient to meet its foreseeable cash needs.
Foreign Currency
The accounts of foreign subsidiaries are measured using local currency as
the functional currency. Assets and liabilities of these subsidiaries are
translated into U.S. dollars at period-end exchange rates, and income and
expense accounts are translated at average monthly exchange rates. Net gains
and losses resulting from such translations are included in comprehensive income
and are accumulated in a separate component of stockholder's equity.
Year 2000
The Corporation uses a significant number of information technology ("IT")
and non-IT computer systems in its operations. The IT systems include the
Corporation's accounting systems, its office and administrative systems, its
communications systems and its other corporate systems. The non-IT systems
include embedded microprocessors that control laboratory equipment and
facilities equipment.
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Corporation's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Corporation has established a task force to address the year 2000 issue.
The task force has implemented a three-phase approach. The first phase, which
is substantially complete, consists of an inventory of all IT and non-IT
systems. The Corporation is actively involved in the second phase, which
consists of setting priorities and developing a test plan. The Corporation
anticipates that the second phase will be completed by the end of the first
quarter of 1999. The third phase, which overlaps with the second phase, will
include testing and remediation and will commence during the fourth quarter of
1998.
The Corporation depends on various suppliers to continue its operations. The
Corporation is working with its suppliers to determine whether they and their
products are or will be year 2000 compliant. The Corporation has received
compliance certifications from some suppliers, and is following up with the
other suppliers to obtain such certificates. However, the Corporation does not
control its suppliers, the Corporation cannot fully audit their year 2000
16
<PAGE>
compliance, and for some suppliers the Corporation may have no feasible
alternative supplier available. The failure of such suppliers to remediate year
2000 problems in a timely manner could have a material adverse effect on the
Corporation.
The Corporation has not completed its analysis of its most reasonably likely
worst case year 2000 scenarios. The Corporation's task force intends to
investigate these scenarios and, throughout 1998 and 1999, to develop
contingency plans to reduce or avoid harm to the Corporation's business and
operations.
The Corporation's historical costs for remediation are not material and the
Corporation does not anticipate that its future remediation costs will be
material. The Corporation does expect to have to replace certain application
software to be year 2000 compliant. Estimates of these costs are very
preliminary, but could be as much as $.5 million. The Corporation has not
delayed any material projects as a result of the year 2000 problem.
The Corporation's plans to complete the year 2000 modifications are based on
management's best estimates, which were derived utilizing assumptions of future
events including the continued availability of certain resources, and other
factors. Estimates on the status of completion and the expected completion
dates are based on costs incurred to date compared to total expected costs.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Failure by the
Corporation or its suppliers to complete year 2000 remediation in a timely
manner could have a material adverse effect on the Corporation. Specific factors
that might cause such material differences include, but are not limited to, the
cooperation of third party suppliers, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
17
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
As of September 30, 1998 the Corporation had used approximately $5.2
million of the net proceeds from the Corporation's initial public offering
toward debt repayment and purchases of laboratory equipment, information systems
hardware and software, and interior construction and furnishings of the
Corporation's new facility.
At September 30, 1998, approximately $19.4 million of the net proceeds
of the initial public offering were invested in short-term United States
government securities, and the balance was invested in money market funds
pending the purchase of additional United States government securities or in
other operating accounts of the Corporation.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
Patrick J. Spratt will join the Corporation as Vice President, Chief
Financial Officer and Treasurer on November 30, 1998. Mr. Spratt will replace
Michael Thomas, who is leaving BioReliance to pursue other activities in
financial management.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The documents required to be filed as exhibits to this report under
Item 601 of Regulation S-K are listed in the Exhibit Index included elsewhere in
this report, which list is incorporated herein by reference.
(b) Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 16, 1998
BioReliance Corporation
(Registrant)
By _________________
Capers W. McDonald
President and Chief Executive Officer
By _________________
Michael R.N. Thomas
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.33 Employment Agreement with attachment thereto by and between
BioReliance Corporation and Michael R.N. Thomas dated October 1,
1998
20
EXHIBIT 10.33
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, effective the 1st day of October, 1998, by and between
BioReliance Corporation and all of its subsidiary companies and its successors
or assigns (the "Corporation") and Michael R.N. Thomas (the "Employee").
