<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998
REGISTRATION STATEMENT NO. 333-58795
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
ALBANY MOLECULAR RESEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
2833 14-1806984
DELAWARE (I.R.S. EMPLOYER
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION CLASSIFICATION CODE NUMBER)
OF INCORPORATION OR
ORGANIZATION)
----------------
21 CORPORATE CIRCLE, ALBANY, NEW YORK 12203
(518) 464-0279
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
----------------
THOMAS E. D'AMBRA, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ALBANY MOLECULAR RESEARCH, INC.
21 CORPORATE CIRCLE
ALBANY, NEW YORK 12203-5154
(518) 464-0279
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
STUART M. CABLE, ESQ. ALEXANDER D. LYNCH, ESQ.
GOODWIN, PROCTER & HOAR LLP BABAK YAGHMAIE, ESQ.
EXCHANGE PLACE BROBECK, PHLEGER & HARRISON LLP
BOSTON, MASSACHUSETTS 02109-2881 1633 BROADWAY
(617) 570-1000 NEW YORK, NEW YORK 10019
(212) 581-1600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 14, 1998
PROSPECTUS
2,200,000 SHARES
[ALBANY MOLECULAR RESEARCH, INC. LOGO APPEARS HERE]
COMMON STOCK
All of the 2,200,000 shares of Common Stock offered hereby are being sold by
Albany Molecular Research, Inc. ("Albany Molecular Research" or the "Company").
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $15.00 and $17.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for the quotation of the Common Stock
on the Nasdaq National Market upon completion of this offering under the symbol
"AMRI."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- --------------------------------------------------------------------------------
Total(3)...................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the Underwriters subject to receipt
and acceptance by them and to their right to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made
at the offices of ING Baring Furman Selz LLC, New York, New York, on or about
, 1998.
ING BARING FURMAN SELZ LLC HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1998
<PAGE>
[INSIDE COVER OF PROSPECTUS]
[FOUR PHOTOGRAPHS OF THE COMPANY'S LABORATORY FACILITIES AND ONE PHOTOGRAPH OF
THE EXTERIOR OF THE COMPANY'S ALBANY FACILITY.]
THE COMPANY'S NAME WITH THE COMPANY'S LOGO AND THE COMPANY'S LOGO ARE
REGISTERED TRADEMARKS OF THE COMPANY. ALL OTHER TRADEMARKS AND TRADENAMES
REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK BY
CERTAIN METHODS INCLUDING ENTERING STABILIZING BIDS, IMPOSING PENALTY BIDS OR
EFFECTING SYNDICATE COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
risk factors contained in this Prospectus related to the purchase of Common
Stock of the Company. See "Risk Factors." Except for the historical information
contained herein, the discussion contained in this Prospectus contains
"forward-looking statements" that involve risk and uncertainties. The Company's
actual results could differ materially from those discussed in this Prospectus.
Important factors that could cause or contribute to such differences include
those discussed under the caption "Risk Factors," as well as those discussed
elsewhere herein.
THE COMPANY
Albany Molecular Research is an integrated chemistry outsourcing company that
offers a broad range of chemistry research and development services to
pharmaceutical and biotechnology companies involved in drug discovery and
development. The Company offers services traditionally provided by chemistry
divisions within pharmaceutical companies, including medicinal chemistry,
chemical development, analytical chemistry services and small-scale
manufacturing. The Company's services are designed to permit pharmaceutical and
biotechnology companies to reduce overall drug development time and cost and to
pursue simultaneously a greater number of drug discovery and development
opportunities. Since its inception in 1991, the Company has conducted over 400
projects for more than 100 customers. The Company achieved a 66% compound
annual growth rate in net contract revenue from 1993 to 1997. In addition to
its contract services, the Company conducts a limited amount of proprietary
research and development. The Company has developed and patented a
substantially pure form of, and a manufacturing process for, the active
ingredient in a new, non-sedating antihistamine marketed by Hoechst Marion
Roussel, Inc. ("HMR") as Allegra in the Americas and as Telfast elsewhere.
Pursuant to a licensing agreement between the Company and HMR, the Company has
received since October 1996 $12.8 million in milestones and royalties from HMR
and is entitled to receive ongoing royalties based upon a percentage of sales
of the product.
The pace of drug discovery has accelerated significantly in recent years.
Fueled by advances in disciplines such as molecular biology, genomics and high-
throughput screening, opportunities to develop therapeutics for previously
unmet or undermet medical needs are greater than ever before. In addition,
pharmaceutical and biotechnology companies are under increasing pressure to
quickly deliver new drugs to market. In order to take advantage of these
opportunities and to respond to these pressures, many pharmaceutical companies
have augmented their internal research and development capacity through
outsourcing. Similarly, many biotechnology companies, constrained by cost
pressures, have elected to outsource rather than develop certain research and
development functions in-house. While outsourcing has traditionally been
limited to the later stages of drug development, such as clinical trial
management and manufacturing, many pharmaceutical and biotechnology companies
are utilizing contract chemistry service providers to supplement, or in some
cases, replace internal chemistry expertise.
Chemistry and biology are at the center of the drug discovery and development
process, which includes lead discovery, lead optimization, preclinical testing,
clinical trials and product commercialization. During the critical discovery
phases of this process, chemists and biologists typically work together to
prepare and deliver new chemical substances, develop laboratory models of
disease, test compounds to identify agents which demonstrate desired activity
and finally, create a marketable drug. In recent years, pharmaceutical and
biotechnology companies have sought to outsource chemistry services related to
lead discovery and lead optimization. Currently, only a few companies provide
chemistry services for drug discovery and development. Those that do provide
such services have typically focused only on selected portions of the process.
Albany Molecular Research believes significant opportunities exist for a
company that provides a broad range of outsourced chemistry services.
3
<PAGE>
Albany Molecular Research is one of the first companies to offer a broad
range of outsourced chemistry services for drug discovery and development. The
Company's service offerings include medicinal chemistry, chemical development,
analytical chemistry services and small-scale manufacturing. Medicinal chemists
synthesize small quantities of new and potentially patentable compounds for
biological testing to assist customers in the lead development and optimization
stages of their drug discovery and development efforts. The Company's medicinal
chemists use tools such as computational and combinatorial chemistry in
conjunction with traditional medicinal chemistry techniques. Chemical
development scientists design novel or improved methods, processes and
purification techniques suitable for medium to large scale production of a drug
candidate. The Company's analytical chemistry services consist of identity and
purity testing, method development, validation, stability testing and
regulatory documentation and consulting. Albany Molecular Research also
provides chemical synthesis and manufacturing services for its customers under
cGMP guidelines and has the capacity to produce laboratory scale amounts of
compound.
The Company's objective is to be the leading provider of comprehensive
outsourced chemistry research services to the pharmaceutical and biotechnology
industries. Key elements of the Company's business strategy include (i)
expanding its range of service offerings, (ii) increasing capacity in each of
its service offerings, (iii) expanding the number of service offerings used by
each of its customers, (iv) increasing its customer base, and (v) capitalizing
on proprietary technology, both by seeking opportunities to obtain contractual
terms with its customers which may entitle the Company to milestones and/or
royalties and by independently identifying and developing possible proprietary
compounds or processes.
----------------
The Company was incorporated under the laws of New York on June 20, 1991 and
will be reincorporated by merger under the laws of Delaware prior to the
consummation of this offering. The Company's principal executive offices are
located at 21 Corporate Circle, Albany, New York 12203, and its telephone
number is (518) 464-0279.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,200,000 shares
Common Stock to be outstanding after the
offering(1).................................... 9,490,964 shares
Use of Proceeds................................. To repay a portion of indebtedness, for
expansion of existing facilities, for
additional capital expenditures and for
working capital and other general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... AMRI
</TABLE>
- ----------
(1) Excludes: (i) 1,379,254 shares of Common Stock issuable upon the exercise
of outstanding stock options at a weighted average exercise price of $3.33
per share as of August 1, 1998; and (ii) 919,847 and 200,000 additional
shares of Common Stock reserved for issuance under the Company's 1998 Stock
Option and Incentive Plan (the "1998 Stock Plan") and the Company's 1998
Employee Stock Purchase Plan (the "Purchase Plan"), respectively. See
"Management--Employee Stock and Other Benefit Plans--1998 Stock Option and
Incentive Plan," "--1992 Stock Option Plan" and "--1998 Employee Stock
Purchase Plan."
----------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and has been adjusted to
reflect (i) a 3-for-2 stock split of the Common Stock to be effective in August
1998; (ii) the conversion of all outstanding shares of the Company's Series A
Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred
Stock"), into 30,000 shares of Common Stock, immediately prior to completion of
this offering; (iii) the Company's reincorporation by merger in Delaware to be
effective prior to the consummation of this offering; and (iv) the amendment
and restatement of the Company's Certificate of Incorporation in connection
with this offering. Unless the context otherwise requires, all references to
"Albany Molecular Research" or the "Company" mean Albany Molecular Research,
Inc., together with its subsidiary.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- --------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net contract revenue............... $2,959 $5,261 $8,104 $3,607 $5,964
Cost of revenue.................... 1,350 2,835 4,334 1,953 3,252
------- ------- ------- ------ ------
Gross profit....................... 1,609 2,426 3,770 1,654 2,712
Operating Expenses:
Research and development.......... 37 245 627 280 341
Selling, general and
administrative................... 809 1,219 2,246 893 1,908
------- ------- ------- ------ ------
Total operating expenses......... 846 1,464 2,873 1,173 2,249
------- ------- ------- ------ ------
Income from operations............. 763 962 897 481 463
Other income (expense):
Licensing fees, milestones and
royalties, net................... -- 900 2,278 450 11,248
Interest income (expense), net.... 37 (11) (13) (16) 97
Other non-operating income (ex-
pense), net...................... (68) 20 (26) 5 (196)
------- ------- ------- ------ ------
Total other income (expense)..... (31) 909 2,239 439 11,149
------- ------- ------- ------ ------
Income before income taxes......... 732 1,871 3,136 920 11,612
Income tax expense................. 252 637 947 335 4,315
------- ------- ------- ------ ------
Net income......................... $ 480 $1,234 $2,189 $ 585 $7,297
======= ======= ======= ====== ======
Basic earnings per share........... $ 0.07 $ 0.17 $ 0.31 $ 0.08 $ 1.01
Diluted earnings per share......... $ 0.06 $ 0.16 $ 0.28 $ 0.07 $ 0.90
Weighted average common shares
outstanding, basic................ 6,842 7,137 7,174 7,171 7,201
Weighted average common shares
outstanding, diluted.............. 7,380 7,711 7,863 7,841 8,097
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 7,571 $39,582
Working capital.......................................... 10,088 41,829
Total assets............................................. 25,973 57,714
Long-term debt, less current maturities.................. 5,159 5,159
Total shareholders' equity............................... 14,280 46,021
</TABLE>
- ----------
(1) Adjusted to give effect to the sale of 2,200,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $16.00 per
share and the receipt and application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the Common Stock
offered by this Prospectus. Except for the historical information contained
herein, the discussion contained in this Prospectus contains "forward-looking
statements" that involve risk and uncertainties. The Company's actual results
could differ materially from those discussed in this Prospectus. Important
factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere herein.
Competitive Market for Experienced Scientists. The Company's future success
will depend to a significant extent on its ability to attract, retain and
motivate highly skilled chemists and other scientists. The Company's ability
to maintain, expand or renew existing engagements with its customers, enter
into new engagements and provide additional services to its existing customers
depends, in large part, on its ability to hire and retain scientists with the
skills necessary to keep pace with continuing changes in drug discovery and
development technologies. The Company believes that there is a shortage of,
and significant competition for, scientists with the skills and experience in
chemistry necessary to perform the services offered by the Company. The
Company competes with the research departments of pharmaceutical companies,
biotechnology companies, combinatorial chemistry companies, contract research
companies and research and academic institutions for new personnel. The
inability to hire additional qualified personnel may materially adversely
affect the Company's future growth. In addition, the Company's inability to
hire additional qualified scientists may require an increase in the level of
responsibility for both existing and new personnel. There can be no assurance
that the Company will be successful in attracting, retaining or motivating its
scientific personnel. Failure to attract, retain or motivate such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Competition."
Dependence on Pharmaceutical and Biotechnology Industries and Clients; Risk
of Cost Overruns. The Company has benefitted to date from the increasing trend
of pharmaceutical and biotechnology companies to outsource chemical research
and development projects. A reversal or slowing of this trend could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's contract revenues are highly dependent on
research and development expenditures by the pharmaceutical and biotechnology
industries. The Company's operations could be materially adversely affected by
general economic downturns in its clients' industries, the impact of the
current trend toward consolidation in the pharmaceutical industry or any
decrease in research and development expenditures. In addition, historically,
a substantial portion of the Company's revenue has been derived from contracts
with a limited number of significant customers. For the year ended December
31, 1997, net contract revenue from the Company's three largest customers
represented approximately 29%, 11% and 9% of total net contract revenue,
respectively. For the six months ended June 30, 1998, net contract revenue
from the Company's three largest customers represented approximately 16%, 16%
and 13% of total net contract revenue, respectively. The Company's contracts
generally are terminable upon 30 days' notice by the customer. The Company's
contracts may be terminated for a number of reasons, many of which may be
beyond the Company's control, such as reduction or reallocation of a
customer's research and development budget or change in a customer's overall
financial condition. The loss of a large contract or multiple smaller
contracts, or a significant decrease in revenue derived from such contracts,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, certain of the Company's
contracts for the provision of its services have a fixed price or are subject
to a maximum fee. As a result, the Company bears the risk of cost overruns
with respect to such contracts. There can be no assurance that the Company
will be able to perform its obligations with respect to any such contracts
within the prescribed fixed fees or applicable maximum fees. Significant cost
overruns with respect to such contracts could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Customers."
Risks Related to the Allegra/Telfast Royalty. Under the terms of a license
agreement, the Company has granted HMR, formerly Marion Merrell Dow Inc., an
exclusive, worldwide license in exchange for milestones and royalties to use
the Company's patents relating to fexofenadine HCl, which is the active
ingredient in a new, non-sedating antihistamine marketed and sold by HMR as a
prescription medicine. Fexofenadine HCl is
7
<PAGE>
marketed under the brand name Allegra in the Americas and under the brand name
Telfast elsewhere. For the year ended December 31, 1997, the Company's
milestones and royalties from fexofenadine HCl were $2.5 million, or 22.3% of
the Company's aggregate net contract revenue plus other income, and for the
six months ended June 30, 1998, the Company's milestones and royalties from
fexofenadine HCl were $12.4 million, or 67.5% of the Company's aggregate net
contract revenue plus other income. The Company's milestones and royalties
from fexofenadine HCl for the six months ended June 30, 1998 include $3.0
million in non-recurring milestone payments and $4.4 million in royalties
related to prior periods and as a result such milestone payments and royalties
may not be indicative of future amounts earned under the license agreement
with HMR. In particular, no further milestone payments are required under the
agreement. The Company does not participate in the manufacturing, marketing or
sale of fexofenadine HCl by HMR and relies entirely on the efforts of HMR to
manufacture, market and sell this product. There can be no assurance that HMR
will continue to be successful in marketing and selling fexofenadine HCl, that
fexofenadine HCl will continue to receive market acceptance or that the
Company will continue to receive significant royalties from HMR in accordance
with the license agreement. In addition, there can be no assurance that a
comparable or superior antihistamine to fexofenadine HCl will not be developed
or that fexofenadine HCl will not be found to have unintended side effects
which could cause the United States Food and Drug Administration (the "FDA")
or other government regulatory authorities to require that HMR withdraw
fexofenadine HCl from the market in the U.S. or other countries or could
adversely affect market acceptance of fexofenadine HCl. The failure of
fexofenadine HCl to be marketed successfully, to continue to receive market
acceptance or to generate significant royalties would have a material adverse
effect on the Company's business, financial condition and results of
operations. In the event any of the Company's patents relating to fexofenadine
HCl are subjected to successful challenge, royalties under the license
agreement would be materially and adversely affected. See "--Proprietary
Technology; Unpredictability of Patent Protection" and "Business--Allegra
Royalty and Licensing Agreement."
Proprietary Technology; Unpredictability of Patent Protection. The
Company's success will depend, in part, on its ability to obtain and enforce
patents, protect trade secrets, obtain licenses to technology owned by third
parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms can be uncertain and involve complex legal
and factual questions. There can be no assurance that any patent applications
will result in the issuance of patents or, if any patents are issued, whether
they will provide significant proprietary protection or commercial advantage,
or will not be circumvented by others. In the event a third party has also
filed one or more patent applications for inventions which conflict with those
of the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office (the
"PTO") to determine priority of invention, which could result in the loss of
any opportunity to secure patent protection for the inventions and the loss of
any right to use the inventions. Even if the eventual outcome is favorable to
the Company, such proceedings could result in substantial cost to the Company.
The filing and prosecution of patent applications, litigation to establish the
validity and scope of patents, assertion of patent infringement claims against
others and the defense of patent infringement claims by others can be
expensive and time consuming. There can be no assurance that in the event that
any claims with respect to any of the Company's patents, if issued, are
challenged by one or more third parties, that any court or patent authority
ruling on such challenge will determine that such patent claims are valid and
enforceable. An adverse outcome in such litigation could cause the Company to
lose exclusivity afforded by the disputed rights. If a third party is found to
have rights covering products or processes used by the Company, the Company
could be forced to cease using the technologies covered by such rights, could
be subject to significant liability to such third party, and could be required
to license technologies from such third party. Furthermore, even if the
Company's patents are determined to be valid, enforceable, and broad in scope,
there can be no assurance that competitors will not be able to design around
such patents and compete with the Company and its licensees using the
resulting alternative technology. See "Business--Patents and Proprietary
Rights."
Management of Growth and Expansion. The Company's operations have grown
rapidly and substantially in recent years. Such growth has placed and will
continue to place a significant strain on the Company's operational, human and
financial resources. The Company's ability to compete effectively will depend,
in large part, upon its ability to hire, train and assimilate additional
management, professional, scientific and technical
8
<PAGE>
operating personnel and its ability to expand, improve and effectively utilize
its operating, management, marketing and financial systems to accommodate its
expanded operations. The physical expansion of the Company's facilities to
accommodate future growth may lead to significant costs and divert management
and business development resources. The failure by the Company's management to
effectively anticipate, implement and manage the changes required to sustain
the Company's growth may have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Key Personnel. The Company's performance is highly dependent
on the principal members of its senior management and scientific staff,
including, in particular, Dr. Thomas E. D'Ambra, the Company's Chairman and
Chief Executive Officer, Dr. Harold Meckler, the Company's Vice President,
Chemical Development, and Dr. Michael P. Trova, the Company's Vice President,
Medicinal Chemistry. Although the Company has entered into agreements
containing non-competition restrictions with its senior scientific and
management personnel and into employment agreements with Drs. D'Ambra, Meckler
and Trova, the Company does not have employment agreements with all of its key
personnel. No assurance can be given that the Company will be able to retain
such personnel. The Company maintains key person life insurance on Dr.
D'Ambra. The loss of one or more members of the Company's senior management or
scientific staff could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Employees."
Competition. The Company faces competition based on a number of factors,
including size, relative expertise and sophistication, speed and costs of
identifying and optimizing potential lead compounds and of developing and
optimizing chemical processes. The Company competes with the research
departments of pharmaceutical companies, biotechnology companies,
combinatorial chemistry companies, contract research companies and research
and academic institutions. Many of these competitors have greater financial
and other resources and more experience in research and development than the
Company. Smaller companies may also prove to be significant competitors,
particularly through arrangements with large corporate collaborators.
Historically, pharmaceutical companies have maintained close control over
their research and development activities, including the synthesis, screening
and optimization of chemical compounds and the development of chemical
processes. Many of these companies, which represent a significant potential
market for the Company's products and services, are developing or already
possess in-house technologies and services offered by the Company. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which the Company provides services either
independently or through collaborative efforts.
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's services and expertise may be rendered obsolete or
uneconomical by technological advances or novel approaches developed by one or
more of the Company's competitors. The existing approaches of the Company's
competitors or new approaches or technologies developed by the Company's
competitors may be more effective than those developed by the Company. There
can be no assurance that the Company's competitors will not develop more
effective or more affordable technologies or services, thus rendering the
Company's technologies and/or services obsolete, uncompetitive or
uneconomical. There can be no assurance that the Company will be able to
compete successfully with existing or potential competitors or that
competitive factors will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business--
Competition."
Variation in Quarterly Operating Results; Seasonality. The Company's results
of operations historically have fluctuated on a quarterly basis and can be
expected to continue to be subject to quarterly fluctuations. Quarterly
operating results can fluctuate as a result of a number of factors, including
the commencement, delay, cancellation or completion of contracts; risks
associated with fixed price contracts; the mix of services provided; seasonal
slowdowns; the timing of start-up expenses for new services and facilities;
and the timing and integration of acquisitions. In particular, quarterly
fluctuations in the Company's royalty revenue relating to fexofenadine HCl, an
anti-histamine subject to seasonal demand, may produce stronger fluctuations
in the Company's results of operations than those which have occurred over
prior periods. The Company believes that quarterly comparison of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, fluctuations in quarterly
results could affect the market price of the
9
<PAGE>
Common Stock in a manner unrelated to the longer term operating performance of
the Company. See "--Absence of Public Trading Market; Offering Price; Possible
Volatility of Future Stock Price" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results."
Limited Marketing Experience; Expansion of Sales Activities. To date, the
Company has sold its services and products primarily through the efforts of
the Company's senior management. The Company anticipates that it will need to
retain additional sales and marketing personnel and expand its sales and
marketing activities in order to achieve significant long-term growth. There
can be no assurance that the Company will be able to build and maintain an
efficient and effective sales and marketing organization or that such an
organization will be successful in attracting new customers. The failure to
build a successful sales organization could have a material adverse effect on
the Company's business, financial condition and results of operations.
Potential Liability and Risks of Operations. The Company develops, tests
and, to a very limited extent, manufactures pharmaceutical products intended
for use in humans. Such activities could expose the Company to the risk of
liability for personal injury or death to persons using such products,
although the Company does not manufacture in bulk, market or sell such
products. No assurance can be given that the Company will not be required to
pay damages or incur defense costs in connection with any such claim. In
addition, the Company could be held liable for errors and omissions in
connection with the services it performs. The Company currently maintains
product liability and errors and omissions insurance with respect to these
risks. No assurance can be given that such insurance will be adequate or can
be maintained at acceptable costs or at all. The failure of such insurance
policies to protect the Company from such claims or liabilities could have a
material adverse effect on the Company's business, financial condition and
results of operations.
All facilities and manufacturing techniques used in the manufacture of
products for clinical use or for sale in the United States must be operated in
conformity with cGMP guidelines as established by the FDA. The Company's
facilities are subject to scheduled periodic regulatory inspections to ensure
compliance with cGMP requirements. Failure on the part of the Company to
comply with applicable requirements could result in the termination of ongoing
research or the disqualification of data for submission to regulatory
authorities. A finding that the Company had materially violated cGMP
requirements could result in additional regulatory sanctions and, in severe
cases, could result in a mandated closing of the Company's facilities which
would materially and adversely affect the Company's business, financial
condition and results of operations.
Risk of Interruption of Operations. The Company's results of operations are
dependent upon the continued use of its highly specialized laboratories and
equipment. The Company's operations are primarily concentrated in a single
facility in Albany, New York. Although the Company has contingency plans in
effect for certain natural disasters, as well as other unforeseen events which
could damage the Company's laboratories or equipment, no assurance can be
given that any such events will not materially interrupt the Company's
business. The Company maintains business interruption insurance to cover lost
revenues caused by such occurrences. However, such insurance would not
compensate the Company for the loss of opportunity and potential adverse
impact on relations with existing customers created by an inability to
complete its customer contracts in a timely manner.
Risks Associated with Acquisitions. The Company from time to time reviews
potential acquisition candidates in the ordinary course of its business. No
assurance can be given that acquisition candidates will be available or will
be available on terms and conditions acceptable to the Company. Acquisitions
involve numerous risks, including among others, difficulties and expenses
incurred in connection with the consummation of such acquisitions by the
Company and the subsequent assimilation of the operations, personnel and
services or products of the acquired companies, the difficulty of operating
new businesses, the diversion of management's attention from other business
concerns and the potential loss of key employees of the acquired company.
Acquisitions of foreign companies may also involve the additional risks of
assimilating differences in business practices and overcoming language
barriers. To date, the Company has grown entirely through internal expansion,
and there can be no assurance that any acquisition will be identified or
completed or, if completed, will be successfully integrated into the Company's
operations. The Company presently has no agreements or commitments with
respect to any acquisition.
10
<PAGE>
Broad Management Discretion in Use of Proceeds. The principal purposes of
the offering are to increase the Company's equity capital, to create a public
market for the Company's Common Stock, to increase the visibility of the
Company in the marketplace and to facilitate future access by the Company to
public equity markets. The Company expects to use the net proceeds from the
offering to repay a portion of its indebtedness, for expansion of existing
facilities, for additional capital expenditures and for working capital and
other general corporate purposes. Although the Company has no plans,
commitments or agreements with respect to any material acquisitions as of the
date of this Prospectus, the Company may seek acquisitions of businesses,
products or technologies that are complementary to those of the Company, and a
portion of the net proceeds may be used for such acquisitions. Accordingly,
the Company will have significant flexibility in applying the net proceeds of
the offering. See "Use of Proceeds."
Potential Adverse Impact of Pharmaceutical and Health Care Reform. The
Company expects that a substantial portion of its contract revenues in the
foreseeable future will be derived from services provided to the
pharmaceutical and biotechnology industries. Accordingly, the Company's future
success is directly dependent upon the success of the companies within those
industries and their continued demand for the Company's services. The levels
of revenues and profitability of pharmaceutical and biotechnology companies
may be affected by the continuing efforts of governmental and third party
payors to contain or reduce the costs of health care through various means and
the initiatives of third party payors with respect to the availability of
reimbursement. For example, in certain foreign markets pricing or
profitability of pharmaceuticals is subject to government control. In the
United States, there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. It is uncertain what legislative proposals may be adopted
or what actions federal, state or private third party payors for health care
goods or services may take in response to any health care reform proposals or
legislation. To the extent that such proposals or reforms have a material
adverse effect on the businesses, financial condition, results of operations
and profitability of pharmaceutical and biotechnology companies that are
actual or prospective customers for the Company's services and products, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
Potential Liability Regarding Hazardous Materials. The research and
development processes of the Company involve the controlled use of hazardous
materials. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result, and any such liability could exceed the resources of the
Company. In addition, there can be no assurance that the Company will not be
required to incur significant costs to comply with environmental laws and
regulations related to the handling or disposal of such materials or waste
products in the future, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
Effective Control by Principal Stockholders. After giving effect to the sale
of the shares of Common Stock offered hereby, Thomas E. D'Ambra, the Company's
Chairman and Chief Executive Officer, Chester J. Opalka, the Company's Vice
President, Senior Research Chemist and a Director, and Harold M. Armstrong,
Jr., the Company's Executive Vice President, Chief Financial Officer and a
Director, will beneficially own in the aggregate approximately 52.6% (50.9%
assuming exercise of the Underwriters' over-allotment option in full) of the
outstanding Common Stock. As a result, these stockholders will be able to
exert significant influence over the outcome of fundamental corporate
transactions requiring stockholder approval, including, but not limited to,
mergers and sales of assets and the election of the members of the Company's
Board of Directors. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Principal
Stockholders" and "Shares Eligible for Future Sale."
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after this offering could adversely affect the
market price of the Common Stock. In addition to the 2,200,000 shares of
Common Stock offered hereby, up to approximately 7,268,464 shares of Common
Stock owned by current
11
<PAGE>
shareholders of the Company will be eligible for sale in the public market
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), at various times beginning 90 days after the date of this
Prospectus. All executive officers and directors and stockholders of the
Company, who in the aggregate will hold 7,465,964 shares of Common Stock and
options to purchase 1,379,254 shares of Common Stock, have agreed, pursuant to
certain Lock-up Agreements (the "Lock-up Agreements"), that until 180 days
after the date of this Prospectus, they will not, directly or indirectly,
offer, sell, assign, transfer, encumber, contract to sell, grant an option to
purchase, make a distribution of, or otherwise dispose of, any shares of
Common Stock, or any securities convertible into or exchangeable for shares of
Common Stock, otherwise than (i) as a bona fide gift or gifts, provided that
the donee or donees thereof agree in writing as a condition precedent to such
gift or gifts to be bound by the terms of the Lock-up Agreements, or (ii) with
the prior written consent of ING Baring Furman Selz LLC. Sales of substantial
amounts of Common Stock (including shares issued in connection with future
acquisitions which may be issued with registration rights), or the
availability of such shares for sale, may adversely affect the prevailing
market price for the Common Stock and could impair the Company's ability to
obtain additional capital through an offering of its equity securities. See
"Shares Eligible for Future Sale."
Absence of a Public Trading Market; Offering Price; Possible Volatility of
Future Stock Price. Prior to this offering, there has been no public market
for the Common Stock, and there can be no assurance that an active market will
develop or be sustained following the consummation of this offering.
Consequently, the offering price of the Common Stock will be determined by
negotiation between the Company and the representatives of the several
Underwriters based on several factors and will not necessarily reflect the
market price of the Common Stock after this offering or the price at which the
Common Stock may be sold in the public market after this offering. See
"Underwriting" for a description of the factors to be considered in
determining the initial public offering price. Following the completion of
this offering, the trading price of the Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, changes in earnings estimates by analysts, material
announcements by the Company or its competitors, governmental regulatory
action, or other events or factors, many of which are beyond the Company's
control. The stock market has experienced extreme price and volume
fluctuations which have affected market prices of smaller capitalization
companies and which often have been unrelated to the operating performance of
such companies. In addition, the Company's operating results in future
quarters may be below the expectations of securities analysts and investors.
In such event, the price of the Common Stock would likely decline, perhaps
substantially. See "Underwriting."
Computer Systems and Year 2000 Issues. The "Year 2000" issue concerns the
potential exposures related to the automated generation of business and
financial misinformation resulting from the application of computer programs
which have been written using two digits, rather than four, to define the
application year of business transactions. The Company's independent
information technology consultant has conducted a comprehensive assessment of
the Company's computer systems to identify the systems that could be affected
by the Year 2000, and has determined that no material changes are required for
the Company's computer systems to be Year 2000 compliant. As such, the Company
believes that, based upon currently available information, it will incur no
material costs associated with becoming Year 2000 compliant. The Company is
seeking to confirm the Year 2000 readiness of its material customers, such as
HMR, Astra AB and Eli Lilly and Company, and its material vendors. Failure of
the Company, its software providers or the Company's customers or vendors to
adequately address the Year 2000 issue could result in misstatement of
reported financial information or otherwise materially and adversely affect
the Company's business, financial condition and results of operations.
Dividend Policy. The Company has not declared cash dividends on its Common
Stock since its inception and the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. Under Delaware law,
the Company is permitted to pay dividends only out of its surplus, or, if
there is no surplus, out of its net profits. Although the Company's current
credit facility permits the Company to pay cash dividends, the payment of cash
dividends may be prohibited under agreements governing debt which the Company
may incur in the future. See "Dividend Policy" and "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
12
<PAGE>
Anti-takeover Provisions. Certain provisions of the Company's Restated
Certificate of Incorporation (the "Certificate") and Amended and Restated By-
Laws (the "By-Laws"), certain sections of the Delaware General Corporation
Law, and the ability of the Board of Directors to issue shares of preferred
stock and to establish the voting rights, preferences and other terms thereof,
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by the Board of Directors (including takeovers
which stockholders may deem to be in their best interests). Such provisions
include, among other things, a classified Board of Directors serving staggered
three-year terms, the elimination of stockholder voting by written consent,
the removal of directors only for cause, the vesting of exclusive authority in
the Board of Directors to determine the size of the Board of Directors and
(subject to certain limited exceptions) to fill vacancies thereon, the vesting
of exclusive authority in the Board of Directors (except as otherwise required
by law) to call special meetings of stockholders, and certain advance notice
requirements for stockholder proposals and nominations for election to the
Board of Directors. These provisions, and the ability of the Board of
Directors to issue preferred stock without further action by stockholders,
could delay or limit the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption of control would
be beneficial to stockholders, and also could discourage or make more
difficult a merger, tender offer or proxy contest, even if such events would
be beneficial, in the short term, to the interests of stockholders. The
Company will be subject to Section 203 of the Delaware General Corporation Law
which, in general, imposes restrictions upon certain acquirors (including
their affiliates and associates) of 15% or more of the Company's Common Stock.
See "Description of Capital Stock--Certain Provisions of Certificate and By-
laws" and "--Statutory Business Combination Provision."
Immediate and Substantial Dilution. Purchasers of the Common Stock in this
offering will incur immediate and substantial dilution in the net tangible
book value per share of Common Stock. At an assumed initial public offering
price of $16.00 per share, investors in this offering will incur dilution of
$10.80 per share. To the extent outstanding options to purchase the Company's
Common Stock are exercised, there will be further dilution to investors
participating in this offering. Moreover, there can be no assurance that the
Company will not require additional funds to support its working capital
requirements or for other purposes, in which case the Company may seek to
raise such additional funds through public or private equity financing or from
other sources. Any such financing may result in additional dilution to the
Company's stockholders. See "Dilution."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$16.00 per share, after deducting the underwriting discounts and estimated
offering expenses payable by the Company, are estimated to be $31.7 million
($36.7 million if the Underwriters' over-allotment option is exercised in
full). The Company expects to use the net proceeds as follows: (i)
approximately $5.0 million will be used to repay a portion of the Company's
outstanding indebtedness under its existing credit facility with Fleet Bank,
N.A. (the "Credit Facility"), including fees and accrued and unpaid interest;
(ii) approximately $5.0 million will be used for expansion of existing
facilities; and (iii) the balance will be used for additional capital
expenditures and for working capital and other general corporate purposes. The
Company's outstanding indebtedness under the Credit Facility, which will be
partially repaid with a portion of the proceeds of this offering, was incurred
to finance the expansion of the Company's facilities. The Company routinely
evaluates potential acquisitions of businesses and products that would
complement or expand the Company's business. The Company may use a portion of
the net proceeds from this offering for one or more acquisitions; however, it
currently has no commitments or agreements with respect to such transactions.
Pending such use, the balance of the net proceeds will be invested in short-
term, investment grade, interest bearing obligations.
The Credit Facility consists of a $15 million, three-year, revolving line of
credit, which thereafter converts into a five-year term loan. The Credit
Facility will expire in July 2006. As of July 1, 1998, the Company had drawn
an aggregate of $5.0 million under the Credit Facility. Amounts outstanding
under the Credit Facility bear interest at variable rates which are based
upon, at the option of the Company, the lender's prime rate or LIBOR. The
interest rate on such indebtedness at August 1, 1998 was approximately 6.5%
per annum. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has not declared any cash dividends on its Common Stock since
its inception. The Company currently intends to retain its earnings for future
growth and, therefore, does not anticipate paying cash dividends in the
foreseeable future. Under Delaware law, the Company is permitted to pay
dividends only out of its surplus, or, if there is no surplus, out of its net
profits. Although the Company's current Credit Facility permits the Company to
pay cash dividends, the payment of cash dividends may be prohibited under
agreements governing debt which the Company may incur in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis and (ii) as adjusted to give effect to the
sale of the 2,200,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $16.00 per share and the receipt and
application by the Company of the estimated net proceeds therefrom as
described in "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements of the Company and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt(1).................... $ 78 $ 78
Long-term debt, net of current maturities(1)............... 5,159 5,159
Series A Convertible Preferred Stock, par value $0.01 per
share: 100,000 shares authorized, issued and
outstanding, actual; no shares authorized, issued or
outstanding, as adjusted................................ 1 --
Preferred Stock, par value $0.01 per share: 900,000
shares authorized, no shares issued or outstanding,
actual; 2,000,000 shares authorized, no shares issued or
outstanding, as adjusted................................ -- --
Common Stock, par value $0.01 per share: 10,000,000
shares authorized, 7,245,964 shares issued and
outstanding, actual; 50,000,000 shares authorized,
9,475,964 shares issued and outstanding, as
adjusted(2)............................................. 73 95
Additional paid-in capital............................... 2,974 34,693
Accumulated other comprehensive income................... 53 53
Retained earnings........................................ 11,180 11,180
------- -------
Total shareholders' equity............................. 14,280 46,021
------- -------
Total capitalization....................................... $19,518 $51,258
======= =======
</TABLE>
- ----------
(1) See Note 3 of Notes to Consolidated Financial Statements for information
concerning long-term debt obligations.
(2) Excludes: (i) 1,394,254 shares of Common Stock issuable upon exercise of
outstanding stock options as of the balance sheet date of which 15,000
have been issued upon exercise of stock options subsequent to the balance
sheet date; (ii) 919,847 additional shares of Common Stock available for
future grants under the 1998 Stock Plan; and (iii) 200,000 additional
shares of Common Stock available for future sales under the Purchase Plan.
See "Management--Employee Stock and Other Benefit Plans--1998 Stock Option
and Incentive Plan," "--1992 Stock Option Plan" and "--1998 Employee Stock
Purchase Plan."
15
<PAGE>
DILUTION
The net tangible book value of the Common Stock as of June 30, 1998 was
approximately $13.9 million or $1.93 per share. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding,
including all outstanding stock grants and excluding all outstanding stock
options. After giving effect to the sale of the 2,200,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $16.00 per
share and the receipt and application by the Company of the net proceeds
therefrom, the pro forma net tangible book value of the Common Stock as of
June 30, 1998 would have been approximately $49.1 million or $5.20 per share.
This represents an immediate increase in pro forma net tangible book value of
$3.27 per share to existing shareholders and an immediate dilution of $10.80
per share to purchasers of Common Stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $16.00
Net tangible book value per share .......................... $1.93
Increase per share attributable to new investors............ $3.27
Pro forma net tangible book value per share after the
offering..................................................... $ 5.20
------
Dilution per share to new investors........................... $10.80
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998
after giving effect to the conversion of all outstanding shares of Series A
Preferred Stock, the differences between existing shareholders and the new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share
paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 7,275,964 76.8% $ 3,011,455 7.9% $ 0.42
New investors........... 2,200,000 23.2 35,200,000 92.1 16.00
--------- ----- ----------- -----
Total................. 9,475,964 100.0% $38,211,455 100.0%
========= ===== =========== =====
</TABLE>
Other than as noted above, the foregoing computations assume no exercise of
any outstanding stock options after June 30, 1998 or the Underwriters' over-
allotment option. See "Use of Proceeds." As of August 1, 1998, options to
purchase 1,379,254 shares of Common Stock were outstanding with a weighted
average exercise price of $3.33 per share. To the extent these options or the
Underwriters' over-allotment option are exercised, there will be further
dilution to new investors. See "Underwriting" for information concerning the
Underwriters' over-allotment option.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for each of
the years ended December 31, 1995, 1996 and 1997 and selected consolidated
balance sheet data at December 31, 1996 and 1997 are derived from the
consolidated financial statements of the Company which have been audited by
KPMG Peat Marwick LLP, independent auditors, and are included elsewhere
herein. The selected statement of operations data for the years ended December
31, 1993 and 1994 are derived from audited financial statements not included
herein. The selected balance sheet data at December 31, 1993, 1994 and 1995,
is derived from audited financial statements not included herein. The selected
consolidated statement of operations data for the six month periods ended June
30, 1997 and 1998 and the selected consolidated balance sheet data at June 30,
1998 are derived from unaudited consolidated financial statements also
included elsewhere in the Prospectus. The unaudited consolidated financial
statements for such six month periods have been prepared by the Company on a
basis consistent with the Company's audited consolidated financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
Company's consolidated financial position and consolidated results of
operations for these periods. The consolidated results of operations for the
six months ended June 30, 1998 are not necessarily indicative of results for
the year ending December 31, 1998 or any future period. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------- ------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net contract revenue.... $1,071 $1,116 $2,959 $5,261 $ 8,104 $3,607 $5,964
Cost of revenue......... 818 742 1,350 2,835 4,334 1,953 3,252
------ ------ ------ ------ ------- ------ -------
Gross profit............ 253 374 1,609 2,426 3,770 1,654 2,712
Operating expenses:
Research and
development........... 54 152 37 245 627 280 341
Selling, general and
administrative ....... 225 253 809 1,219 2,246 893 1,908
------ ------ ------ ------ ------- ------ -------
Total operating
expenses.............. 279 405 846 1,464 2,873 1,173 2,249
------ ------ ------ ------ ------- ------ -------
Income (loss) from
operations............. (26) (31) 763 962 897 481 463
Other income (expense):
Licensing fees,
milestones and
royalties, net........ -- -- -- 900 2,278 450 11,248
Interest income
(expense), net........ (13) (30) 37 (11) (13) (16) 97
Other non-operating
income (expense),
net................... -- -- (68) 20 (26) 5 (196)
------ ------ ------ ------ ------- ------ -------
Total other income
(expense)............. (13) (30) (31) 909 2,239 439 11,149
------ ------ ------ ------ ------- ------ -------
Income (loss) before
income taxes........... (39) (61) 732 1,871 3,136 920 11,612
Income tax expense
(benefit).............. (4) (48) 252 637 947 335 4,315
------ ------ ------ ------ ------- ------ -------
Net income (loss)....... $ (35) $ (13) $ 480 $1,234 $ 2,189 $ 585 $7,297
====== ====== ====== ====== ======= ====== =======
Basic earnings (loss)
per share.............. $(0.01) $ -- $ 0.07 $ 0.17 $ 0.31 $ 0.08 $ 1.01
Diluted earnings (loss)
per share.............. $(0.01) $ -- $ 0.06 $ 0.16 $ 0.28 $ 0.07 $ 0.90
Weighted average common
shares outstanding,
basic.................. 5,615 5,904 6,842 7,137 7,174 7,171 7,201
Weighted average common
shares outstanding,
diluted................ 5,645 6,009 7,380 7,711 7,863 7,841 8,097
<CAPTION>
DECEMBER 31,
--------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents............ $ 179 $ 45 $ 35 $1,260 $ 1,262 $ 7,571
Working capital......... 284 87 2,171 3,011 4,407 10,088
Total assets............ 1,044 1,059 5,108 8,501 10,629 25,973
Long-term debt, less
current maturities..... 258 204 748 2,375 1,776 5,159
Total shareholders'
equity................. 578 566 3,156 4,411 6,654 14,280
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere
in this Prospectus. This Prospectus contains forward-looking statements.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Business," as well as in this Prospectus
generally. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including, without limitation, the risk factors set forth under "Risk
Factors," the discussion set forth below and the matters set forth in this
Prospectus generally.