Preliminary Statements
----------------------
WHEREAS, the Employee is currently employed by the Corporation;
WHEREAS, the parties desire to provide for the continued employment of
the Employee by the Corporation on the terms and conditions set forth in this
Agreement; and
Terms and Conditions of Agreement
---------------------------------
NOW THEREFORE, in consideration of the mutual promises and agreements
set forth in this Agreement, the adequacy of which are acknowledged, and with
the intent to be bound hereby, the Corporation and Employee agree as follows:
A. POSITION
The Employee will be employed as Chief Financial Officer of
the Corporation through November 15, 1998. Thereafter, the Corporation,
at its election, may continue Employee in the position of Chief
Financial Officer through the remainder of the Term (as hereinafter
defined), or the Corporation many elect to change Employee's position
to Vice President, Corporate Development. Employee shall continue as
Vice President, Corporate Development, or such other senior management
position as may be determined by the Corporation from time to time,
through the remainder of the Term.
B. DUTIES
As Chief Financial Officer, Employee shall perform such duties
as may be assigned to him from time to time (consistent with the
limitations set forth in Section D(iv) of this Agreement) by the
President and Chief Executive Officer ("CEO"), including, but not
limited to: (i) finance, accounting and treasury responsibilities; (ii)
diligently pursuing the filing of the Corporation's 10-Q for the third
quarter and signing the same; (iii) handling the investor conference
call and other contacts specifically related to the release of the
Corporation's third quarter 1998 results; and (iv) maintaining a policy
that contacts with investors, analysts, investment brokers or managers
and other like persons will be at the direction of the President and
CEO of the Corporation, except for routine contacts with bank and cash
managers.
<PAGE>
As Vice President, Corporate Development, Employee shall
perform such duties as may be assigned to him from time to time by the
President and CEO of the Corporation, including, but not limited to,
the evaluation and analysis of acquisition opportunities related to
such target companies as may be identified from time to time by the
President and CEO. The Corporation and Employee acknowledge that the
duties of Vice President, Corporate Development may not require the
full-time attention of the Employee, and the Corporation shall be
flexible concerning the Employee's hours and place of work for the
remainder of the Term.
Employee shall continue to be entitled to all rights of
indemnification by the Corporation as to which he is presently
entitled, and the Corporation's obligation to indemnify Employee shall
not be diminished by the limitations on Employee's duties or hours of
work.
C. TERM
The terms and conditions of this Employment Agreement will
cover a period beginning as of the date hereof and ending on December
31, 1998 (the "Term"), unless otherwise terminated as provided in
Section E below. During the Term of this Agreement, the parties
acknowledge that Employee's employment is not "at will" employment, and
the Corporation's obligation to pay Employee the compensation described
in Section D of this Agreement shall exist regardless of any decision
by the Corporation to terminate Employee's employment for any reason
(other than a termination for cause) prior to the expiration of the
Term. At the end of the Term of this Agreement, the Employee's
employment status shall terminate. The terms and conditions contained
in Section E of this Agreement will expire at the end of the Term.
D. COMPENSATION AND BENEFITS
(i) Base Salary
The Employee's annual base salary will be One Hundred
and Seventy-Five Thousand Dollars ($175,000), payable on the
Corporation's regular bi-weekly payroll basis. The Employee
shall receive only that portion of the base which will become
due during the Term, and not the total annual base salary.
(ii) Bonus
The Employees shall be paid a bonus of Fifteen
thousand Dollars ($15,000), less applicable withholdings and
deductions (if any), on January 1, 1999.
2
<PAGE>
(iii) Incentive Compensation
As an inducement to remain in the employ of the
Corporation and as an incentive to build the Corporation's
value, if the Employee remains in the employ of the
Corporation through December 31, 1998, and performs his duties
as described in Paragraph B hereof (consistent with the
limitations set forth in Section D(iv) of this Agreement), he
shall be paid a bonus in the amount of $35,000 (less
applicable withholdings and deductions, if any), without
appraisal, at such time as other bonuses are paid in the first
quarter of 1999. The Corporation will be obligated to pay
Employee this Incentive Compensation bonus no later than
January 15, 1999 as long as Employee (i) does not resign from
the Corporation before December 31, 1998 and (ii) is not
terminated for Cause (as hereinafter defined) on or before
December 31, 1998.