OVERVIEW
The Company was founded in 1991 and its mission has always been to provide a
broad range of chemistry services throughout the drug discovery and
development process. As the needs of the Company's customers have expanded and
chemistry research outsourcing has increased, the Company has expanded its
service offerings. In January 1994, the Company added its first current Good
Manufacturing Practices ("cGMP") manufacturing facility and in May 1996, the
Company added analytical chemistry services. The Company has expanded its
facility in Albany, New York, on several occasions and currently is
undertaking its largest expansion to date, which it expects to be completed by
December 1998.
Net contract revenue consists primarily of fees earned under contracts with
third party customers, net of reimbursed expenses. Reimbursed expenses consist
of laboratory supplies, chemicals and other costs reimbursed by customers and,
in accordance with industry practice, are included in contract revenue.
Reimbursed expenses vary from contract to contract. Accordingly, the Company
views net contract revenue as its primary measure of revenue growth. In
general, the Company provides services to customers on (i) a full-time
equivalent ("FTE") basis that establishes the number of FTEs contracted for a
project, the duration of the contract period, the fixed price per FTE, plus an
allowance for out-of-pocket expenses which may or may not be incorporated in
the FTE rate, (ii) a time and materials ("T&M") basis under which the Company
charges its customers based on an hourly rate plus out-of-pocket expenses or
(iii) to a limited extent, a fixed price basis. Typically, FTE and T&M
contracts are entered into for two to three year periods and fixed price
contracts are entered into for much shorter periods of time (generally two to
six months). Because the Company's fixed price contracts relate to projects
that are generally limited in scope and such contracts are of generally short
duration, the Company has not historically experienced cost overruns under
such contracts which have had a material adverse effect on the Company's
results of operations. To the extent the Company were to experience cost
overruns under a particular fixed price contract, the profitability of such
contract would be adversely affected and, if that fixed price contract were
material to the Company, such overruns could have a material adverse effect on
the Company's results of operations for the period during which the contract
was performed. FTE and T&M contracts provide for annual adjustments in billing
rates for the scientists assigned to the contract. Generally, the Company's
contracts may be terminated by the customer upon 30 days' prior notice. The
Company recognizes contract revenue on a percentage-of-completion or per diem
basis. Cost of revenue consists primarily of compensation and associated
fringe benefits for employees and other direct project related costs. Research
and development expense consists of payments in connection with collaborations
with academic institutions, compensation and benefits for scientific personnel
for work performed on proprietary research projects and costs of supplies and
chemicals related thereto. Selling, general and administrative expense
consists of compensation and related fringe benefits for marketing and
administrative employees, professional services, marketing costs and all costs
related to facilities and information services, which are based on contract
revenue in each quarter.
Net licensing fees, milestones and royalties consist of licensing fees,
milestones and royalties net of technology incentive award expense incurred
under the Company's Technology Development Incentive Plan. The Company
maintains a Technology Development Incentive Plan, the purpose of which is to
stimulate and
18
<PAGE>
encourage novel innovative technology development, which allows eligible
participants to share in awards based on ten percent (10%) of the net revenue
earned by the Company relating to patented technology with respect to which
the eligible participant is named as an inventor.
The Company earns royalties from HMR under a license agreement based on
sales of fexofenadine HCl, marketed as Allegra in the Americas and as Telfast
elsewhere. Although the Company entered into the license agreement with HMR in
1995, the Company began to recognize royalty revenue related to U.S. sales
under that agreement in February 1998, due to the significant time taken for
issuance of the Company's patents and the resolution of related patent
interference claims. Royalty payments are due within 45 days after the end of
a calendar quarter and determined based on such quarter's sales.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated statement of operations data as a percentage of net contract
revenue:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------
1995 1996 1997 1997 1998
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Net contract revenue............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................... 45.6 53.9 53.5 54.2 54.5
------- ------- ------- ----- -----
Gross profit....................... 54.4 46.1 46.5 45.8 45.5
Operating expenses:
Research and development.......... 1.2 4.7 7.7 7.8 5.7
Selling, general and
administrative................... 27.4 23.1 27.7 24.7 32.0
------- ------- ------- ----- -----
Total operating expenses.......... 28.6 27.8 35.5 32.5 37.7
------- ------- ------- ----- -----
Income from operations............. 25.8 18.3 11.1 13.3 7.8
Other income (expense):
Licensing fees, milestones and
royalties, net................... -- 17.1 28.1 12.5 188.6
Interest income (expense), net.... 1.3 (0.2) (0.2) (0.5) 1.6
Other non-operating income (ex-
pense), net...................... (2.3) 0.4 (0.3) 0.2 (3.3)
------- ------- ------- ----- -----
Total other income (expense)...... (1.0) 17.3 27.6 12.2 186.9
------- ------- ------- ----- -----
Income before income taxes......... 24.7 35.6 38.7 25.5 194.7
Income tax expense................. 8.5 12.1 11.7 9.3 72.4
------- ------- ------- ----- -----
Net income......................... 16.2% 23.5% 27.0% 16.2% 122.3%
======= ======= ======= ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net contract revenue. Net contract revenue increased 65.3% to $6.0 million
in the first six months of 1998 from $3.6 million in the first six months of
1997. The increase was due principally to the performance of a greater number
of projects under contract, primarily for medicinal and chemical development
services, which were enabled through an increase in the number of scientific
staff to 70 at June 30, 1998 from 44 at June 30, 1997.
Gross profit. Gross profit increased 64.0% to $2.7 million in the first six
months of 1998 from $1.7 million in the first six months of 1997. Gross profit
remained relatively constant as a percentage of net contract revenue.
Research and development. Research and development expense increased to
$341,000 in the first six months of 1998 from $280,000 in the first six months
of 1997. The increase was due primarily to expenses related to biological
assay study agreements with third parties pertaining to the Company's
proprietary research programs which commenced in February 1997 and July 1997,
respectively.
Selling, general and administrative. Selling, general and administrative
expense increased 113.7% to $1.9 million for the first six months of 1998 from
$893,000 in the first six months of 1997 and represented 32.0% of net contract
revenue for the first six months of 1998 compared to 24.7% for the first six
months of 1997. The
19
<PAGE>
increase was due to a general increase in administrative and marketing staff
to support the expansion of the Company's operations, increased expenses for
recruitment of scientists and increased rent expense related to the ongoing
expansion of the Company's Albany facility.
Licensing fees, milestones and royalties, net. Net licensing fees,
milestones and royalties increased to $11.3 million in the first six months of
1998 from $450,000 in the first six months of 1997. As a result of the
February 1998 PTO decision, the Company met all prerequisites of the licensing
agreement with HMR and recognized and received in the first three months of
1998 milestone payments and royalties on all sales of fexofenadine HCl in the
United States from November 26, 1996, the date of patent issuance, through
December 31, 1997. The Company recognized $6.0 million in royalties on all
sales of fexofenadine HCl in the United States for the first six months of
1998. All licensing fees, milestones and royalties associated with the HMR
license are subject to the Technology Development Incentive Plan. The
Company's milestones and royalties from fexofenadine HCl for the six months
ended June 30, 1998 include $3.0 million in non-recurring milestone payments
and $4.4 million in royalties related to prior periods and, as a result, such
milestone payments and royalties may not be indicative of future amounts
earned under the license agreement with HMR. In particular, no further
milestone payments are required under the agreement.
Other non-operating income (expense), net. Other non-operating expense, net
was $196,000 in the first six months of 1998. Other non-operating income, net
was $5,000 in the first six months of 1997. This change was due to a one-time
expense incurred in the first six months of 1998 as a result of the Company's
partial reimbursement for expenses incurred by the Company's landlord in
relocating other tenants in order to facilitate the Company's expansion.
Income tax expense. Income tax expense increased to $4.3 million in the
first six months of 1998 from $335,000 in the first six months of 1997. The
effective rate was 37.2% in the first six months of 1998 and 36.4% in the
first six months of 1997. The increase in income tax expense was primarily a
result of the increase in royalty and licensing fees. The change in the
effective income tax rate principally resulted from the increase in the
minimum effective federal rate from 34.0% to 35.0% due to the fact that the
Company's taxable income was in excess of $10 million for the six months ended
June 30, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net contract revenue. Net contract revenue increased 54.0% to $8.1 million
in 1997 from $5.3 million in 1996. The increase was due principally to the
performance of a greater number of contracts, primarily for medicinal and
chemical development services, which were enabled through an increase in the
number of scientific staff to 43 at December 31, 1997 from 31 at December 31,
1996.
Gross profit. Gross profit increased 55.4% to $3.8 million in 1997 from $2.4
million in 1996. Gross profit remained relatively constant as a percentage of
net contract revenue at 46.5% in 1997 compared to 46.1% in 1996, reflecting a
fairly consistent mix of the type of contracts during the two years.
Research and development. Research and development expense increased to
$627,000 in 1997 from $245,000 in 1996. The increase was due primarily to
expenses related to biological assay development study agreements with third
parties pertaining to the Company's proprietary research programs, which
commenced in February 1997 and July 1997, respectively.
Selling, general and administrative. Selling, general and administrative
expense increased 84.3% to $2.2 million in 1997 from $1.2 million in 1996, and
represented 27.7% of net contract revenue in 1997 compared to 23.2% in 1996.
The increase was due to a general increase in administrative and marketing
staff due to the continued growth of the Company, an increase in executive
compensation, higher accruals for incentive compensation, increased recruiting
expenditures for scientific staff and an increase in the provision for
doubtful accounts.
20
<PAGE>
Licensing fees, milestones and royalties, net. Net licensing fees,
milestones and royalties increased 153.1% to $2.3 million in 1997 from
$900,000 in 1996. The increase in net licensing fees, milestones and royalties
was due principally to the difference in prescribed milestones due to the
Company from HMR upon the issuance of non-U.S. patents to the Company with
respect to fexofenadine HCl in 1997 and 1996. As a result of these patent
issuances, the Company became entitled to receive royalties on all sales of
fexofenadine HCl in those countries in which these patents were issued.
Income tax expense. Income tax expense increased to $947,000 in 1997 from
$637,000 in 1996. The effective tax rate was 30.2% in 1997 and 34.1% in 1996.
The increase in income tax expense was primarily a result of the increase in
licensing fees, milestones and royalties. The change in the effective income
tax rate principally resulted from the utilization of New York State
Investment Tax Credits in 1997, which were $161,858.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net contract revenue. Net contract revenue increased 77.8% to $5.3 million
in 1996 from $3.0 million in 1995. The increase was principally due to the
performance of a greater number of projects under contract, primarily for
medicinal chemistry and chemical development services, which were enabled
through an increase in the number of scientific staff to 31 at December 31,
1996 from 15 at December 31, 1995.
Gross profit. Gross profit increased 50.8% to $2.4 million in 1996 from $1.6
million in 1995. Gross profit decreased as a percentage of net contract
revenue to 46.1% in 1996 from 54.4% in 1995, reflecting an increase in the
Company's occupancy expenses in 1996 as a result of the 1996 construction of
chemical development and analytical laboratories and a cGMP manufacturing
facility, which resulted in higher charges for depreciation, utilities, and
rent. Additionally, the Company incurred higher payroll and related costs
because of the higher overall compensation required to attract and retain
scientific staff.
Research and development. Research and development expense increased to
$245,000 in 1996 from $37,000 in 1995. The increase was primarily due to the
initiation of a research collaboration and the commencement of a related
biological assay study in February 1996.
Selling, general and administrative. Selling, general and administrative
expense increased 50.6% to $1.2 million in 1996 from $809,000 in 1995, and
represented 23.2% of net contract revenue in 1996 compared to 22.5% in 1995.
The increase was principally due to an increase in number of administrative
staff due to the continued growth of the Company and increased recruiting
expenditures for scientific staff.
Licensing fees, milestones and royalties, net. Net licensing fees,
milestones and royalties were $900,000 in 1996. There were no net licensing
fees, milestones and royalties in 1995 as licensing fees, milestones and
royalties were offset by the technology incentive award. The $200,000
technology incentive award in 1995 was based on a $200,000 licensing fee
received from HMR and the proceeds of a $2.0 million equity investment by HMR
in the Company, net of costs incurred by the Company in connection with the
licensed technology. The increase in net licensing fees, milestones and
royalties was due to the achievement of the first prescribed milestone upon
issuance of the first non-U.S. patent to the Company with respect to
fexofenadine HCl in 1996. As a result of this patent issuance, the Company
became entitled to receive royalties on all sales of fexofenadine HCl in the
country in which the patent was issued.
Other non-operating income (expense), net. Other non-operating income, net
was $20,000 in 1996. Other non-operating expense, net was $68,000 in 1995.
This expense was primarily due to a write-off of licensing costs previously
capitalized, which were written off following the termination of negotiations
with the potential licensee.
Income tax expense. Income tax expense increased to $637,000 in 1996 from
$253,000 in 1995. The effective tax rate was 34.1% in 1996 and 34.5% in 1995.
The increase in income tax expense was primarily a result of the increase in
royalty and licensing fees.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly consolidated operating
results for each of the Company's last ten quarters. This information has been
prepared by the Company on a basis consistent with the Company's audited
consolidated financial statements and includes all adjustments, consisting
only of normal recurring adjustments, that management considers necessary for
a fair presentation of the data. These quarterly results are not necessarily
indicative of future results of operations. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of
the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
MAR. 31 JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997 1997 1997 1998 1998
======= -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net contract revenue.... $1,290 $1,417 $1,373 $1,181 $1,509 $2,098 $2,212 $2,284 $2,873 $3,091
Cost of revenue......... 423 609 748 1,055 928 1,025 1,173 1,208 1,508 1,744
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 867 808 625 126 581 1,073 1,039 1,076 1,365 1,347
Operating expenses:
Research and
development............ 5 86 25 128 100 180 163 183 209 132
Selling, general and
administrative......... 195 243 338 444 380 513 507 846 883 1,025
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating ex-
penses................. 200 329 363 572 480 693 670 1,029 1,092 1,157
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............. 667 479 262 (446) 101 380 369 47 273 190
Other income (expense):
Licensing fees,
milestones and
royalties, net......... -- -- -- 900 -- 450 1,801 27 7,289 3,959
Interest income
(expense), net......... 7 10 (7) (21) (15) (1) (8) 9 26 71
Other non-operating
income (expense), net.. 2 5 1 12 4 1 (19) (11) (196) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total other income
(expense).............. 9 15 (6) 891 (11) 450 1,774 27 7,119 4,030
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 676 494 256 445 90 830 2,143 74 7,392 4,220
Income tax expense
(benefit).............. 234 172 80 151 15 320 588 25 2,853 1,462
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income.............. $ 442 $ 322 $ 176 $ 294 $ 75 $ 510 $1,555 $ 49 $4,539 $2,758
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. Quarterly operating results can fluctuate as a result of a
number of factors, including the commencement, delay, cancellation or
completion of contracts; risks associated with fixed price contracts; the mix
of services provided; seasonal slowdowns; the timing of start-up expenses for
new services and facilities; and the timing and integration of acquisitions.
In particular, quarterly fluctuations in the Company's royalty revenue
relating to fexofenadine HCl, an anti-histamine subject to seasonal demand,
may produce stronger quarterly fluctuations in the Company's consolidated
results of operations than those which have occurred in prior periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its business through cash flows from operations,
proceeds from borrowings and the issuance of equity securities to HMR in March
1995. During the six months ended June 30, 1998 and the years ended December
31, 1997, 1996, and 1995, the Company generated $9.0 million, $1.6 million,
$2.1 million and $200,000, respectively, in cash flow from operations and
raised $1.6 million and $1.0 million in its 1996 and 1995 borrowings,
respectively. The increase in cash flow for the six months ended June 30, 1998
was principally due to an increase in net licensing fees, milestones and
royalties.
During the six months ended June 30, 1998 and the years ended December 31,
1997, 1996, and 1995, total capital expenditures were $5.8 million, $870,000,
$2.6 million and $1.2 million, respectively. Capital expenditures were
incurred predominantly in connection with the Company's expansion of service
offerings (computational chemistry and analytical services) in 1997, and in
connection with the Company's 1998, 1996 and 1995 facilities expansions. In
December 1997, the Company began its most recent phase of expansion at its
22
<PAGE>
main location in Albany, New York. The expansion will add 60,000 square feet
to its existing 30,000 square feet of laboratory and administrative space. The
expansion is estimated to cost $8.5 million for construction and an additional
$4.0 million for the purchase of laboratory supplies, instrumentation,
software and equipment upgrades. A total of $4.8 million for the expansion had
been incurred through June 30, 1998. The expansion is anticipated to be
completed by December 1998.
Working capital was $10.1 million at June 30, 1998, compared to $4.4 million
at December 31, 1997, and $3.0 million at December 31, 1996. The increase in
working capital for the six month period ended June 30, 1998 was primarily
attributable to the milestones and royalties earned by the Company on its
license agreement with HMR, less the associated technology incentive
compensation expense and income taxes. Of the $12.4 million in milestones and
royalties earned by the Company under the HMR license agreement during the six
months ended June 30, 1998, $3.0 million constituted non-recurring milestone
payments. While the Company will continue to receive quarterly royalty
payments under the HMR license agreement, no additional milestone payments are
due under the agreement. As a result, amounts earned under the agreement may
be materially less than those earned during the six months ended June 30,
1998. In addition, future royalties under the agreement are dependent upon
future sales of fexofenadine HCl. The Company does not participate in the
manufacture, marketing or sale of fexofenadine HCl by HMR and relies entirely
on the efforts of HMR to manufacture, market and sell this product. There can
be no assurance that HMR will continue to be successful in marketing and
selling fexofenadine HCl, that fexofenadine HCl will continue to receive
market acceptance or that the Company will continue to receive royalties from
HMR in accordance with the terms of the license agreement. The occurrence of
any one of these events in the future could have a material adverse impact on
the Company's working capital, liquidity and capital resources. The increase
in working capital from December 31, 1997 compared to December 31, 1996, was
attributable primarily to an increase in the number of scientific staff
working on a greater number of projects, resulting in a substantial increase
in billings at December 31, 1997 compared to December 31, 1996.
The Company has available a Credit Facility to supplement its liquidity
needs. The Credit Facility consists of a $15 million, three-year, revolving
line of credit, which converts thereafter into a five-year term loan. The
Credit Facility expires in July 2006. As of June 30, 1998, the Company had
drawn an aggregate of $5.0 million under the Credit Facility. Amounts
outstanding under the Credit Facility bear interest at variable rates which
are based upon, at the option of the Company, the lender's prime rate or
LIBOR. The interest rate on such indebtedness at June 30, 1998 was 6.5% per
annum. The Credit Facility restricts or prohibits the Company from incurring
indebtedness, incurring liens, disposing of assets and requires the Company to
maintain certain financial ratios on an ongoing basis. The Credit Facility is
secured by a lien on substantially all of the assets of the Company, other
than its patents, and the assignment of the right to receive royalty payments
from HMR under the license agreement.
The Company will use a portion of the net proceeds from this offering to
repay a portion of the outstanding indebtedness under the Credit Facility. The
Company believes that the remaining net proceeds from this offering, together
with cash generated from operations and borrowings under the Credit Facility,
will be sufficient to fund its anticipated working capital needs and capital
expenditures (other than financing necessary to complete future acquisitions,
if any) for at least the next 24 months. Future acquisitions, if any, could be
funded with cash from operations, the net proceeds of this offering,
borrowings under the Credit Facility and/or the issuance of debt or equity
securities. There can be no assurance that attractive acquisition
opportunities will be available to the Company or will be available at prices
and upon such other terms that are attractive to the Company. The Company
regularly evaluates potential acquisitions of other businesses, products and
product lines and may hold discussions regarding such potential acquisitions.
As a general rule, the Company will publicly announce such acquisitions only
after a definitive agreement has been signed. The Company currently has no
commitments or agreements with respect to any acquisition. In addition, in
order to meet its long-term liquidity needs or consummate future acquisitions,
the Company may incur additional indebtedness or issue additional equity and
debt securities, subject to market and other conditions. There can be no
assurance that such additional financing will be available on terms acceptable
to the Company or at all. The failure to raise the funds necessary to finance
its future cash requirements or consummate future acquisitions could adversely
affect the Company's ability to
23
<PAGE>
pursue its strategy and could negatively affect its operations in future
periods. See "Risk Factors--Risks Associated with Acquisitions."
YEAR 2000 COMPLIANCE
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions.The
Company's independent information technology consultant has conducted a
comprehensive assessment of the Company's computer systems to identify the
systems that could be affected by the Year 2000, and has determined that no
material changes are required for the Company's computer systems to be Year
2000 compliant. As such, the Company believes that, based upon currently
available information, it will incur no material costs associated with
becoming Year 2000 compliant. The Company is seeking to confirm the Year 2000
readiness of its material customers, such as HMR, Astra AB and Eli Lilly and
Company, and its material vendors. The failure of any of its material
customers or vendors to be Year 2000 compliant could have a material adverse
effect on the Company's business, financial position and results of
operations.
24
<PAGE>
BUSINESS
OVERVIEW
Albany Molecular Research is an integrated chemistry outsourcing company
that offers a broad range of chemistry research and development services to
pharmaceutical and biotechnology companies involved in drug discovery and
development. The Company offers services traditionally provided by chemistry
divisions within pharmaceutical companies, including medicinal chemistry,
chemical development, analytical chemistry services and small-scale
manufacturing. The Company's services are designed to permit pharmaceutical
and biotechnology companies to reduce overall drug development time and cost
and to pursue simultaneously a greater number of drug discovery and
development opportunities. Since its inception in 1991, the Company has
conducted over 400 projects for more than 100 customers. The Company achieved
a 66% compound annual growth rate in net contract revenue from 1993 to 1997.
In addition to its contract services, the Company conducts a limited amount of
proprietary research and development. The Company has developed and patented a
substantially pure form of, and a manufacturing process for, the active
ingredient in a new, non-sedating antihistamine marketed by HMR as Allegra in
the Americas and as Telfast elsewhere. Pursuant to a licensing agreement
between the Company and HMR, the Company has received since October 1996 $12.8
million in milestones and royalties from HMR and is entitled to receive
ongoing royalties based upon a percentage of sales of the product.
INDUSTRY OVERVIEW
The pace of drug discovery has accelerated significantly in recent years.
Fueled by advances in disciplines such as molecular biology, genomics and
high-throughput synthesis and screening, opportunities to develop therapeutics
for previously unmet or undermet medical needs are greater than ever before.
In addition, pharmaceutical and biotechnology companies are under increasing
pressure to deliver new drugs to market and reduce the time required for drug
development. In order to take advantage of these opportunities and to respond
to these pressures, many pharmaceutical companies have augmented their
internal research and development capacity through outsourcing. Similarly,
many biotechnology companies, constrained by cost pressures, have elected to
outsource rather than develop certain research and development functions in-
house. As a result of these factors, many pharmaceutical and biotechnology
companies are utilizing contract research organizations ("CROs"). The CRO
industry has grown dramatically over the last several years to meet these
needs. Industry analysts estimate that outsourcing represents approximately
10%, or $3.5 billion, of the $35 billion of research and development
expenditures made by pharmaceutical and biotechnology companies in 1996. While
outsourcing has traditionally been limited to the later stages of drug
development, such as clinical trial management and manufacturing, many
pharmaceutical and biotechnology companies are utilizing contract chemistry
service providers to supplement or, in some cases, replace internal chemistry
expertise. Currently, only a few companies provide chemistry services for drug
discovery and development, and have typically focused only on selected
portions of the process. Albany Molecular Research believes that significant
opportunities exist for a company that provides a broad range of outsourced
chemistry services throughout the drug discovery and development process.
25
<PAGE>
The Importance of Chemistry in the Drug Discovery and Development Process
Although many scientific disciplines are required for new drug discovery and
development, chemistry and biology are at the center of this process. Chemists
and biologists typically work together to prepare and deliver new chemical
substances, develop laboratory models of disease, test compounds to identify
agents that demonstrate the desired activity and finally create a marketable
drug. Chemistry is an integral part of the drug discovery and development
process, which includes: (i) lead discovery -- the identification of a compound
that may be developed into a new drug; (ii) lead optimization -- an iterative
process of modifying the structure of a lead compound to optimize its
therapeutic properties; (iii) preclinical testing -- the testing of the
compound in increasingly complex animal models; (iv) clinical trials -- the
multi-phase testing of the compound for safety and efficacy in humans; and (v)
product commercialization -- the manufacture, marketing and sale of commercial
quantities of the approved drug.
DRUG DISCOVERY AND DEVELOPMENT PROCESS
- ----------- -------------- ------------- ---------- -------------------
LEAD LEAD PRECLINICAL CLINICAL PRODUCT
DISCOVERY OPTIMIZATION TESTING TRIALS COMMERCIALIZATION
- ----------- -------------- ------------- ---------- -------------------
Lead Discovery. The first major hurdle in drug discovery is the
identification of one or more lead compounds that interact with a biological
target, such as an enzyme, receptor or other protein, that may be associated
with a disease. A biological test or assay based on the target is developed and
used to test or "screen" chemical compounds. Medicinal chemistry is used to
synthesize these compounds rapidly and study the interaction between the three
dimensional molecular structures of the compounds and biological targets (i.e.,
structure-activity relationships (SARs)). The objective of lead discovery is to
identify a lead compound for further research and development.
Lead Optimization. Once a lead compound has been discovered, medicinal
chemistry is used to optimize that lead by modifying and synthesizing analogs
of active lead candidates with improved potency, selectivity and/or
pharmacokinetics (improved absorption, solubility, half-life and metabolism) in
order to identify a more promising drug candidate. This iterative process
involves the synthesis of compounds for biological testing, the analysis of the
screening results and the further design and synthesis of additional compounds
based upon the analysis of structure-activity relationships.
During lead optimization, specialists in chemical development perform the
scale up synthesis of a lead compound as that compound is advanced through the
drug discovery and development process. These scientists are experts in the
preparation of chemicals on a larger scale and focus on the efficiency,
economics, simplicity and safety of the preparation of such chemicals. Chemical
development is also an iterative process which may require progressive
improvements in chemical synthesis as subsequent repeat batches are prepared.
In addition to providing repeat synthesis, significant process research may be
required to refine existing or develop new synthesis processes. Also during the
lead optimization stage, analytical chemistry services are required for
identity and purity testing and method development.
Preclinical Testing. Following the selection of a lead compound during the
lead optimization stage, advanced preclinical testing is conducted in order to
evaluate the efficacy and safety of the lead compound prior to initiating human
clinical trials. The lead compound must demonstrate a scientifically proven
benefit in controlled and well defined biological tests in animal models, and
must exhibit this benefit at doses much lower than those at which side effects
would occur. During the lead optimization and preclinical testing phases, the
synthesis of additional analogs of the lead compound using medicinal chemistry
continues. Often a second compound, referred to as a backup compound or second
generation analog, is synthesized and enters the drug development cycle. In
addition, continued synthesis is desirable in order to prepare compounds of
significant diversity to broaden potential patent coverage. As a result, the
advancement of a lead compound into preclinical
26
<PAGE>
testing is often a catalyst which increases, rather than reduces, the need for
additional medicinal chemical synthesis. During this phase, specialists in
chemical development continue to conduct significant process research to
optimize the production of a compound.
Clinical Trials. During clinical trials several phases of studies are
conducted to test the safety and efficacy of a drug candidate. As study
populations increase and trial durations lengthen, larger quantities of the
active ingredient are required. The bulk active ingredient, and the formulated
drug product, must be prepared under cGMP guidelines. Analytical chemistry
services are critical to cGMP manufacturing. Additional preparations provide
an opportunity to further refine the manufacturing process, with the ultimate
goal of maximizing the cost effectiveness and safety of the synthesis prior to
commercialization.
Trends Toward Outsourcing of Chemistry Services
Pharmaceutical and biotechnology companies have in recent years increasingly
turned to CROs to manage their drug development processes more efficiently.
Most CROs have traditionally provided services to assist in the later stages
of drug development ranging from animal testing through clinical trials,
manufacturing, marketing and sales. In recent years, pharmaceutical and
biotechnology companies have sought to outsource services at progressively
earlier stages of drug discovery and development, including early-stage
chemistry. The Company believes the following trends have led and will
continue to lead to an increase in chemistry services outsourcing in drug
discovery and development:
Technological innovation in drug development. New technologies, such as
genomics, combinatorial chemistry and high-throughput screening, have
resulted in the identification of a larger number of promising biological
targets and associated active compounds, which has increased the demand for
chemistry services for lead discovery and optimization. Pharmaceutical and
biotechnology companies are increasingly turning toward chemistry
outsourcing to pursue the opportunities made possible by the use of these
new technologies.
Time to market pressures. Pharmaceutical and biotechnology companies are
under increasing pressure to reduce the time to bring new drugs to market
in order to maximize patent life and capture the benefits of being first to
market. Chemistry outsourcing permits pharmaceutical and biotechnology
companies to run multiple projects, and multiple phases of a particular
project, simultaneously.
Reallocation of resources between variable and fixed costs. Over the last
several years, drug companies have centralized their research and
development efforts, streamlined their internal operations and outsourced
certain functions, thereby converting previously fixed costs to variable
costs. Outsourcing chemistry services allows pharmaceutical and
biotechnology companies to use variable resources to maximize productivity
during periods of rapid growth or in response to cost containment
pressures.
Increasing complexity and purity requirements of new drug candidates. Many
drug candidates are technically demanding to synthesize, particularly in
commercial quantities. In addition, increased regulatory pressures for high
purity molecules earlier in the development process have led to more
complex chemistry requirements. Pharmaceutical companies are moving towards
outsourcing to third-party service providers to gain early access to
scalable manufacturing processes.
Need for chemistry expertise in the biotechnology industry. Many
biotechnology and emerging pharmaceutical companies lack the broad range of
expertise needed for the chemistry component of drug discovery and
development. These companies have elected to outsource their needs to third
party service providers rather than make the investment required to perform
these functions in-house.
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BUSINESS STRATEGY
The Company's objective is to be the leading provider of comprehensive
outsourced chemistry research and development services to the pharmaceutical
and biotechnology industries. Key elements of the Company's business strategy
include the following:
Expand Service Offerings. The Company, since its inception, has expanded
its service offerings across a number of phases of drug discovery and
development to keep pace with the needs of its customers. In 1995, the
Company began offering analytical chemistry services derived from its
medicinal chemistry and chemical development capabilities and has recently
begun to provide combinatorial chemistry services. The Company has also
recently entered into a collaboration with a manufacturer in order to offer
its customers access to use the manufacturer's large-scale cGMP
manufacturing services with minimal disruption and delay. The Company may
expand its service capabilities through strategic acquisitions of companies
or technologies that complement the Company's capabilities.
Increase Capacity. The Company will seek to support its future growth by
increasing capacity both in terms of the number of scientists and the size
of its facilities within each of its service offerings. The Company has
added 34 scientists since January 1, 1997 and continually seeks to recruit
and hire additional experienced scientists. The Company is expanding its
Albany facility to more than triple its current laboratory space and
intends to expand its facilities to increase capacity and accommodate
additional scientists as necessary.
Expand Customer Relationships. The Company seeks to expand the number of
service offerings used by each of its customers by providing chemistry-
related services across many phases of drug discovery and development prior
to bulk manufacturing. In 1997, four of the Company's five largest
customers utilized more than one of its service offerings. The Company
believes that its existing customer base also provides an excellent source
of referrals.
Increase Customer Base. The Company is seeking to increase its customer
base in both domestic and international markets. The Company believes there
are significant opportunities for growth in geographic areas in which the
Company has not conducted significant marketing efforts to date.
Accordingly, the Company has recently expanded its U.S. and international
marketing efforts and will consider adding a physical presence in
additional locations as appropriate. See "--Marketing."
Capitalize on Proprietary Technology. Chemistry technology, such as that
offered by the Company, lies at the core of the proprietary aspects of drug
development. In connection with its contract chemistry services, the
Company seeks opportunities to obtain contractual terms which may entitle
the Company to milestones and/or royalties with respect to compounds or
processes developed in conjunction with its customers. Independent of its
contract chemistry services, the Company seeks to identify and develop
possible proprietary compounds or processes. The Company currently is
investigating a number of compounds for their development potential.
SERVICE OFFERINGS
The Company is an integrated chemistry outsourcing company that offers a
broad range of chemistry research and development services to pharmaceutical
and biotechnology companies involved in drug discovery and development. The
Company's service offerings include medicinal chemistry, chemical development,
analytical chemistry services and cGMP manufacturing. The significant
experience and expertise of the Company's scientists enable the Company to
provide high-quality, sophisticated chemistry services tailored to its
customers' specific needs. The Company's services are designed to permit
pharmaceutical and biotechnology companies to reduce overall drug development
time and costs and to pursue simultaneously a greater number of drug discovery
and development opportunities.
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The chart below sets forth the types of chemistry services which typically
are employed in the different phases of drug discovery and development and
those which are offered by the Company.
[CHART WITH FIVE STAGES OF DRUG DISCOVERY AND DEVELOPMENT ON THE
HORIZONTAL AXIS AND THE COMPANY'S FOUR SERVICE OFFERINGS ON THE VERTICAL
AXIS, WITH BARS INDICATING (I) THE CURRENT SERVICES OFFERED BY THE
COMPANY, (II) SERVICES PROVIDED BY COLLABORATIONS, AND (III) SERVICES
NOT PROVIDED BY THE COMPANY]
Medicinal Chemistry
The chemistry functions associated with the identification and optimization
of a lead compound are handled by chemists specializing in medicinal
chemistry. The role of the medicinal chemist is to synthesize small quantities
of new and potentially patentable compounds for biological testing. The
Company's medicinal chemistry group assists its customers in the pursuit of
new drug leads as well as in lead development and optimization using modern
structure-based drug design. The Company's medicinal chemistry group uses
tools such as computational and combinatorial chemistry in conjunction with
the traditional techniques of medicinal drug development.
Medicinal chemistry services provided by the Company include:
. Design and synthesis of potential lead compounds;
. Design, modification and synthesis of lead compounds with improved
potency, selectivity and pharmacokinetics;
. Development and synthesis of analogs of lead compounds to broaden patent
protection; and
. Resynthesis and expansion of customers' chemistry libraries by employing
combinatorial and computational chemistry.
The following is an example of services provided by the Company's medicinal
chemistry group:
A customer recently engaged the Company's medicinal chemistry group to
pursue a novel therapeutic compound for cardiovascular disease. Scientists at
the Company designed and synthesized over 400 compounds which were
subsequently screened by the customer. After a lead compound was identified
from that series, the customer engaged the Company's chemical development
group to perform scale up and process development for the lead compound. The
Company then synthesized a batch of the compound for use in clinical trials,
which are
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ongoing. During the course of this project, the Company's analytical chemistry
staff performed analytical method development, validation and release testing,
as well as provided regulatory support for the synthesis of the cGMP batch.
The customer has filed a patent application in which two of the three named
inventors were Albany Molecular Research scientists.
As of August 1, 1998, the Company had 38 employees, including 26 Ph.D.
scientists, working in its medicinal chemistry department. The four most
senior scientists in the medicinal chemistry department together have 62 years
of experience in chemistry research and development. As of August 1, 1998, the
Company was working on 15 active medicinal chemistry projects for eight
customers, including Astra AB, Pfizer Inc. and Sphinx Pharmaceuticals, a
division of Eli Lilly and Company ("Sphinx").
Chemical Development
Chemical development involves the scale up synthesis of a lead compound.
Processes developed for small scale production of a compound may not be
suitable for larger scale production because they may be uneconomic,
environmentally unacceptable or present safety concerns. The Company's
chemical development scientists design novel or improved methods and processes
suitable for medium to large scale production. The Company's chemical
development scientists possess expertise in a broad range of structural
classes of molecules and are able to address a wide variety of chemical
synthesis and production problems.
Chemical development services provided by the Company include:
. Process research, consisting of the improvement or modification of
existing processes;
. Discovery and development of new product methodologies to prepare
products;
. Process development and production of single-isomer molecules; and
. Development of practical purification techniques.
The following is an example of the services provided by the Company's
chemical development group:
A customer recently engaged the Company's chemical development group for a
project in which the Company's scientists reduced the time and improved the
safety and overall yield of a customer's manufacturing process. The original
process involved 15 steps and several dangerous high-temperature, high-
pressure reactions, noxious reagents and difficult crystallizations. The
Company's scientists shortened the process to ten steps, eliminated the
undesirable reactions, reagents and crystallizations and doubled the overall
yield. The Company prepared a total of 11 kilograms of final product,
including three kilograms produced under cGMP guidelines for use in clinical
trials.
As of August 1, 1998, the Company had 26 employees, including 20 Ph.D.
scientists, working in its chemical development department. The four most
senior scientists in the chemical development department together have 72
years of experience in chemistry research and development. As of August 1,
1998, the Company was working on 15 active chemical development projects for
five customers, including AtheroGenics, Inc., Pfizer Inc., Cambrex Corporation
and Triangle Pharmaceuticals, Inc.
Analytical Chemistry Services
The Company's analytical chemistry services include identity and purity
testing, method development and validation, and stability testing. The Company
also provides regulatory consulting services, including the preparation of
regulatory filings, chemistry manufacturing and control documentation and
testing, and scientific and technical writing. The cGMP guidelines mandated by
the FDA necessitate employing analytical support for drugs under development,
as well as drugs already on the market. The Company's analytical services are
designed to support its customers' compliance with these guidelines. The
Company typically provides these services at several stages throughout drug
discovery and development starting with lead optimization.
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Analytical services provided by the Company include:
. Test method development and validation;
. Quality control testing;
. High performance liquid and/or gas chromatography (including purity
assessment), separation of enantiomers and identification of impurities;
. Spectroscopic and nuclear magnetic resonance services;
. Stability studies for bulk active ingredients and formulated drug
products; and
. Preparation of regulatory documentation, including chemistry
manufacturing and control (CMC) sections of investigational new drug
applications ("IND"), new drug applications ("NDA") and Drug Master
Files.
As of August 1, 1998, the Company had 12 employees, including two Ph.D.
scientists, working in its analytical chemistry department. The four most
senior scientists in the Company's analytical services department together
have 70 years of experience in analytical chemistry and regulatory affairs.
cGMP Manufacturing Services
The Company provides chemical synthesis and manufacturing services for its
customers under cGMP guidelines. All facilities and manufacturing techniques
used in the manufacture of products for clinical use or for sale in the United
States must be operated in conformity with cGMP guidelines as established by
the FDA. The Company's Albany facility has production facilities, and
quarantine and restricted access storage necessary for cGMP manufacturing. The
Company currently has the capacity to produce laboratory scale amounts (1 to
10 kilograms) of chemical compounds.
ALLEGRA/TELFAST ROYALTY AND LICENSING ARRANGEMENT
Fexofenadine HCl (marketed as Allegra in the Americas and as Telfast
elsewhere), a new, non-sedating antihistamine, was developed to address
certain rare side effects associated with its predecessor, Seldane. In 1992,
Seldane was the leading antihistamine on the market with annual sales
approaching $800 million. Seldane, a pro-drug, was rapidly converted by the
liver into its active form, a metabolite of terfenadine carboxylic acid
("TAM"). A very small percent of Seldane users exhibited ventricular
arrhythmias, a side effect sometimes associated with Seldane. A desire to
eliminate the side effect caused Marion Merrell Dow Inc. (now HMR) to develop
a synthetic form of the Seldane active metabolite.
Independent of HMR's development of TAM, the Company developed a new process
to prepare TAM in a purer form. The Company subsequently filed a patent
application in which this process chemistry, and the substantially pure TAM it
produced, fexofenadine HCl, were claimed. The Company has obtained several
U.S. and foreign patents relating to this technology. The Company's issued
patents relating to TAM expire between 2013 and 2015. In March 1995, the
Company entered into a license agreement with HMR. Under the terms of the
license agreement, the Company granted HMR an exclusive, worldwide license to
any patents issued to the Company related to its original TAM patent
applications. In connection with the licensing arrangement, HMR made a $2.0
million equity investment in the Company. Pursuant to the license agreement,
HMR has paid the Company an initial license fee of $200,000 and, through June
30 1998, has paid the Company $7.5 million in milestone payments and $6.3
million in royalties. HMR is obligated under the license agreement to pay
ongoing royalties to the Company based upon sales of fexofenadine HCl. The
Company is not entitled, however, to receive any additional milestone payments
under the license agreement. Sales of fexofenadine HCl in the U.S. were
approximately $212 million for the year ended December 31, 1997 and
approximately $220 million for the six months ended June 30, 1998. See "Risk
Factors--Risks Related to the Allegra/Telfast Royalty" and "--Proprietary
Technology; Unpredictability of Patent Protection."
CURRENT COLLABORATIONS; CUSTOMERS
The Company has entered into a number of collaborations with biotechnology
and pharmaceutical companies that provide services or possess technology
complementary to those provided or possessed by the Company. These
collaborations are focused on particular aspects of the drug development
process.
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In January 1998, the Company entered into an arrangement with Sphinx (a
division of Eli Lilly and Company) whereby the Company will use Sphinx
technology to resynthesize the Sphinx combinatorial chemistry library. The
Sphinx agreement terminates upon the completion of the resynthesis of the
Sphinx combinatorial library (which is estimated to occur in December 1999)
and may be terminated by Sphinx upon six months notice. The Company has been
granted a non-exclusive license to use certain parts of the Sphinx technology,
excluding the Lilly Combinatorial Library (as defined in the Sphinx
agreement), after certain milestones have been met and subject to the payment
of royalties by the Company. During the three years following the expiration
of the Sphinx research program, the Company will pay Sphinx royalties based
upon the compensation received by the Company under agreements with third
parties for the use of Sphinx technology. In addition, the Company is
obligated to pay Sphinx ongoing royalties based upon the sales of products
comprising compounds discovered or developed by the Company using Sphinx
technology.