(iv) Hours of Work
From the date hereof until November 15, 1998, the
Employee shall be required to work no more than thirty (30)
hours per week performing his duties as CFO and all hours in
excess thereof will be governed by Section G hereof. After
November 15, 1998, all hours in excess of sixteen (16) hours
per week spent by Employee performing his duties will be
governed by Section G hereof.
(v) Other Provisions
The Corporation will provide such medical and other
coverage to the Employee as the Corporation makes available to
all employees generally from time to time. The Employee will
also receive the Corporation's standard vacation, sick time
and personal holiday benefits. Eligibility to extend group
health coverage beyond the Term for Employee or any dependants
may be exercised by signing the applicable COBRA agreement.
Employee will continue accruing Paid Personal Leave (PPL)
through the Term.
E. TERMINATION COMPENSATION AND BENEFITS
In the event that during the Term of this Agreement, the
Employee's employment with the Corporation is involuntarily terminated
by the Corporation other than for Cause or because of the Employee's
death or substantial inability to work, the Corporation will pay the
Employee a lump sum payment equal to all amounts that would have
otherwise become due hereunder, including without limitation the Bonus
and Incentive Compensation described in Section D (ii) and (iii)
hereof.
For a period of twelve (12) months after such termination, the
Corporation will also continue to make available the same health and
dental (but no other) benefits made available to Corporation employees
generally at a cost equal to the
3
<PAGE>
cost the Employee would have paid if he had continued to be an employee
of the Corporation. In the event the Employee becomes employed at any
time during the twelve (12) month continuance period, all remaining
health and dental benefits shall terminate as of date of hire by the
Employee's new employer.
If Employee terminates his employment prior to the end of the
Term, the Corporation shall have no further obligations under Sections
D or E hereof after the effective date of termination.
As used in this Agreement, "Cause" shall mean that the
Employee (a) committed a material act or material acts of personal
dishonesty intended to result in the Employee's personal enrichment at
the expense of the Corporation, and which constitute(s) fraud, grand
larceny or any felonious act, (b) failed or refused to perform the
Employee's material duties and obligations (consistent with the
limitations set forth in Section D(iv) of this Agreement) as an
employee, officer and/or director of the Corporation (other than due to
disability or reasons beyond the Executive's reasonable control) if
such failure or approval is not remedied within a reasonable period of
time following the Employee's receipt of notice thereof.
F. CONFIDENTIALITY
By signing below, Employee acknowledges his ongoing and
continuing obligation to abide by the Confidentiality, Trade Secrets
and Noncompetition Agreement that he executed on July 28, 1998, and to
keep secret or confidential, and not to utilize in any matter or
disclose to third parties, any proprietary and confidential information
of the Corporation, which may have been made available to him or came
into his possession during the period of his employment with
Corporation. Employee also agrees that, during and after the Term, he
shall not make any defamatory or disparaging comments about the
Corporation, its agents, employees, successors, assigns, corporate
parent, affiliates, officers, or directors to third parties, or to
former, present, or prospective customers, clients, vendors, business
associates or anyone else in the industry, and shall not unlawfully
interfere with the business advantage or contracts of the Corporation,
its successors, assigns, corporate subsidiaries, and affiliates. During
and after the Term, the Corporation agrees that it shall not make any
defamatory or disparaging comments about Employee.
G. CONSULTING SERVICES
During the Term, the Employee and Corporation may also agree
that Employee will provide separate and additional consulting services
in excess of the hours of performance required pursuant to Section D
hereof, and during the 3 1/2 month period following the expiration of
the Term hereof, as set forth in Exhibit A, Employee may provide such
consulting services to the Corporation for the purpose of accomplishing
a smooth transition of obligations from Employee to the new Chief
financial Officer and to facilitate the Corporation's quarterly and
year-end audits and the filing of its subsequent annual report on Form
10-K, tax
4
<PAGE>
filings and matters related thereto. Such services shall be provided on
the terms and conditions set forth in the Professional Services
Agreement attached hereto as Exhibit A.The CEO must approve all
consulting services to be provided by Employee in writing in advance of
the performance of such services.