In February 1997, the Company began a collaboration with Cambrex Corporation
("Cambrex"), a New Jersey-based specialty chemistry manufacturing company
which provides large-scale synthesis of pharmaceutical intermediates and
active pharmaceutical ingredients. Cambrex currently has five cGMP
manufacturing facilities in the United States and Europe. The Company, through
Cambrex, can offer its customers the ability to move from small to full-scale
production with minimal disruption and delay. Pursuant to the agreement
between Cambrex and the Company, Cambrex is obligated to pay the Company
royalties based upon projects referred to Cambrex by the Company. In addition,
Cambrex has engaged the Company to develop processes specifically designed to
fit its large-scale cGMP manufacturing capabilities. According to the
agreement, Cambrex intends to fund such projects to an annual level of at
least $750,000. The agreement between Cambrex and the Company will terminate
on April 1, 2000, unless extended.
Since its inception, the Company has conducted over 400 projects for more
than 100 customers. The Company's customers include pharmaceutical companies,
biotechnology companies, agricultural companies, fine chemical companies and
contract chemical manufacturers. Contract revenue from Astra AB accounted for
24.1% of the Company's aggregate net contract revenue plus other income
(including licensing fees, milestones and royalties) for the year ended
December 31, 1997. No other customers accounted for more than 10% of the
Company's aggregate net contract revenue plus other income (including
licensing fees, milestones and royalties) for such period. For the year ended
December 31, 1997, net contract revenue from the Company's three largest
customers represented approximately 29%, 11% and 9% of total net contract
revenue, respectively. For the three months ended June 30, 1998, net contract
revenue from the Company's three largest customers represented approximately
16%, 16% and 13% of total net contract revenues, respectively.
MARKETING
Since the Company's inception, its senior management and department heads
have marketed its services. Because its customers are typically highly skilled
scientists, the Company's use of its technical experts in marketing has
allowed it to establish strong customer relationships. In addition to
marketing by senior management, the Company has relied on the marketing
efforts of consultants, both in the United States and abroad. The Company
markets its services directly to customers through targeted mailings, meetings
with senior management of pharmaceutical and biotechnology companies,
maintenance of an extensive Internet website, participation in trade
conferences and shows, and selected advertisements in scientific and trade
journals. The Company has also received a significant amount of business from
customer referrals.
Historically, the Company has focused its marketing efforts in the eastern
United States and western Europe. Recently, the Company has expanded its
marketing efforts to include the western United States, Japan and the Far
East. Such efforts include increased presence at trade shows in such areas,
advertising in trade publications, visits by senior management to potential
clients and the retention of independent marketing firms.
COMPETITION
The Company believes that the successful recruitment and retention of
qualified Ph.D., masters and bachelor level scientists is a key element in
achieving its strategic goals. The Company believes that as competitive
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pressures in the pharmaceutical industry to produce lead compounds increase,
the recruitment and retention of chemists will become increasingly
competitive. In order to meet this challenge, the Company actively recruits
scientists at colleges and universities, through third-party recruitment firms
and through contacts of the Company's employees. The Company believes the
sophisticated chemistry performed in the course of its business will assist it
in attracting and retaining qualified scientists. As an incentive directed
toward the recruitment and retention of highly skilled scientists, the Company
has a program which provides that any scientist or scientists employed by the
Company named as an inventor on a patent will receive in the aggregate 10% of
any net revenues received by the Company with respect to such patent. The
Company offers competitive salaries and benefits to its scientists.
The Company faces competition based on a number of factors, including size,
relative expertise and sophistication, speed and costs of identifying and
optimizing potential lead compounds and of developing and optimizing chemical
processes. The Company competes with the research departments of
pharmaceutical companies, biotechnology companies, combinatorial chemistry
companies, contract research companies and research and academic institutions.
Many of these competitors have greater financial and other resources and more
experience in research and development than the Company. Smaller companies may
also prove to be significant competitors, particularly through arrangements
with large corporate collaborators.
Historically, pharmaceutical companies have maintained close control over
their research and development activities, including the synthesis, screening
and optimization of chemical compounds and the development of chemical
processes. Many of these companies, which represent a significant potential
market for the Company's products and services, are developing or already
possess in-house technologies and services offered by the Company. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which the Company provides services either on
their own or through collaborative efforts.
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's services and expertise may be rendered obsolete or
uneconomical by technological advances or entirely different approaches
developed by one or more of the Company's competitors. The existing approaches
of the Company's competitors or new approaches or technologies developed by
the Company's competitors may be more effective than those developed by the
Company. There can be no assurance that the Company's competitors will not
develop more effective or more affordable technologies or services thus
rendering the Company's technologies and/or services obsolete, uncompetitive
or uneconomical.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in part, on its ability to obtain and
enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms can be uncertain and involve complex legal
and factual questions. There can be no assurance that any patent applications
will result in the issuance of patents or, if any patents are issued, whether
they will provide significant proprietary protection or commercial advantage,
or will not be circumvented by others. In the event a third party has also
filed one or more patent applications for inventions which conflict with those
of the Company, the Company may have to participate in interference
proceedings declared by the PTO to determine priority of invention, which
could result in the loss of any opportunity to secure patent protection for
the inventions and the loss of any right to use the inventions. Even if the
eventual outcome is favorable to the Company, such proceedings could result in
substantial cost to the Company. The filing and prosecution of patent
applications, litigation to establish the validity and scope of patents,
assertion of patent infringement claims against others and the defense of
patent infringement claims by others can be expensive and time consuming.
There can be no assurance that in the event that any claims with respect to
any of the Company's patents, if issued, are challenged by one or more third
parties, that any court or patent authority ruling on such challenge will
determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation could cause the Company to lose exclusivity
afforded by the disputed rights. If a third party is found to have rights
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covering products or processes used by the Company, the Company could be
forced to cease using the technologies covered by such rights, could be
subject to significant liability to such third party, and could be required to
license technologies from such third party. Furthermore, even if the Company's
patents are determined to be valid, enforceable, and broad in scope, there can
be no assurance that competitors will not be able to design around such
patents and compete with the Company and its licensees using the resulting
alternative technology.
The Company has a policy of seeking patent protection for patentable aspects
of its proprietary technology. The Company owns five United States patents,
three New Zealand patents and one Australian patent relating to fexofenadine
HCl and certain related manufacturing processes. The Company's United States
issued patents expire between 2013 and 2015 and New Zealand and Australian
patents expire between 2016 and 2017. The Company seeks patent protection with
respect to products and processes developed in the course of its activities
when it believes such protection is in its best interest and when the cost of
seeking such protection is not inordinate. However, no assurance can be given
that any patent application will be filed, that any filed applications will
result in issued patents or that any issued patents will provide the Company
with a competitive advantage or will not be successfully challenged by third
parties. The protections afforded by patents will depend upon their scope and
validity, and others may be able to design around the Company's patents.
The Company may also enter into collaborations or other arrangements with
its customers whereby the Company retains certain ownership rights or may be
entitled to receive milestones and royalties with respect to proprietary
technology developed by the Company during the contract period. However, many
of the Company's contracts with its customers provide that ownership of
proprietary technology developed by the Company in the course of work
performed under the contract is vested in the customer, with the Company
retaining little or no ownership interest.
The Company also relies upon trade secrets and proprietary know-how for
certain unpatented aspects of its technology. To protect such information, the
Company requires all employees, consultants and licensees to enter into
confidentiality agreements limiting the disclosure and use of such
information. There can be no assurance that these agreements provide
meaningful protection or that they will not be breached, that the Company
would have adequate remedies for any such breach, or that the Company's trade
secrets, proprietary know-how, and technological advances will not otherwise
become known to others. In addition, there can be no assurance that, despite
precautions taken by the Company, others have not and will not obtain access
to the Company's proprietary technology. Further, there can be no assurance
that third parties will not independently develop substantially equivalent or
better technology.
GOVERNMENT REGULATION
Although the manufacture, transportation and storage of the Company's
products are subject to certain laws and regulations discussed in the last
paragraph of this section, the sale of the Company's services is not subject
to significant government regulation. However, the Company's future
profitability is dependent on the sales of pharmaceuticals and other products
developed by the Company's customers and collaborators. Regulation by
governmental entities in the United States and other countries will be a
significant factor in the production and marketing of any pharmaceutical
products that may be developed by a customer of the Company. The nature and
the extent to which such regulation may apply to the Company's customers will
vary depending on the nature of any such pharmaceutical products. Virtually
all pharmaceutical products developed by the Company's customers will require
regulatory approval by governmental agencies prior to commercialization. Human
pharmaceutical products are subject to rigorous preclinical and clinical
testing and other approval procedures by the FDA and by foreign regulatory
authorities. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of such pharmaceutical products. The
process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations are time consuming
and require the expenditure of substantial resources.
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Generally, in order to gain FDA approval, a company first must conduct
preclinical studies in the laboratory and in animal models to gain preliminary
information on a compound's efficacy and to identify any safety problems. The
result of these studies are submitted as a part of an Investigational New Drug
Application ("IND") that the FDA must review before human clinical trials of
an investigational drug can start. In order to commercialize any products, the
Company or its customer will be required to sponsor and file an IND and will
be responsible for initiating and overseeing the clinical studies to
demonstrate the safety and efficacy that are necessary to obtain FDA approval
of any such products. Clinical trials are normally done in three phases and
generally take two to five years, but may take longer, to complete. After
completion of clinical trials of a new product, FDA and foreign regulatory
authority marketing approval must be obtained. If the product is classified as
a new drug, the Company or its customer will be required to file an NDA and
receive approval before commercial marketing of the drug. The testing and
approval processes require substantial time, effort and expense and there can
be no assurance that any approval will be granted on a timely basis, if at
all. NDAs submitted to the FDA can take several years to obtain approval. Even
if FDA regulatory clearances are obtained, a marketed product is subject to
continual review, and later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from
the market as well as possible civil or criminal sanctions. For marketing
outside the United States, the Company will also be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country.
All facilities and manufacturing techniques used in the manufacture of
products for clinical use or for sale in the United States must be operated in
conformity with cGMP guidelines as established by the FDA. The Company's
facilities are subject to scheduled periodic regulatory inspections to ensure
compliance with cGMP requirements. Failure on the part of the Company to
comply with applicable requirements could result in the termination of ongoing
research or the disqualification of data for submission to regulatory
authorities. A finding that the Company had materially violated cGMP
requirements could result in additional regulatory sanctions and, in severe
cases, could result in a mandated closing of the Company's facilities which
would materially and adversely affect the Company's business, financial
condition and results of operations.
The research and development processes of the Company involve the controlled
use of hazardous materials. The Company is subject to federal, state and local
laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. Although the Company
believes that its activities currently comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. In addition, there can be
no assurance that the Company will not be required to incur significant costs
to comply with environmental laws and regulations in the future.
EMPLOYEES
As of August 1, 1998, the Company had 124 employees, 49 of whom have
obtained a Ph.D. degree in chemistry. Of such employees, 38 were engaged
primarily in medicinal chemistry services (including 26 Ph.D.s), 26 were
engaged primarily in chemical development services (including 20 Ph.D.s), 12
were engaged primarily in analytical services (including two Ph.D.s), three
were engaged primarily in cGMP manufacturing services and 37 were engaged in
management and administration. None of the Company's employees are covered by
a collective bargaining agreement. The Company considers its relations with
its employees to be good.
PROPERTIES
The Company has two operating locations. The Company leases a facility in
Albany, New York, of which it currently occupies 30,000 square feet, and has
an additional 60,000 square feet under construction including the addition of
a second floor. The lease for this facility has a 10 year term, which expires
on November 30, 2007, and provides the Company an option to purchase the
building within the next five years for $3.5 million
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and another option to renew the lease for an additional 10 year term. The
Company's Albany facility currently has two medicinal chemistry, two chemical
development and two analytical laboratories, two dedicated GMP manufacturing
suites, three analytical instrumentation rooms, and a stability cabinet room.
The expansion of the Company's Albany facility will add six medicinal
chemistry and two chemical development laboratories, three cGMP manufacturing
suites, four segregated cGMP dryer rooms, one analytical chemistry laboratory,
one stability cabinet room, and an additional analytical instrumentation room.
The expansion is estimated to cost $12.5 million and is expected to be
completed by December 1998. The Company also leases approximately 18,000-
square feet of laboratory facilities in Rensselaer, New York. The lease for
these laboratories expires June 30, 2001. The Company has the option to renew
this lease on a year-to-year basis. The Company's Rensselaer facility has
three medicinal chemistry, one combinatorial chemistry and three chemical
development laboratories. In 1997, the Company had total operating lease costs
of $240,000.
LEGAL PROCEEDINGS
The Company, from time to time, may be involved in various claims and legal
proceedings arising in the ordinary course of its business. The Company is not
currently a party to any such claims or proceedings which, if decided
adversely to the Company, would either individually or in the aggregate have a
material adverse effect on the Company's business, financial condition or
results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
August 1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas E. D'Ambra, Ph.D. ...... 42 Chairman of the Board of Directors and
Chief Executive Officer
Donald E. Kuhla, Ph.D. ........ 56 President, Chief Operating Officer and
Director
Harold M. Armstrong, Jr. ...... 42 Executive Vice President, Chief Financial
Officer, Secretary, Treasurer and Director
Chester J. Opalka.............. 50 Vice President, Senior Research Chemist and
Director
Vice President, Commercial Operations and
Lawrence D. Jones, Ph.D. ...... 47 Quality
Harold Meckler, Ph.D. ......... 41 Vice President, Chemical Development
Michael P. Trova, Ph.D. ....... 37 Vice President, Medicinal Chemistry
James J. Grates................ 37 Director of Human Resources
Anthony P. Tartaglia,
M.D.(1)(2).................... 65 Director
</TABLE>
- ----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Thomas E. D'Ambra, Ph.D. co-founded the Company in 1991 and currently serves
as the Company's Chairman of the Board and Chief Executive Officer. Prior to
co-founding the Company, Dr. D'Ambra served as the Vice President, Chemistry
and co-founder of Coromed, Inc., a contract clinical company, from 1989 to
1991 and Group Leader and Senior Research Chemist with Sterling Winthrop,
Inc., a pharmaceutical company, from 1982 to 1989. Dr. D'Ambra holds a B.A.
degree in chemistry from the College of the Holy Cross and a Ph.D. in organic
chemistry from the Massachusetts Institute of Technology.
Donald E. Kuhla, Ph.D. has served as the Company's President and Chief
Operating Officer since July 1998 and as a Director of the Company since
October 1995. Prior to joining the Company as an employee, Dr. Kuhla served as
the Vice President and Chief Technical Officer of Plexus Ventures, Inc., a
biotechnology investment and consulting company, from February 1994 to June
1998, the Chief Operating Officer of Hybridon, Inc., a pharmaceutical company,
and Enzymatics, Inc., a medical diagnostics company, from November 1990 to
February 1994, in various positions with Rorer Group, Inc., a pharmaceutical
company, from 1981 to 1990 and in various positions with Pfizer Inc., a
pharmaceutical company, from 1968 to 1981. Dr. Kuhla has a B.A. degree in
chemistry from New York University and a Ph.D. in organic chemistry from Ohio
State University.
Harold M. Armstrong, Jr., CPA currently serves as the Company's Executive
Vice President, Chief Financial Officer, Secretary and Treasurer, has served
as a Director of the Company since September 1992 and has been with the
Company since August 1992. Prior to joining the Company, Mr. Armstrong served
as an accountant in various positions, including Senior Manager, with Ernst &
Young LLP, an international accounting firm, from September 1986 to January
1992 and as a manager with Urbach, Kahn & Werlin LLP, an accounting firm, from
1981 to 1986. Mr. Armstrong holds a B.S. degree in business and accounting
from Syracuse University.
Chester J. Opalka co-founded the Company in 1991, currently serves as a Vice
President and Senior Research Chemist of the Company and has served as a
Director of the Company since its inception. Prior to co-founding the Company,
Mr. Opalka served as a Senior Research Chemist with Coromed, Inc. from January
1991 to September 1991 and in various positions with Sterling Winthrop, Inc.
from 1970 to 1991. Mr. Opalka holds a B.S. degree in chemistry from Niagara
University.
37
<PAGE>
Lawrence D. Jones, Ph.D. has served as the Company's Vice President,
Commercial Operations and Quality since June 1998 and served as the Company's
Vice President, Operations from March 1998 to June 1998. Prior to joining the
Company, Dr. Jones served as the Executive Vice President and co-founder of
Inhalon Pharmaceuticals, Inc., a manufacturer and distributor of generic
inhalation anesthetics, from August 1991 to February 1998, the Director of
Marketing and Development for Kaneka America Corporation, a manufacturer and
distributor of chemical intermediates, from 1988 to 1991, and a Sales and
Marketing Manager with Johnson Matthey, Inc., a pharmaceutical manufacturer,
from 1980 to 1998. Dr. Jones holds a B.A. degree in chemistry from Cornell
University and a Ph.D. in organic chemistry from Duke University.
Harold Meckler, Ph.D. has served as the Company's Vice President, Chemical
Development since May 1997 and served as the Company's Director of Chemical
Development from August 1995 to May 1997. Prior to joining the Company, Dr.
Meckler served as Manager, Organic Chemistry of Telor Ophthalmic
Pharmaceuticals, Inc., a biopharmaceutical company, from March 1994 to August
1995, in various capacities with Ciba-Geigy Corporation, a pharmaceutical
company, from 1984 to March 1994, and Senior Research Chemist, Chemical
Development with Sterling Winthrop, Inc. from 1982 to 1984. Dr. Meckler holds
a B.S. degree in chemistry from the University of Maryland, College Park and a
Ph.D. in organic chemistry from the State University of New York, Buffalo.
Michael P. Trova, Ph.D. has served as the Company's Vice President,
Medicinal Chemistry since March 1998 and served as the Company's Director of
Medicinal Chemistry from August 1996 to March 1998 and as the Company's
Assistant Director of Medicinal Chemistry from August 1995 to August 1996.
Prior to joining the Company, Dr. Trova was a staff scientist with American
Cyanamid, Lederle Laboratories, a pharmaceutical company, from 1989 to August
1995 and a post-doctoral researcher at the Massachusetts Institute of
Technology from 1987 to 1989. Dr. Trova holds a B.S. degree in chemistry from
Rensselaer Polytechnic Institute and a Ph.D. in organic chemistry from Ohio
State University.
James J. Grates has served as the Company's Director of Human Resources
since December 1996. Prior to joining the Company, Mr. Grates was Executive
Vice President, Corporate Services with Corporate Health Dimensions, a health
care service provider company, from April 1995 to December 1996 and Manager of
Human Resources with Norton Performance Plastics, Inc., a plastic
manufacturer, from 1990 to September 1995. Mr. Grates holds a B.S. degree in
business administration from Syracuse University and an A.A.S. degree in
marketing from Herkimer County Community College.
Anthony P. Tartaglia, M.D. has served as a Director of the Company since
October 1995. Dr. Tartaglia served as a physician with Albany Medical Center
from 1984 until his retirement in June 1998 and also served as Dean of Albany
Medical College from 1990 to June 1995. Dr. Tartaglia previously served as
Executive Director of the Albany Medical Center Hospital from 1987 to 1990,
Senior Vice President for Patient Care of the Albany Medical Center from 1984
to 1987 and as Chief of Medicine at St. Peter's Hospital in Albany from 1975
to 1984. Dr. Tartaglia is also a director of Albank Financial Corporation, a
bank holding company. Dr. Tartaglia holds a B.S. degree in biology from Union
College and a M.D. from the University of Rochester Medical School.
BOARD OF DIRECTORS
The Company currently has five directors. The Company's Board of Directors
is divided into three classes, with the members of each class of directors
serving for staggered three-year terms. The Board consists of one Class I
Director (Mr. Opalka), two Class II Directors (Mr. Armstrong and Dr. Kuhla)
and two Class III Directors (Drs. D'Ambra and Tartaglia), whose initial terms
will expire at the 1999, 2000 and 2001 annual meetings of shareholders,
respectively. Within 90 days after the completion of this offering, the
Company intends to expand the Board of Directors and elect one additional
Class I Director and one additional Class II Director, neither of whom will be
officers or employees of the Company.
The Board of Directors has established an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends the independent accounting firm to be appointed to
audit the Company's financial statements and to perform services related to
such audit, reviews the scope and results of such audit with the independent
accountants, reviews the Company's year-end operating results with management
and the independent accountants, considers the adequacy of the internal
38
<PAGE>
accounting procedures and considers the effect of such procedures on the
accountants' independence. The Audit Committee currently consists of Dr.
Tartaglia, who is not an officer or an employee of the Company. One of the
directors added within 90 days following the offering will be appointed to
serve on the Audit Committee. The Compensation Committee reviews and
recommends the compensation arrangements for officers and other senior level
employees, reviews general compensation levels for other employees as a group,
determines the options or stock to be granted to eligible persons under the
1998 Stock Plan and takes such other action as may be required in connection
with the Company's compensation and incentive plans. The Compensation
Committee currently consists of Dr. Tartaglia. One of the directors added
within 90 days following the offering will be appointed to serve on the
Compensation Committee. See "--Compensation Committee Interlocks and Insider
Participation."
Directors receive such compensation for their services as the Board of
Directors may from time to time determine. Further, each director is
reimbursed for reasonable travel and other expenses incurred in attending
meetings. Prior to joining the Company in June 1998, Dr. Kuhla also received a
consulting fee of $2,500 per quarter.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth information concerning
compensation for services rendered in all capacities awarded to, earned by or
paid to the Chief Executive Officer and the four other most highly compensated
executive officers of the Company for the year ended December 31, 1997
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
1997 ANNUAL COMPENSATION COMPENSATION
------------------------ ------------------
NUMBER OF SHARES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS GRANTED(#) COMPENSATION($)
- --------------------------- ------------ ----------- ------------------ ---------------
<S> <C> <C> <C> <C>
Thomas E. D'Ambra, 178,333 97,125 30,573 253,093(1)
Ph.D. ..................
Chairman and Chief
Executive Officer
Harold M. Armstrong, 126,667 48,750 21,492 --
Jr. ....................
Executive Vice
President, Chief
Financial
Officer, Secretary,
Treasurer and Director
Harold Meckler, Ph.D. ... 106,333 25,200 31,365 --
Vice President, Chemical
Development
Michael P. Trova, 95,878 21,635 15,540 9,709(2)
Ph.D. ..................
Vice President,
Medicinal Chemistry
</TABLE>
- ----------
(1) Constitutes payments to Dr. D'Ambra under the Company's Technology
Development Incentive Plan.
(2) Constitutes reimbursement of moving expenses.
39
<PAGE>
Option Grants, Exercises and Holdings. The following table sets forth
information regarding stock options granted during the year ended December 31,
1997 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION ------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
- ---- ---------- ---------------- ------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. D'Ambra,
Ph.D. ................. 16,518 5.9% $4.59 01/01/02 $ 52,494 $ 133,031
14,055 5.1 5.27 12/15/02 51,208 129,771
Harold M. Armstrong,
Jr. ................... 11,607 4.2 4.59 01/01/07 33,529 84,970
9,885 3.6 5.27 12/15/07 32,741 82,972
Harold Meckler, Ph.D. .. 7,845 2.8 4.59 01/01/07 22,662 57,430
15,000 5.4 4.74 05/01/07 44,714 113,315
8,520 3.1 5.27 12/15/07 28,220 71,514
Michael P. Trova,
Ph.D. ................. 8,235 3.0 4.59 01/01/07 23,789 60,285
7,305 2.6 5.27 12/15/07 24,195 61,316
</TABLE>
- ----------
(1) Vesting of options is subject to the continuation of such employee's
service relationship with the Company. The options terminate ten years
after the grant date, subject to earlier termination in accordance with
the 1992 Stock Option Plan and the applicable option agreement.
(2) The exercise price equals the fair market value of the stock as of the
grant date as determined by the Board of Directors after consideration of
a number of factors, including, but not limited to, the Company's
financial performance, the Company's status as a private company at the
time of grants, the minority interests represented by the option shares
and the price of shares of equity securities sold to or purchased by
outside investors.
(3) The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 5% and 10% appreciation rates established in regulations of the
Securities and Exchange Commission, compounded annually. The following
table sets forth the potential realizable value of the options held by the
Named Executive Officers using the assumed initial public offering price
of $16.00 per share at the 5% and 10% appreciation rates:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES STOCK PRICE APPRECIATION
UNDERLYING FOR OPTION TERM
OPTIONS ------------------------------
GRANTED 5% 10%
---------- -------------- ---------------
<S> <C> <C> <C>
Thomas E. D'Ambra, Ph.D. ........... 16,518 $166,209 $421,207
14,055 141,426 358,401
Harold M. Armstrong, Jr. ........... 11,607 116,793 295,977
9,885 99,466 252,066
Harold Meckler, Ph.D. .............. 7,845 78,939 200,047
15,000 150,935 382,500
8,520 85,731 217,259
Michael P. Trova, Ph.D. ............ 8,235 82,863 209,992
7,305 73,505 186,277
</TABLE>
The potential realizable value is not intended to predict future
appreciation of the price of the Common Stock. The values shown do not
consider non-transferability, vesting or termination of the options upon
termination of such employee's employment with the Company.
40
<PAGE>
Option Exercises and Year-End Holdings. The following table sets forth
information concerning the number and value of unexercised options to purchase
Common Stock held by the Named Executive Officers. None of the Named Executive
Officers exercised any stock options during the year ended December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
END AT FISCAL YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas E. D'Ambra, Ph.D. .. -- 30,573 $ -- $339,272
Harold M. Armstrong, Jr. .. 112,500 21,492 1,762,500 238,496
Harold Meckler, Ph.D. ..... 36,000 31,365 476,880 349,833
Michael P. Trova, Ph.D. ... 36,000 15,540 476,880 172,341
</TABLE>
- ----------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $16.00 per share, less the
applicable exercise price.
EMPLOYEE STOCK AND OTHER BENEFIT PLANS
1998 Stock Option and Incentive Plan. The 1998 Stock Plan was adopted by the
Board of Directors on August 7, 1998 and will be submitted for approval to the
Company's shareholders on August 26, 1998. The following discussion gives
effect to such adoption and approval. The 1998 Stock Plan permits (i) the
grant of Incentive Options, (ii) the grant of Non-Qualified Options, (iii) the
issuance or sale of Common Stock with or without vesting or other restrictions
("Restricted Stock") or without restrictions ("Unrestricted Stock"
collectively with Restricted Stock, "Stock Grants"), (iv) the grant of Common
Stock upon the attainment of specified performance goals ("Performance Share
Awards"), (v) the grant of the right to receive cash dividends with the
holders of the Common Stock as if the recipient held a specified number of
shares of the Common Stock ("Dividend Equivalent Rights") and (vi) the grant
of the right to receive the value of the excess of the fair market value of
the Common Stock over the exercise price of the Common Stock ("Stock
Appreciation Rights" or "SARs"). These grants may be made to officers and
other employees, directors, advisors, consultants and other key persons of the
Company and its subsidiaries. The 1998 Stock Plan currently provides for the
issuance of 919,847 shares of Common Stock plus an additional number of shares
of Common Stock equal to fifteen percent (15%) of the shares of stock issued
by the Company in the previous six months (measured as of June 30 and December
31 of each year). Of the shares reserved for issuance under the 1998 Stock
Plan, no shares were subject to outstanding options or grants as of August 1,
1998. On and after the date the 1998 Stock Plan becomes subject to Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), options
with respect to no more than 200,000 shares of Common Stock may be granted to
any one individual in any calendar year.
The 1998 Stock Plan is administered by the Compensation Committee. Subject
to the provisions of the 1998 Stock Plan, the Compensation Committee has full
power to determine from among the persons eligible for grants under the 1998
Stock Plan the individuals to whom grants will be granted, the combination of
grants to participants and the specific terms of each grant, including
vesting. Incentive Options may be granted only to officers or other full-time
employees of the Company or its subsidiaries, including members of the Board
of Directors who are also full-time employees of the Company or its
subsidiaries. The Compensation Committee may delegate the power to grant
options to non-executive employees to the Company's Chief Executive Officer.
The exercise price of options granted under the 1998 Stock Plan is
determined by the Compensation Committee. In the case of Incentive Options,
the exercise price may not be less than 100% of the fair market value of the
underlying shares on the date of grant. If any employee of the Company or any
subsidiary owns (or
41
<PAGE>
is deemed to own) at the date of grant shares of stock representing in excess
of 10% of the combined voting power of all classes of stock of the Company or
any parent or subsidiary, the option exercise price for Incentive Options
granted to such employee may not be less than 110% of the fair market value of
the underlying shares on that date. Non-Qualified Options may be granted at
prices which are less than the fair market value of the underlying shares on
the date granted. Options typically are subject to vesting schedules,
terminate 10 years from the date of grant and may be exercised for specified
periods subsequent to the termination of the optionee's employment or other
service relationship with the Company. At the discretion of the Compensation
Committee, any option may include a "reload" feature pursuant to which an
optionee exercising an option receives in addition to the number of shares of
Common Stock due on the exercise of such an option an additional option with
an exercise price equal to the fair market value of the Common Stock on the
date such additional option is granted. Upon the exercise of options, the
option exercise price must be paid in full either in cash or by certified or
bank check or other instrument acceptable to the Compensation Committee or, in
the sole discretion of the Compensation Committee, by delivery of shares of
Common Stock already owned by the optionee. The exercise price may also be
delivered to the Company by a broker pursuant to irrevocable instructions to
the broker selling the underlying shares from the optionee.
The 1998 Stock Plan also permits Stock Grants, Performance Share Awards,
grants of Dividend Equivalent Rights and SARs. Stock Grants may be made to
persons eligible under the 1998 Stock Plan, subject to such conditions and
restrictions as the Compensation Committee may determine. Prior to the vesting
of shares, recipients of Stock Grants generally will have all the rights of a
stockholder with respect to the shares, including voting and dividend rights,
subject only to the conditions and restrictions set forth in the 1998 Stock
Plan or in any agreement. The Compensation Committee may also make Stock
Grants to persons eligible under the 1998 Stock Plan in recognition of past
services or other valid consideration, or in lieu of cash compensation. In the
case of Performance Share Awards, the issuance of shares of Common Stock will
occur only after the conditions and restrictions set forth in the grant
agreement are satisfied. SARs may be granted in tandem with, or independently
of, Incentive Options or Non-Qualified Options. The Compensation Committee may
also grant Dividend Equivalent Rights in conjunction with any other grant made
pursuant to the 1998 Stock Plan or as a free standing grant. Dividend
Equivalent Rights may be paid currently or deemed to be reinvested in
additional shares of Common Stock, which may thereafter accrue further
dividends.
The Compensation Committee may, in its sole discretion, accelerate or extend
the date or dates on which all or any particular award or awards granted under
the 1998 Stock Plan may be exercised or vest. Generally, upon a dissolution,
liquidation or sale of a majority of the outstanding voting stock or
substantially all of the assets of the Company, all unvested options, SARs and
other awards shall become vested as of the effective date of such transaction,
except as the Compensation Committee may otherwise specify with respect to
particular awards. Options generally provide for acceleration of vesting in
the event the optionee's employment with the Company is terminated by the
Company without cause or by the optionee for good reason within 18 months
following a change-in-control transaction. To the extent not fully vested and
exercised, options granted under the 1998 Stock Plan terminate upon the
dissolution, liquidation or sale of a majority of the outstanding voting stock
or substantially all of the assets of the Company, except as the parties to
any such transaction may otherwise agree in their discretion.
1992 Stock Option Plan. The Company's 1992 Stock Option Plan (the "1992
Stock Option Plan") was initially approved by the Board of Directors in August
1992 and was subsequently approved by the Company's shareholders. The 1992
Stock Option Plan provides for the issuance of 1,500,000 shares of Common
Stock. The 1992 Stock Option Plan permits the grant of stock options intended
to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, ("Incentive Stock Options") and options not
intended to so qualify ("Non-qualified Stock Options"). As of August 1, 1998,
options to purchase 918,211 shares of Common Stock were outstanding under the
1992 Stock Option Plan at a weighted average exercise price of $3.26 per
share. Options granted under the 1992 Stock Option Plan (i) generally vest 60%
on the third anniversary of the date of grant and an additional 20% on each of
the next two anniversaries and (ii) terminate on the tenth anniversary of the
date of grant. In connection with this offering, the number of shares of
Common
42
<PAGE>
Stock reserved for issuance under the 1992 Stock Option Plan will be reduced
to 918,211. The Company does not intend to make grants under the 1992 Stock
Option Plan after the effective date of this offering.
The 1992 Stock Option Plan is administered by a committee of the Board of
Directors (the "Option Committee"). The Option Committee has the power to
amend outstanding stock options so long as such amendment does not adversely
affect the holder of the option. The Option Committee may, in its sole
discretion, accelerate the vesting of any outstanding stock option, including
in the event of a merger, liquidation or sale of substantially all of the
assets of the Company.
1998 Employee Stock Purchase Plan. The Purchase Plan was adopted by the
Board of Directors and subsequently approved by the Company's shareholders in
May 1998. Up to 200,000 shares of Common Stock may be issued under the
Purchase Plan. The Purchase Plan is administered by the Compensation
Committee.
The first offering under the Purchase Plan will begin on January 1, 1999 and
end on June 30, 1999. Subsequent offerings will commence on each January 1 and
July 1 thereafter and will have a duration of six months. Generally, all
employees who are customarily employed for more than 20 hours per week as of
the first day of the applicable offering period are eligible to participate in
the Purchase Plan. An employee who owns or is deemed to own shares of stock
representing in excess of 5% of the combined voting power of all classes of
stock of the Company may not participate in the Purchase Plan.
During each offering, an employee may purchase shares under the Purchase
Plan by authorizing payroll deductions of up to 10% of his cash compensation
during the offering period. The maximum number of shares which may be
purchased by any participating employee during any offering period is limited
to 1,000 shares (as adjusted by the Compensation Committee from time to time).
Unless the employee has previously withdrawn from the offering, his
accumulated payroll deductions will be used to purchase Common Stock on the
last business day of the period at a price equal to 85% of the fair market
value of the Common Stock on the first or last day of the offering period,
whichever is lower. Under applicable tax rules, an employee may purchase no
more than $25,000 worth of Common Stock in any calendar year. No Common Stock
has been issued to date under the Purchase Plan.
Technology Development Incentive Plan. The Company maintains a Technology
Development Incentive Plan, the purpose of which is to stimulate and encourage
novel innovative technology development, which allows eligible participants to
share in awards based on ten percent (10%) of the net revenue (as defined
therein) earned by the Company relating to patented technology with respect to
which the eligible participant is named as an inventor.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The Company intends to enter into employment agreements with each of the
Named Executive Officers. The terms of the agreements are substantially
similar, except with respect to minimum annual base salary ($200,000,
$150,000, $120,000 and $115,000 for Dr. D'Ambra, Mr. Armstrong, Dr. Meckler
and Dr. Trova, respectively) and as set forth below with respect to the
termination of employment upon a "change of control." In addition to their
annual base salary, the Named Executive Officers will be eligible to receive
bonus compensation to be determined at the discretion of the Board of
Directors. The agreements have initial employment terms of three years and
automatically renew for one year periods thereafter. If the Company elects not
to extend an agreement for any reason or if the executive's employment is
terminated by the Company without "cause" (as defined) or by the executive
upon a material breach of the agreement by the Company, the Company will
continue to pay the executive his base salary for one year and will pay to the
Executive in monthly installments over such one year period an amount equal to
the executive's cash bonus received in respect of the immediately preceding
year.
Upon termination by the Company of the executive's employment without
"cause" or upon a resignation by the executive for "good reason" (as defined)
or if an employment agreement is not renewed by the Company within twelve
months following a "change of control" (as defined), such executive will be
entitled to receive a severance amount equal
43
<PAGE>
to the sum of (i) a multiple of the executive's annual base salary, plus (ii)
the executive's cash bonus received in respect of the immediately preceding
year. The multiples of base salary to be paid by the Company to Dr. D'Ambra,
Mr. Armstrong, Dr. Meckler and Dr. Trova upon the termination of their
employment following a "change of control" are three, two, one and one times,
respectively.
The Company has also entered into Employment Innovation, Proprietary
Information and Post-Employment Activity Agreements with its Named Executive
Officers. Each agreement provides that, during the six month period
immediately following the termination of his employment with the Company, the
Named Executive Officer will not engage, directly or indirectly, in the sale
or performance of any services for a customer for whom he performed services
at any time during the twelve month period immediately preceding the
termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Tartaglia currently serves as the only member of the Compensation
Committee. Dr. Tartaglia is not an executive officer of the Company. Prior to
joining the Company in June 1998, Dr. Kuhla served as a member of the
Compensation Committee. While serving as a member of the Compensation
Committee, Dr. Kuhla received a consulting fee of $2,500 per quarter unrelated
to such service. One of the directors added within 90 days following the
offering will be appointed to serve on the Compensation Committee.
44
<PAGE>
CERTAIN TRANSACTIONS
In March 1995, the Company entered into a license agreement with HMR. Under
the terms of the license agreement, the Company granted HMR an exclusive,
worldwide license to any patents issued to the Company related to its original
1993 TAM U.S. patent application. Pursuant to the license agreement, HMR paid
the Company $12.4 million, $2.5 million, $1.0 million and $200,000 in
milestones and royalties in the six months ended June 30, 1998, and the years
ended December 31, 1997, 1996 and 1995, respectively. HMR is also obligated to
pay ongoing royalties to the Company based upon sales of fexofenadine HCl. In
connection with the transactions contemplated by the license agreement, HMR
purchased 1,084,821 shares of Common Stock for a total purchase price of $2.0
million. The Company granted HMR demand registration rights with respect to
such shares whereby HMR has the right (i) on any one occasion beginning six
months after completion of this offering to require the Company to register
its shares under the Securities Act for resale to the public (provided that
the aggregate offering price of such shares must be at least $3.0 million),
(ii) to require the Company to register its shares on a "shelf" registration
statement in the event the Company registers shares held by Dr. D'Ambra and or
Mr. Opalka under certain specified circumstances and (iii) to require the
Company to include shares held by HMR on registration statements independently
filed by the Company, subject to certain restrictions. In addition, the
Company has agreed to indemnify HMR, its subsequent transferees, and any
underwriters and each of their controlling persons, against claims and
liabilities, including claims and liabilities arising under the securities
laws.
Dr. D'Ambra is entitled to payments under the Company's Technology
Development Incentive Plan for amounts paid to the Company under the license
agreement with HMR. Under this plan, the Company paid Dr. D'Ambra $1.1
million, $253,000, $100,000 and $200,000 in the six months ended June 30,
1998, and the years ended December 31, 1997, 1996 and 1995, respectively.
Pursuant to the Company's Technology Development Incentive Plan, Dr. D'Ambra
is entitled to receive 10% of all royalties paid to the Company under the HMR
license agreement.
The Company is a party to an agreement with Stiefel Laboratories, Inc.
("Stiefel"), the beneficial holder of 10.9% of the outstanding shares of
Common Stock prior to giving effect to the offering, whereby the Company
granted Stiefel participation rights with respect to certain future issuances
of securities by the Company. This agreement will terminate upon completion of
this offering. The Company received $65,000 from Stiefel for services rendered
in the ordinary course of business during 1996.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 1, 1998 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby of (i) each
person known by the Company to own beneficially five percent or more of the
outstanding shares of Common Stock, (ii) each director and the Named Executive
Officers of the Company and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY OWNED(1)
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER(2) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING(3)
- --------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Thomas E. D'Ambra,
Ph.D.(4)................. 2,890,252 39.6% 30.5%
Chester J. Opalka(5)...... 1,431,819 19.6 15.1
Hoechst
Aktiengesellschaft(6).... 1,084,821 14.9 11.4
Stiefel Laboratories,
Inc.(7).................. 840,000 10.9 8.9
Harold M. Armstrong,
Jr.(8)................... 733,396 9.9 7.7
Harold Meckler, Ph.D.(9).. 36,000 * *
Michael P. Trova,
Ph.D.(10)................ 36,000 * *
Anthony P. Tartaglia,
M.D.(11)................. 20,753 * *
Donald E. Kuhla,
Ph.D.(12)................ 20,228 * *
All executive officers and
directors as a group (9
persons)................. 5,168,448 68.8 53.1
</TABLE>
- ----------
* Less than 1%.
(1) All percentages have been determined as of August 1, 1998 in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). For purposes of this table, a person or group of
persons is deemed to have "beneficial ownership" of any shares of Common
Stock which such person has the right to acquire within 60 days after the
date of this Prospectus. For purposes of computing the percentage of
outstanding shares of Common Stock held by each person or group of
persons named above, any security which such person or persons has or
have the right to acquire within 60 days after the date of this
Prospectus is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. As of August 1, 1998, a total of 7,290,964 shares of Common
Stock were issued and outstanding and 1,396,654 options to acquire Common
Stock were exercisable within 60 days of the estimated effective date of
this offering.
(2) The address of all listed stockholders other than Hoechst
Aktiengesellschaft and Stiefel Laboratories, Inc. is c/o Albany Molecular
Research, Inc., 21 Corporate Circle, Albany, New York 12203. The address
of Hoechst Aktiengesellschaft is c/o Hoechst Marion Roussel, Inc., 10236
Marion Park Drive, Kansas City, Missouri 64137. The address of Stiefel
Laboratories, Inc. is 255 Alhambra Circle, Suite 1000, Coral Gables,
Florida 33134.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Includes 1,146,109 shares held by the Thomas E. D'Ambra GRAT I trust of
which Dr. D'Ambra serves as the trustee. By virtue of his position as
trustee, Dr. D'Ambra may be deemed to be the beneficial owner of all
shares held by such trust. Excludes 30,572 shares subject to options not
exercisable within 60 days.
(5) Includes 273,330 shares held by the Chester T. Opalka 1997 Retained
Annuity Trust of which Mr. Opalka serves as a co-trustee. By virtue of
his position as a co-trustee, Mr. Opalka may be deemed to be the
beneficial owner of all shares held by such trust. Excludes 10,470 shares
subject to options not exercisable within 60 days.