H. SURVIVAL
Except for the terms and conditions set forth above in Section
E, the terms and conditions of this Agreement, including without
limitation the terms and conditions set forth above in Section F
regarding Confidentiality, Non-Competition and Non-Solicitation, will
remain in effect after the end of the Term.
I. ASSIGNABILITY
Except by will or by the laws of descent and distribution,
neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Employee or by the Employee's
beneficiaries or legal representatives. This Agreement shall inure to
the benefit of and be enforceable by the Employee's legal personal
representative.
J. GOVERNING LAW
This agreement shall be construed and governed by the laws of
the State of Maryland without regard to its choice of law provisions.
K. SEVERABILITY
The provisions of this Agreement shall be deemed severable, and the
invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.
L. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the
Corporation and the Employee and supersedes all prior agreements,
offers, terms or conditions regarding Employee's employment, except for
the Confidentiality, Trade Secrets and Noncompetition Agreement, which
will survive.
M. WAIVER
Employee acknowledges, absent this Agreement, Employee has no
right or entitlement to any severance payment and benefit, or to a
separate allowance in any particular amount. For the consideration set
forth in Section D (ii) hereof, the adequacy of which is hereby
acknowledged, except for breach of this Agreement by the Corporation,
the Employee hereby remises, releases and forever discharges and
quitclaims onto the Corporation and its officers, directors,
shareholders, employees, agents and representatives of and from any and
all debts, actions, causes of action, suits, accounts, covenants,
contracts, agreements, damages, and
5
<PAGE>
any and all claims, demands and liabilities whatsoever of every name
and nature, both in Law and in Equity (collectively referred to therein
as "Claims"), which the Employee now has or ever had from the beginning
of time.
N. NO CONFLICTS OF INTEREST
By signing this Agreement, the Employee represents that he is
not subject to any restrictions, particularly, but without limitation,
in connection with any previous employment, which prevents the Employee
from entering into and performing his obligations under this Agreement
or which materially and adversely affect (or may in the future, so far
as the Employee can reasonably foresee, materially and adversely
affect), the Employee's right to participate in the affairs of the
Corporation.
O. PROOF OF CITIZENSHIP AND ABILITY TO WORK
This Agreement is contingent on the Employee providing the
Corporation, if not previously provided, with proof of U.S. citizenship
or alien work permission, as required by federal law.
BioReliance Corporation
By: ___________________________
Name: Capers W. McDonald
Title: President and CEO
_______________________________
Michael R.N. Thomas
6
<PAGE>
EXHIBIT A
PROFESSIONAL SERVICES AGREEMENT
BETWEEN
BIORELIANCE CORPORATION
AND
MICHAEL R.N. THOMAS
THIS AGREEMENT is entered into as of date below written by and between
BioReliance Corporation ("BioReliance"), a Delaware Corporation, with principal
offices located at 9900 Blackwell Rd, Rockville, Maryland 20850, and Michael
R.N. Thomas ("Consultant") residing at 12566 Lime Kiln Road, Fulton, MD 20759.
WITNESSETH
WHEREAS, BioReliance desires to have Consultant perform professional
services to assist BioReliance in facilitating the transition of the duties of
Chief Financial Officer, and
WHEREAS, Consultant has served as the Chief Financial Officer for
BioReliance and its subsidiaries and affiliates (the "Corporation")
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, BioReliance and Consultant agree as follows:
1. SCOPE OF WORK
Subject to the terms and conditions hereinafter provided, Consultant
may provide professional services related to transition of the duties of Chief
Financial Officer and the filing of certain reports with the Securities and
Exchange Commission and the Internal Revenue Service in connection with the
close of the Corporation's fiscal year. Services shall include, but not be
limited to the following: reasonable assistance upon prior notice at reasonable
times and locations as may be mutually agreed by BioReliance and Consultant in
connection with the close of the Corporation's books for year end 1998; the
filing of the Corporation's 10-K, annual report and proxy materials for 1998;
the filing of the Company's various tax retentions; and the audit of the
Corporation's books for 1998.
2. TERM AND TERMINATION
This Agreement shall have a term commencing on October 1, 1998, or such
an earlier or later date as the parties agree, and terminating April 15, 1999.
3. CONSIDERATION AND PAYMENT TERMS
As consideration for services provided by Consultant, BioReliance shall
pay the consultant the hourly rate of $200 per hour.
7
<PAGE>
4. DIRECTION
Consultant shall report to and receive direction from Capers W.
McDonald, President and Chief Executive Officer ("CEO"), or other individuals
designated by BioReliance from time to time. All services to be provided under
this Agreement require the prior written approval of the CEO. The Corporation
will not be obligated to pay any fees pursuant to this Agreement for services
which have not been approved in writing by the CEO prior to the performance of
such services.
5. TRAVEL
BioReliance agrees to reimburse Consultant for any non-local travel and
living expenses incurred in the performance of this Agreement if such non-local
travel is approved in advance by the CEO. Reimbursement will be in accordance
with BioReliance's travel policy.
6. PROPRIETARY INFORMATION
In providing services to BioReliance, Consultant may have knowledge of
its affairs, trade secrets, potential customers and other proprietary
information. Consultant shall treat all such information as proprietary and
confidential to BioReliance in accordance with the Confidentiality Agreements
dated July 8, 1998 and July 28, 1998 between BioReliance and Consultant.
7. WARRANTY
Consultant warrants that the professional services provided under this
Agreement will be performed competently and in accordance with the standard of
care usually and reasonably expected in performance of such services.
8. INDEPENDENT PARTIES
Nothing in this Agreement shall be construed as to create any
relationship between BioReliance and Consultant other than that of independent
contracting parties. Neither party shall have any right, power or authority to
assume, create or incur any expense, liability or obligation, express or
implied, on behalf of the other.
9. WAIVER
No waiver by either party of any breach of any provision hereof shall
constitute a waiver of any other breech of that or any other provision hereof.
8
<PAGE>
10. SEVERABILITY
If any part, term or provision of this Agreement is determined to be
invalid or unenforceable, the remainder of this Agreement shall not be affected,
and this Agreement shall otherwise remain in full force and effect.
11. ARBITRATION
Any claim or controversy relating to or rising out of the Agreement
shall be resolved exclusively by arbitration, in accordance with the rules then
obtaining of the American Arbitration Association.
12. ENTIRE AGREEMENT
This Agreement sets forth the entire agreement and understanding
between BioReliance and Consultant relating to the Services to be performed
hereunder. This Agreement supersedes all other communications between
BioReliance and Consultant relating to the subject matter hereof.
Any amendments to or modifications of this Agreement shall be effective
only if reduced to writing and executed by both BioReliance and Consultant.
13. HEADINGS
The Subject matter headings used in this Agreement are solely for
convenience and are not to be taken as modifying, clarifying, describing or
limiting any provisions hereof.
IN WITNESS THEREOF, BioReliance and Consultant have caused this
Agreement to be executed by their duly authorized representative as of the dates
set forth above.
BioReliance Corporation
By __________________ By ___________________
Name Capers W. McDonald Name Michael R.N. Thomas
__________________ ___________________
Title President and CEO
__________________ ___________________
Date October 1, 1998 Date October 1, 1998
__________________ ___________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 3rd
quarter form 10-Q unaudited consolidated balance sheets and unaudited
consolidated statements of income and is qualified in its entirety by reference
to such form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,049
<SECURITIES> 17,877
<RECEIVABLES> 21,757
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,497
<PP&E> 24,206
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,194
<CURRENT-LIABILITIES> 12,973
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 53,851
<TOTAL-LIABILITY-AND-EQUITY> 78,194
<SALES> 37,625
<TOTAL-REVENUES> 37,625
<CGS> 21,842
<TOTAL-COSTS> 21,842
<OTHER-EXPENSES> 10,676
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 5,673
<INCOME-TAX> 2,222
<INCOME-CONTINUING> 3,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,451
<EPS-PRIMARY> .44
<EPS-DILUTED> .42
</TABLE>