(6) Hoechst Aktiengesellschaft is a publicly-held company and the parent of
Hoechst Marion Roussel, Inc., the holder of record of these shares.
(7) Includes 420,000 shares subject to options exercisable within 60 days.
(8) Includes 225,000 shares held by the Harold M. Armstrong, Jr. Family Trust
I of which Mr. Armstrong serves as the trustee and 112,500 shares subject
to options exercisable within 60 days. By virtue of his position as
trustee, Mr. Armstrong may be deemed to be the beneficial owner of all
shares held by such trust. Excludes 21,492 shares subject to options not
exercisable within 60 days.
(9) Includes 36,000 shares subject to options exercisable within 60 days.
Excludes 31,365 shares subject to options not exercisable within 60 days.
(10) Includes 30,000 shares subject to options exercisable within 60 days.
Excludes 15,540 shares subject to options not exercisable within 60 days.
(11) Includes 18,750 shares subject to options exercisable within 60 days and
excludes 3,749 shares subject to options not exercisable within 60 days.
(12) Includes 18,750 shares subject to options exercisable within 60 days and
excludes 3,749 shares subject to options not exercisable within 60 days.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
There are currently 100,000 shares of Series A Preferred Stock outstanding
and 7,290,964 shares of Common Stock outstanding. In connection with and
subject to this offering, each ten shares of Series A Preferred Stock will
convert into three shares of Common Stock. The Series A Preferred Stock will
be retired subsequent to such conversion.
Upon completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, of which 9,490,964
shares will be issued and outstanding, and 2,000,000 shares of undesignated
preferred stock issuable in one or more series by the Board of Directors
("Preferred Stock"), of which no shares will be issued and outstanding.
Common Stock. The holders of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. Any issuance of Preferred
Stock with a dividend preference over Common Stock could adversely affect the
dividend rights of holders of Common Stock. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to any voting rights of the holders of any
then outstanding Preferred Stock. The holders of Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All
outstanding shares of Common Stock, including the shares offered hereby, are,
or will be upon completion of the offering, fully paid and non-assessable.
The Company's Amended and Restated Certificate of Incorporation, as amended
(the "Certificate") and By-laws, which will be effective upon completion of
this offering provide, subject to the rights of the holders of any Preferred
Stock then outstanding, that the number of directors shall be fixed by the
Board of Directors. The directors, other than those who may be elected by the
holders of any Preferred Stock, are divided into three classes, as nearly
equal in number as possible, with each class serving for a three-year term.
Subject to any rights of the holders of any Preferred Stock to elect
directors, and to remove any director whom the holders of any Preferred Stock
had the right to elect, any director of the Company may be removed from office
only with cause and by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by Shareholders in the election
of such director.
Undesignated Preferred Stock. The Board of Directors of the Company is
authorized, without further action of the stockholders, to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereon as set forth in the Company's
Certificate. Any such Preferred Stock issued by the Company may rank prior to
the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of
Common Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding
Common Stock.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
A number of provisions of the Certificate and By-laws which will be
effective upon completion of this offering concern matters of corporate
governance and the rights of stockholders. Certain of these provisions, as
well as the ability of the Board of Directors to issue shares of Preferred
Stock and to set the voting rights, preferences and other terms thereof, may
be deemed to have an anti-takeover effect and may discourage takeover attempts
not first approved by the Board of Directors, including takeovers which
stockholders may deem to be in their best interests. To the extent takeover
attempts are discouraged, temporary fluctuations in the market price
47
<PAGE>
of the Common Stock, which may result from actual or rumored takeover
attempts, may be inhibited. These provisions, together with the classified
Board of Directors and the ability of the Board to issue Preferred Stock
without further stockholder action, also could delay or frustrate the removal
of incumbent directors or the assumption of control by stockholders, even if
such removal or assumption would be beneficial to stockholders of the Company.
These provisions also could discourage or make more difficult a merger, tender
offer or proxy contest, even if favorable to the interests of stockholders,
and could depress the market price of the Common Stock. The Board of Directors
believes that these provisions are appropriate to protect the interests of the
Company and all of its stockholders. The Board of Directors has no present
plans to adopt any other measures or devices which may be deemed to have an
"anti-takeover effect."
Meetings of Stockholders. The By-laws provide that a special meeting of
stockholders may be called only by the Chairman or a majority of Board of
Directors unless otherwise required by law. The By-laws provide that only
those matters set forth in the notice of the special meeting may be considered
or acted upon at that special meeting unless otherwise provided by law. In
addition, the By-laws set forth certain advance notice and informational
requirements and time limitations on any director nomination or any new
proposal which a shareholder wishes to make at an annual meeting of
stockholders.
No Stockholder Action by Written Consent. The Certificate provides that any
action required or permitted to be taken by the stockholders of the Company at
an annual or special meeting of stockholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of stockholders
in lieu thereof.
Indemnification and Limitation of Liability. The By-laws provide that
directors and officers of the Company shall be, and in the discretion of the
Board of Directors non-officer employees may be, indemnified by the Company to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence
or gross negligence in business combinations, unless the director has breached
his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. The Company also entered into indemnification
agreements with each of its directors reflecting the foregoing and requiring
the advancement of expenses in proceedings involving the directors in most
circumstances.
Amendment of the Certificate. The Certificate provides that an amendment
thereof must first be approved by a majority of the Board of Directors and
(with certain exceptions) thereafter approved by a majority (or 80% in the
case of any proposed amendment to the provisions of the Certificate relating
to the composition of the Board or amendments of the Certificate) of the total
votes eligible to be cast by holders of voting stock with respect to such
amendment.
Amendment of By-laws. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority
of the directors then in office. Such action by the stockholders requires the
affirmative vote of at least two-thirds of the total votes eligible to be cast
by holders of voting stock with respect to such amendment or repeal at an
annual meeting of stockholders or a special meeting called for such purpose
unless the Board of Directors recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting shares with respect to such amendment
or repeal.
48
<PAGE>
Ability to Adopt Shareholder Rights Plan. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares to implement a shareholder rights plan. A shareholder rights plan
typically creates voting or other impediments which are intended to discourage
persons seeking to gain control of the Company by means of a merger, tender
offer, proxy contest or otherwise if such change in control is not in the best
interest of the Company and its stockholders. The Board of Directors has no
present intention of adopting a shareholder rights plan and is not aware of
any attempt to obtain control of the Company.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person or affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved
by the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction
that makes it an interested stockholder (excluding shares owned by persons who
are both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested
stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its shareholders to exempt itself from coverage, provided that such by-law
or charter amendment shall not become effective until 12 months after the date
it is adopted. Neither the Certificate nor the By-laws contains any such
exclusion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be ChaseMellon
Shareholder Services, L.L.C.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of 9,490,964
shares of Common Stock outstanding. Of these shares, the 2,200,000 shares of
Common Stock offered hereby will be freely tradable without restriction or
registration under the Securities Act by persons other than "affiliates" of
the Company, as defined in the Securities Act, who would be required to sell
such shares under Rule 144 under the Securities Act. The remaining 7,290,964
shares of Common Stock outstanding will be "restricted securities" as that
term is defined by Rule 144 (the "Restricted Shares"). The Restricted Shares
were issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Securities Act.
Of the Restricted Shares, 7,268,464 shares of Common Stock will be eligible
for sale in the public market pursuant to Rule 144 under the Securities Act
beginning 90 days after the date of this Prospectus, and 22,500 shares of
Common Stock will be eligible for sale in the public market pursuant to Rule
144 after March 31, 1999.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year (including the holding period of any prior owner except
an affiliate), including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 94,910 shares upon completion
of the offering) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at the time during 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to the exercise of options outstanding prior to this
offering or the grant of Common Stock prior to this offering pursuant to
written compensation plans or contracts may be resold by persons other than
affiliates beginning 90 days after the date of this Prospectus, subject only
to the manner of sale provisions of Rule 144, and by affiliates, beginning 90
days after the date of this Prospectus, subject to all provisions of Rule 144
except its one-year minimum holding period requirement.
The Company's executive officers and directors and stockholders, who in the
aggregate hold 7,465,964 shares of Common Stock and options to purchase
1,379,254 shares of Common Stock, have agreed, pursuant to certain Lock-up
Agreements, that until 180 days after the date of this Prospectus, they will
not, directly or indirectly, offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase, make a distribution of, or otherwise
dispose of, any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, otherwise than (i) as a bona fide
gift or gifts, provided that the donee or donees thereof agree in writing as a
condition precedent to such gift or gifts to be bound by the terms of the
Lock-up Agreements, or (ii) with the prior written consent of ING Baring
Furman Selz LLC. In addition, the Company has agreed that, without the prior
written consent of ING Baring Furman Selz LLC on behalf of the Underwriters,
the Company will not, directly or indirectly, sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase
or otherwise transfer or dispose of any shares of Common Stock or any
securities, convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock, or enter into any swap or other agreement
that transfers, in whole or in part any of the economic consequences or
ownership of Common Stock, during the 180-day period following the date of
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its current stock option and purchase
plans and may
50
<PAGE>
issue shares of Common Stock in connection with certain acquisition
transactions, provided such shares are subject to the 180-day Lock-up
Agreement.
As of August 1, 1998, 919,847 shares of Common Stock were reserved for
issuance under the 1998 Stock Plan, of which no shares were issuable upon the
exercise of outstanding stock options, 1,500,000 shares of Common Stock were
reserved for issuance under the 1992 Stock Option Plan, of which 918,211
shares were issuable upon the exercise of outstanding stock options and
202,112 shares had been issued upon the exercise of stock options, 200,000
shares of Common Stock were reserved for issuance under the Purchase Plan and
307,362 shares were issuable upon the exercise of outstanding stock options
granted pursuant to stand alone option agreements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management--Employee Stock and Other Benefit Plans--1998 Stock Option and
Incentive Plan," "--1992 Stock Option Plan" and "--1998 Employee Stock
Purchase Plan." The Company intends to file a registration statement on Form
S-8 under the Securities Act to register all shares of Common Stock issuable
pursuant to the 1998 Stock Plan or the Purchase Plan. The Company expects to
file this registration statement within approximately 90 days following the
date of this Prospectus, and such registration statement will become effective
upon filing. Shares covered by this registration statement will thereupon be
eligible for sale in the public markets, subject to Rule 144 limitations
applicable to affiliates and the Lock-up Agreements described above.
Prior to this offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom ING Baring Furman Selz LLC and Hambrecht &
Quist LLC are acting as representatives (the "Representatives") has severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
ING Baring Furman Selz LLC. .................................
Hambrecht & Quist LLC. ......................................
---------
Total...................................................... 2,200,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 330,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common Stock
offered hereby. The Underwriters may exercise such option only to cover over-
allotments, if any, in connection with the sale of the 2,200,000 shares of
Common Stock offered hereby.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of ING Baring Furman Selz
LLC, except for the shares of Common Stock offered hereby and except that the
Company may issue securities pursuant to the Company's stock plans and upon
exercise of outstanding options and warrants. In addition, the Company's
executive officers and directors and stockholders, who in the aggregate hold
7,465,964 shares of Common Stock and options to purchase 1,379,254 shares of
Common Stock, have agreed, pursuant to certain Lock-up Agreements, that until
180 days after the date of this Prospectus, they will not, directly or
indirectly, offer, sell, assign, transfer, encumber, contract to sell, grant
an option to purchase, make a distribution of, or otherwise dispose of, any
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock, otherwise than (i) as a bona fide gift or gifts,
provided that the donee or donees thereof agree in writing as a condition
precedent to such gift or gifts to be bound by the terms of the Lock-up
Agreements, or (ii) with the prior written consent of ING Baring Furman Selz
LLC.
The Representatives of the Underwriters have informed the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.
In connection with this offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover
52
<PAGE>
syndicate short positions created in connection with this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Common
Stock. Syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Common Stock than they are required to purchase
from the Company in this offering. The Underwriters also may impose a penalty
bid, whereby the syndicate may reclaim selling concessions allowed to
syndicate members or other broker-dealers in respect of the Common Stock sold
in this offering for their account if the syndicate repurchases the shares in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market. These
transactions may be affected on Nasdaq, in the over-the-counter market or
otherwise, and may, if commenced, be discontinued at any time.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The Company has applied to list the Common Stock for quotation and trading
on the Nasdaq National Market under the symbol "AMRI."
The Company has agreed to indemnify the several Underwriters against or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
Certain legal matters related to this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The consolidated financial statements of Albany Molecular Research, Inc. as
of December 31, 1996 and 1997, and for each of the years in the three-year
period ended December 31, 1997 have been audited by KPMG Peat Marwick LLP and
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors--
Proprietary Technology; Unpredictability of Patent Protection" and "Business--
Allegra Royalty and Licensing Arrangement" and "--Patents and Proprietary
Rights" have been reviewed and approved by , patent counsel to
the Company, as experts on such matters, and are included herein in reliance
upon that review and approval.
53
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed with the Commission a Registration
Statement (which term shall include any amendments thereto) on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement
being qualified in all respects by such reference. For further information
with respect to the Company and the Common Stock, reference is made to the
Registration Statement, including the exhibits and schedules thereto, copies
of which may be examined without charge at the Commission's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its public reference facilities in New York, New
York, and Chicago, Illinois, at prescribed rates. The Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants (which, after this
offering, will include the Company) that file electronically with the
Commission (at http://www.sec.gov).
Immediately following this offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
As long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements
audited by an independent certified public accounting firm.
54
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ALBANY MOLECULAR RESEARCH, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Public Accountants........... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and June 30,
1998 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Six Months Ended June 30, 1997 and 1998
(unaudited).............................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1996 and 1997 and for the Six Months Ended June
30, 1998 (unaudited)..................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Six Months Ended June 30, 1997 and 1998
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Albany Molecular Research, Inc.:
We have audited the accompanying consolidated balance sheets of Albany
Molecular Research, Inc. as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Albany Molecular Research, Inc. at December 31, 1996 and 1997, and the
consolidated results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Albany, New York
April 2, 1998, except for note 15
which is as of July 7, 1998
F-2
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $1,259,555 $ 1,261,518 $ 7,571,458
Certificate of deposit.................. 52,551 -- --
Accounts receivable, (net of allowance
of for doubtful accounts of $0 and
$114,000 at December 31, 1996 and
1997, respectively, and $0 at June 30,
1998).................................. 851,959 1,976,637 2,313,198
Current installment of notes receivable
(Note 14).............................. -- -- 111,762
Royalty income receivable............... -- -- 3,275,000
Investment securities, available-for-
sale (Note 5).......................... 1,734,899 1,949,546 1,949,708
Interest receivable..................... 25,156 25,961 28,793
Inventory............................... 266,208 317,789 512,592
Unbilled services....................... 202,122 192,822 159,775
Refundable income taxes................. -- 312,377 --
Prepaid expenses........................ 38,132 131,798 220,714
---------- ----------- -----------
Total current assets.................. 4,430,582 6,168,448 16,143,000
Property and equipment:
Laboratory equipment and fixtures....... 2,981,155 3,323,232 3,889,151
Office equipment........................ 453,823 840,256 1,415,052
Leasehold improvements.................. 983,264 1,000,120 1,001,220
Construction-in-progress................ -- 76,574 4,726,710
---------- ----------- -----------
4,418,242 5,240,182 11,032,133
Accumulated depreciation and
amortization.......................... (591,698) (1,265,255) (1,681,803)
---------- ----------- -----------
Net property and equipment............ 3,826,544 3,974,927 9,350,330
Other assets:
Patents and patent application costs.... 127,145 212,291 245,798
Licensing rights........................ 26,513 23,567 22,094
Customer list........................... -- -- 108,167
Notes receivable, excluding current
installment (Note 14).................. -- -- 80,000
Deposits................................ 16,810 16,810 16,810
Deferred income tax benefit (Note 6).... 68,142 230,000 --
Other assets............................ 4,909 3,291 7,226
---------- ----------- -----------
Total other assets.................... 243,519 485,959 480,095
---------- ----------- -----------
Total assets.......................... $8,500,645 $10,629,334 $25,973,425
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses... $ 322,754 $ 898,256 $ 3,505,003
Income taxes payable (Note 6)........... 338,684 -- 1,780,233
Unearned income......................... 135,377 212,008 509,551
Customer deposits....................... 165,000 202,293 182,293
Current installments of obligation
under capital lease.................... 3,550 1,256 --
Current installments of long-term debt
(Note 3)............................... 454,683 448,005 78,283
---------- ----------- -----------
Total current liabilities............. 1,420,048 1,761,818 6,055,363
Long-term liabilities:
Obligation under capital lease,
excluding current installments......... 1,256 -- --
Long-term debt, excluding current
installments (Note 3).................. 2,373,708 1,775,703 5,158,528
Deferred income taxes (Note 6).......... 295,119 437,631 479,340
---------- ----------- -----------
Total liabilities..................... 4,090,131 3,975,152 11,693,231
Commitments (Notes 7, 9 and 11)
Shareholders' equity:
Preferred stock, $0.01 par value,
authorized 1,000,000 shares, issued
and outstanding 100,000 shares......... 1,000 1,000 1,000
Common stock, $0.01 par value,
authorized 10,000,000 shares; issued
and outstanding 7,170,221 at December
31, 1996, 7,180,514 shares at December
31, 1997 and 7,245,964 shares at June
30, 1998............................... 71,855 71,924 72,460
Additional paid-in capital.............. 2,619,850 2,643,376 2,973,757
Retained earnings....................... 1,694,164 3,883,379 11,180,013
Accumulated other comprehensive
income................................. 23,645 54,503 52,964
---------- ----------- -----------
Total shareholders' equity............ 4,410,514 6,654,182 14,280,194
---------- ----------- -----------
Total liabilities and shareholders'
equity............................... $8,500,645 $10,629,334 $25,973,425
========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract revenue........ $3,315,930 $6,177,371 $8,805,066 $3,983,919 $6,293,548
Reimbursed expenses..... (356,664) (916,027) (701,034) (376,450) (329,457)
---------- ---------- ---------- ---------- ----------
Net contract revenue.... 2,959,266 5,261,344 8,104,032 3,607,469 5,964,091
Cost of revenue......... 1,350,158 2,834,760 4,334,245 1,953,541 3,252,117
---------- ---------- ---------- ---------- ----------
Gross profit............ 1,609,108 2,426,584 3,769,787 1,653,928 2,711,974
Operating expenses:
Research and
development.......... 36,628 244,812 626,471 279,841 340,741
Selling, general and
administrative....... 809,487 1,219,144 2,246,391 893,326 1,908,415
---------- ---------- ---------- ---------- ----------
Total operating
expenses........... 846,115 1,463,956 2,872,862 1,173,167 2,249,156
---------- ---------- ---------- ---------- ----------
Income from operations.. 762,993 962,628 896,925 480,761 462,818
Other income (expense):
Non-recurring
licensing fees,
milestones and
royalties (Note 9)... 200,000 1,000,000 2,500,000 500,000 7,380,465
Recurring royalties
(Note 9)............. -- -- 30,871 -- 5,004,680
Technology incentive
award (Note 11)...... (200,000) (100,000) (253,093) (50,000) (1,137,360)
Lease relocation
incentive fee........ -- -- -- -- (200,000)
Interest expense...... (53,882) (137,967) (175,969) (82,442) (93,284)
Interest income....... 91,532 126,474 163,051 66,432 190,088
Realized gain on sale
of investment
securities........... 6,053 3,895 -- -- --
Write off of licensing
costs................ (73,083) -- -- -- --
Other income
(expense)............ (1,262) 16,235 (25,629) 4,760 4,325
---------- ---------- ---------- ---------- ----------
Total other income
(expense).......... (30,642) 908,637 2,239,231 438,750 11,148,914
---------- ---------- ---------- ---------- ----------
Income before income tax
expense................ 732,351 1,871,265 3,136,156 919,511 11,611,732
Income tax expense (Note
6)..................... 252,805 637,476 946,941 334,705 4,315,098
---------- ---------- ---------- ---------- ----------
Net income.............. $ 479,546 $1,233,789 $2,189,215 $ 584,806 $7,296,634
========== ========== ========== ========== ==========
Basic earnings per
share.................. $ 0.07 $ 0.17 $ 0.31 $ 0.08 $ 1.01
Diluted earnings per
share.................. $ 0.06 $ 0.16 $ 0.28 $ 0.07 $ 0.90
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE SIX MONTHS ENDED JUNE 30,
1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- ----------------------------
ACCUMULATED
NUMBER $0.01 NUMBER $0.01 ADDITIONAL OTHER RETAINED
COMPREHENSIVE OF PAR OF PAR PAID-IN COMPREHENSIVE EARNINGS
INCOME SHARES VALUE SHARES VALUE CAPITAL INCOME (DEFICIENCY) TOTAL
------------- -------- ------- --------- ------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1994 (Note 15).. $ -- 100,000 $ 1,000 5,904,042 $63,415 $ 520,303 $ -- $ (19,171) $ 565,547
Issuance of common
stock............. -- -- -- 1,157,354 7,715 2,067,858 -- -- 2,075,573
Net unrealized gain
on securities
available-for-
sale, net of tax.. 30,067 -- -- -- -- -- 30,067 -- 30,067
Tax effect of
incentive stock
options held less
than one year..... -- -- -- -- -- 5,030 -- -- 5,030
Net income for
1995.............. 479,546 -- -- -- -- -- -- 479,546 479,546
---------- -------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance at December
31, 1995............ $ 509,613 100,000 $ 1,000 7,061,396 $71,130 $2,593,191 $ 30,067 $ 460,375 $ 3,155,763
Issuance of common
stock............. -- -- -- 108,825 725 23,962 -- -- 24,687
Change in
unrealized gain on
securities
available-for-
sale, net of tax.. (6,422) -- -- -- -- -- (6,422) -- (6,422)
Tax effect of
incentive stock
options held less
than one year..... -- -- -- -- -- 2,697 -- -- 2,697
Net income for
1996.............. 1,233,789 -- -- -- -- -- -- 1,233,789 1,233,789
---------- -------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance at December
31, 1996............ $1,227,367 100,000 $ 1,000 7,170,221 $71,855 $2,619,850 $ 23,645 $ 1,694,164 $ 4,410,514
Issuance of common
stock............. -- -- -- 10,293 69 23,526 -- -- 23,595
Change in
unrealized gain on
securities
available-for-
sale, net of tax.. 30,858 -- -- -- -- -- 30,858 -- 30,858
Net income for
1997.............. 2,189,215 -- -- -- -- -- -- 2,189,215 2,189,215
---------- -------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance at December
31, 1997............ $2,220,073 100,000 $ 1,000 7,180,514 $71,924 $2,643,376 $ 54,503 $ 3,883,379 $ 6,654,182
Issuance of common
stock............. -- -- -- 65,450 536 330,381 -- -- 330,917
Change in
unrealized gain on
securities
available-for-
sale, net of tax.. (1,539) -- -- -- -- -- (1,539) -- (1,539)
Net income for
period............ 7,296,634 -- -- -- -- -- -- 7,296,634 7,296,634
---------- -------- ------- --------- ------- ---------- ---------- ----------- -----------
Balance at June 30,
1998................ $7,295,095 100,000 $ 1,000 7,245,964 $72,460 $2,973,757 $ 52,964 $11,180,013 $14,280,194
========== ======== ======= ========= ======= ========== ========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 479,546 $ 1,233,789 $ 2,189,215 $ 584,806 $ 7,296,634
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization......... 127,358 379,327 689,472 338,390 428,570
Net realized gain on
security
transactions......... (6,053) (3,895) -- -- --
Net loss on sale of
assets............... -- 1,578 9,398 (805) --
Provision for doubtful
accounts............. -- -- 114,000 -- --
Deferred income tax
(benefit) expense.... 94,131 164,927 (39,919) 71,271 272,736
Tax effect of stock
sale from stock
options held less
than one year........ 5,030 2,697 -- -- --
Write-off of licensing
costs................ 73,083 -- -- -- --
(Increase) decrease
in:
Accounts
receivable......... (759,876) 35,622 (1,215,678) (1,033,767) (508,347)
Royalty income
receivable......... -- -- -- -- (3,275,000)
Inventory, prepaid
expenses and
refundable income
taxes.............. (118,682) (88,425) (457,624) (167,895) 88,891
Interest
receivable......... (17,540) (7,616) (805) (3,356) (2,832)
Due from
shareholder........ 5,197 -- -- -- --
Unbilled services... (114,426) (6,009) 9,300 (55,390) 33,047
Increase (decrease)
in:
Accounts payable and
accrued expenses... 241,861 (14,055) 575,502 116,011 2,606,746
Customer deposits... 135,000 30,000 37,293 17,300 (20,000)
Unearned income..... 70,623 44,754 76,631 182,595 297,543
Income taxes
payable............ -- 338,684 (338,684) (92,287) 1,780,233
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities............. 215,252 2,111,378 1,648,101 (43,127) 8,998,221
----------- ----------- ----------- ---------- -----------
INVESTING ACTIVITIES
(Increase) decrease in
certificate of
deposit.............. (51,080) (1,472) 52,551 -- --
Purchases of
investment
securities........... (3,040,166) (274,146) (163,216) (160,578) (2,727)
Proceeds from sales of
investment
securities........... 1,183,303 445,467 -- -- --
Purchases of property
and equipment........ (1,204,907) (2,596,060) (869,954) (389,849) (5,772,161)
Proceeds from sale of
equipment............ -- 1,500 4,265 1,500 --
Payments for
deposits............. (1,022) -- -- -- --
Purchase of customer
list................. -- -- -- -- (118,000)
Payments for
organizational
costs................ -- -- -- -- (4,650)
Payments for patent
application costs.... (97,518) (39,185) (85,146) (30,890) (33,507)
----------- ----------- ----------- ---------- -----------
Net cash used in invest-
ing activities......... (3,211,390) (2,463,896) (1,061,500) (579,817) (5,931,045)
----------- ----------- ----------- ---------- -----------
</TABLE>
F-6
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ----------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Principal payments on
long-term debt and
notes payable........ $ (83,090) $(2,163,883) $ (604,683) $ (226,591) $(1,986,897)
Principal payments
under capital lease
obligations.......... (4,771) (3,478) (3,550) (1,736) (1,256)
Proceeds from
borrowings under
long-term debt and
notes payable........ 1,000,000 3,720,000 -- -- 5,000,000
Payment for deferred
financing costs...... (1,750) -- -- -- --
Disbursements on notes
receivable........... -- -- -- -- (100,000)
Proceeds from sale of
common stock......... 2,075,573 24,687 23,595 22,292 330,917
---------- ----------- ---------- ---------- -----------
Net cash provided by
(used in) financing
activities............. 2,985,962 1,577,326 (584,638) (206,035) 3,242,764
---------- ----------- ---------- ---------- -----------
Increase (decrease) in
cash and cash
equivalents............ (10,176) 1,224,808 1,963 (828,979) 6,309,940
Cash and cash
equivalents at
beginning of period.... 44,923 34,747 1,259,555 1,259,555 1,261,518
---------- ----------- ---------- ---------- -----------
Cash and cash
equivalents at end of
period................. $ 34,747 $ 1,259,555 $1,261,518 $ 430,576 $ 7,571,458
========== =========== ========== ========== ===========
NONCASH ITEMS:
Common stock issued
for purchase of
customer list........ $ -- $ -- $ -- $ -- $ 100,000
Common stock issued
for relocation
incentive............ $ -- $ -- $ -- $ -- $ 200,000
Property acquired
under capital lease.. $ 10,059 $ -- $ -- $ -- $ --
Increase (decrease) in
net unrealized gain
on securities
available-for-sale,
net of tax........... $ 30,067 $ (6,422) $ 30,858 $ (3,993) $ (1,539)
ADDITIONAL DISCLOSURES
RELATIVE TO CASH FLOWS:
Interest paid......... $ 53,882 $ 120,058 $ 175,616 $ 82,442 $ 93,284
Income taxes paid..... $ 153,643 $ 91,800 $1,637,921 $ 355,721 $ 1,946,012
Depreciation expense.. $ 124,395 $ 368,738 $ 684,909 $ 336,109 $ 416,549
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is an integrated chemistry outsourcing company that offers a
broad range of chemistry research and development services to pharmaceutical
and biotechnology companies involved in drug discovery and development. The
Company offers services traditionally provided by the chemistry divisions
within pharmaceutical companies, including medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing. In
addition to these contract services, the Company conducts a limited amount of
proprietary research and development.
Basis of Consolidation
The consolidated financial statements include the accounts of Albany
Molecular Research, Inc. and its wholly-owned subsidiary, Albany Molecular
Research Export, Inc. (formed in April 1998). All intercompany balances and
transactions have been eliminated during consolidation.
Use of Management 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 and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results can vary from these estimates.
Revenue Recognition
The Company recognizes net revenue from its fixed fee type contracts on a
percentage-of-completion basis, and other types of contracts on a per diem
basis as work is performed. In general, provisions include predetermined
payment schedules, or the submission of appropriate billing detail
establishing prerequisites for billings. Unbilled services arise when services
have been rendered under these contracts but customers have not been billed.
Similarly, unearned income represents prebilling for services that have not
yet been billed. Any losses on contracts are recorded when they are
determinable and estimable.
The Company recognizes revenue from licensing fees, milestones and royalties
when the earnings process has been deemed completed and any uncertainties
regarding potential revenue have been resolved.
Credit Risk
The Company provides credit in the normal course of business to its
customers, substantially all of which are in the pharmaceutical and
biotechnology industries. To reduce credit risk, the Company generally
requires advance payments on contracts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and consist primarily of organic chemicals used as raw
materials in the production process.
F-8
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over their estimated lives, generally three to seven years. The
Company utilizes accelerated depreciation methods for tax purposes over the
minimum statutory period allowed.
Organization Costs
Organization costs are amortized over 60 months.
Patents and Patent Application Costs
The costs of patents issued and acquired are being amortized on the
straight-line method over the estimated remaining lives of the issued patents,
generally 17 years. Patent application and processing costs are capitalized
and will be amortized over the estimated life once a patent is acquired or
expensed in the period the patent application is denied.
Licensing Rights
The costs of licensing rights are being amortized on the straight-line
method over the term of the license agreement, but not in excess of fifteen
years. Licensing costs are accumulated and amortized once the license
agreement is executed. Licensing costs are written off in the period the
licensing rights are canceled or are determined not to provide future
benefits.
Deferred Financing Costs
The costs of acquiring long-term debt obligations are being amortized on the
straight-line method over the term of the obligation, ranging from five to
seven years.
Research and Development
Research and development costs are charged to operations when incurred and
are included in operating expenses.
Income Taxes
The Company applies the asset/liability method of accounting for income
taxes, in which deferred income taxes are recognized for the tax consequences
of temporary differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Investments
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Marketable investment securities
at December 31, 1997 consisted of state and political subdivision obligations,
corporate debt obligations, and bond mutual funds, with the Company holding
all of these securities as available-for-sale.
F-9
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
Unrealized holding gains and losses, net of related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of shareholders' equity until realized. Interest income is
recognized when earned. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are determined using the
specific identification method.
Interim Financial Data (unaudited)
The interim financial data for the six months ended June 30, 1997 and 1998
included in the accompanying financial statements is unaudited; however, in
the opinion of the Company, the interim financial data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The interim financial
data are not necessarily indicative of the results of operations for a full
fiscal year.
Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." The statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income includes the
reported net income of a company adjusted for items that are currently
accounted for as direct entries to equity, such as the mark-to-market
adjustment on securities available for sale, foreign currency items and
minimum pension liability adjustments. In the case of the Company,
comprehensive income represents net income plus other comprehensive income,
which consists of the net change in unrealized gains and losses on securities
available for sale for the period. Accumulated other comprehensive income
represents the net unrealized gain on securities available-for-sale as of the
balance sheet dates. All periods for which the Company has presented financial
information contain the prescribed disclosures.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the presentation in the 1997 financial statements.
Preferred Stock
The Company's preferred stock is convertible in connection with and subject
to an initial public offering by the Company at ten preferred shares to three
common shares. For purposes of diluted earnings per share calculations, all
preferred shares are assumed converted to their common stock equivalents.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting by public companies
about operating segments of their business. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This Statement is effective for periods beginning
after December 15, 1997. Management does not anticipate that the adoption of
this Statement will have a material effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
F-10
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
derivative instruments embedded in other contracts, and for hedging
activities. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management does not anticipate that the
adoption of this Statement will have a material effect on the Company's
financial statements.
In 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities (SOP 98-5). SOP 98-5 requires that the costs of start-up activities
including organizational costs, be expensed as incurred. SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998.
Management does not anticipate that the adoption of this Statement will have a
material effect on the Company's financial statements.
2. LEASE COMMITMENTS
The Company has a long-term operating lease for its office and laboratory
facilities with a shareholder of the Company. The present lease commenced in
December 1997 and expires in November 2007, with average monthly rental
payments of $23,000. The lease contains a ten-year renewal option with six
months' prior notice. The Company currently holds an option to purchase the
property for $3.5 million. The Company is responsible for paying for the cost
of utilities, operating costs, and property taxes.
The Company also leases laboratory facilities under a separate agreement
with a non-related party that expires June 2001 at a monthly rate of $15,000.
Minimum future payments under noncancelable operating leases as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998......................................................... $ 409,687
1999......................................................... 465,103
2000......................................................... 464,488
2001......................................................... 373,670
2002......................................................... 283,652
Thereafter................................................... 1,353,435
----------
Total minimum future lease payments.......................... $3,350,035
==========
</TABLE>
Rental expense amounted to approximately $93,000, $173,000 and $240,000
during 1995, 1996 and 1997, respectively, and $126,000 and $319,000, for the
six months ended June 30, 1997 and 1998, respectively.
F-11
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
3. LONG-TERM DEBT
Long-term debt is comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
JUNE 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revolving line of credit from a bank with a
total commitment of $15 million.The revolving
line of credit will convert to a five year
term loan in July 2001. Interest on the
credit facility is payable monthly at either
the bank's prime rate less 200 basis points
or the London Interbank Offer Rate (LIBOR)
plus 50 basis points (the interest rate on
the credit facility was 6.5% at June 30,
1998). Principal payments are due after the
facilities' conversion to the term loan...... $ -- $ -- $5,000,000
Note payable to a bank in monthly installments
of $29,762, through October 2003, plus
interest at LIBOR plus 1.75% (7.44% at
December 31, 1997) .......................... 2,440,478 1,933,333 --
Note payable to the New York Job Development
Authority in monthly installments of $4,747
including interest at 5.25%, through June 1,
2001......................................... 227,841 181,747 157,779
Subordinated note payable to the Albany Local
Development Corporation in monthly
installments of $2,970 including interest at
7.00%, through December 1, 2000.............. 124,035 96,194 79,032
Subordinated note payable to the Albany Local
Development Corporation in monthly
installments of $2,115 including interest at
7.00%, through June 1, 1998.................. 36,037 12,434 --
---------- ---------- ----------
Total long-term debt.......................... 2,828,391 2,223,708 5,236,811
Less payments due within one year............. 454,683 448,005 78,283
---------- ---------- ----------
Total long-term debt, net..................... $2,373,708 $1,775,703 $5,158,528
========== ========== ==========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997 and thereafter, are as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 448,005
1999.......................................................... 440,341
2000.......................................................... 445,409
2001.......................................................... 385,191
2002.......................................................... 357,143
Thereafter.................................................... 147,619
----------
Total long-term debt........................................ $2,223,708
==========
</TABLE>
In connection with the above bank notes, the Company has entered into a
general security agreement in which all assets now owned and hereafter
acquired by the Company collateralize the notes.
4. NOTE PAYABLE
The Company maintained a line of credit from a bank with unused borrowing
capacity of $500,000 at December 31, 1997. The line is collateralized by a
first security interest in all accounts receivable and inventory. Interest is
payable monthly at LIBOR, plus 1.75% (7.44% at December 31, 1997). Borrowings
under the line of credit are payable on demand.
F-12
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
5. INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale securities by major security type at December 31,
1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions.... $1,619,987 $39,409 $ -- $1,659,396
Bond mutual funds.......... 75,503 -- -- 75,503
---------- ------- ------- ----------
$1,695,490 $39,409 $ -- $1,734,899
========== ======= ======= ==========
</TABLE>
Proceeds from the sale of investment securities were $1,183,303 and $445,467
in 1995 and 1996, respectively, resulting in realized gains of $6,053 and
$3,895 for the years then ended.
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale securities by major security type at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions.... $1,619,987 $88,726 $ -- $1,708,713
Corporate debt
obligations............... 158,073 2,113 -- 160,186
Bond mutual funds.......... 80,647 -- -- 80,647
---------- ------- ------- ----------
$1,858,707 $90,839 $ -- $1,949,546
========== ======= ======= ==========
</TABLE>
There were no sales of available-for-sale securities during 1997.
Maturities of debt securities classified as available-for-sale at December
31, 1997 were as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due after one year through five years............. $ 611,598 $ 631,857
Due after five years through ten years............ 770,097 812,375
Due after ten years............................... 396,365 424,667
---------- ----------
Total debt securities............................. $1,778,060 $1,868,899
========== ==========
</TABLE>
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale securities by major security type at June 30, 1998
were as follows:
<TABLE>
<CAPTION>
GROSS
GROSS UNREALIZED
AMORTIZED UNREALIZED HOLDING
COST HOLDING GAINS LOSSES FAIR VALUE
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions........ $1,619,987 $87,296 $ -- $1,707,283
Corporate debt obligations..... 158,073 977 -- 159,050
Bond mutual funds.............. 83,375 -- -- 83,375
---------- ------- ------- ----------
$1,861,435 $88,273 $ -- $1,949,708
========== ======= ======= ==========
</TABLE>
There were no sales of investment securities during the six month period
ended June 30, 1997 and 1998.
F-13
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
6. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -------------------
1995 1996 1997 1997 1998
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Current:
Federal...................... $146,692 $437,800 $ 916,288 $246,469 $3,832,502
State........................ 11,982 34,749 70,572 16,965 208,860
-------- -------- --------- -------- ----------
158,674 472,549 986,860 263,434 4,041,362
-------- -------- --------- -------- ----------
Deferred:
Federal...................... 94,131 159,052 102,117 59,685 35,956
State........................ -- 5,875 (142,036) 11,586 237,780
-------- -------- --------- -------- ----------
94,131 164,927 (39,919) 71,271 273,736
-------- -------- --------- -------- ----------
Total income tax expense..... $252,805 $637,476 $ 946,941 $334,705 $4,315,098
======== ======== ========= ======== ==========
</TABLE>
The differences between the income tax expense and income taxes computed
using a federal statutory rate of 34% for the years ended December 31, 1995,
1996, and 1997, and for the six months ended June 30, 1997, and 35% for the
six months ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------ --------------------
1995 1996 1997 1997 1998
-------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Amount computed using
statutory rate......... $248,999 $636,230 $1,066,293 $312,633 $4,064,106
Increase (reduction) in
taxes resulting from:
Tax-free interest
income............... (23,254) (31,940) (30,171) (15,015) (14,945)
Alternative minimum
tax.................. 5,785 (5,540) -- -- --
State taxes, net of
federal benefit...... 7,668 22,914 46,577 11,197 137,848
State investment tax
credits.............. -- -- (161,858) -- 151,800
Others, net........... 13,607 15,812 26,100 25,890 (23,711)
-------- -------- ---------- -------- ----------
Total income tax
expense.............. $252,805 $637,476 $ 946,941 $334,705 $4,315,098
======== ======== ========== ======== ==========
</TABLE>
Temporary differences giving rise to the Company's deferred tax liability
consist primarily of the excess of depreciation for tax purposes over the
amount for financial reporting purposes.
The Company had available New York State investment tax credits of
approximately $68,000 and $230,000, at December 31, 1996 and 1997,
respectively. These credits have a ten-year carryforward period, with
expiration dates ranging from 2002 to 2007.
At December 31, 1997, the Company had recorded a deferred tax asset of
approximately $230,000; representing New York State investment tax credits.
The estimated annual effective tax rate for the six months ended June 30, 1998
includes the anticipated realization of these tax credits.
F-14
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
7. EMPLOYEE BENEFIT PLAN
The Company maintains a savings and profit sharing plan under section 401(k)
of the Internal Revenue Code covering all eligible employees. Employees must
complete six months of service and be over 20 1/2 years of age as of the
plan's entry dates. Participants may contribute up to 15% of their
compensation, limited to $9,500 per annum in 1997. The Company makes matching
contributions equal to 25% of the participant's contributions (up to a limit
of 4% of the participant's compensation). In addition, the Company has
reserved the right to make discretionary profit sharing contributions to
employee accounts. Employer matching contributions vest at a rate of 20% per
year beginning after 2 years of participation in the plan. Employer matching
contributions were $8,000, $10,000 and $21,000 for the years ended December
31, 1995, 1996 and 1997, respectively. Employer matching contributions were
$9,000 and $17,000, for the six months ended June 30, 1997 and 1998,
respectively.
8. STOCK OPTION PLAN
The Company has a 1992 Stock Option Plan, through which the Company may
issue incentive stock options or non-qualified stock options. Incentive stock
options granted to employees may be granted at prices not less than 100
percent of the fair market value at the date of option grant. Non-qualified
stock options may be granted to employees, directors, advisors, consultants
and other key persons of the Company at prices established at the date of
grant, and may be less than the fair market value at the date of grant. All
incentive stock options may be exercised at any time, after vesting, over a
ten-year period subsequent to the date of grant. Non-qualified stock option
terms will be established at the date of grant, but shall have a duration of
not more than ten years.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997: no dividend yield for all
years; zero expected volatility for all years; risk-free interest rates of
5.69%, 6.80%, and 6.80%, respectively, and expected lives of five years and
four years for the incentive options for all years and three years and four
years for the non-qualified options for all years.
The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees" in accounting for its incentive and non-qualified stock
compensation plan. Accordingly, no compensation cost has been recognized for
either plan in 1995, 1996 or 1997. Had compensation cost been determined on
the basis of fair value pursuant to Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," net income would
have been reduced as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
NET INCOME
As reported................................... $479,546 $1,233,789 $2,189,215
======== ========== ==========
Pro forma..................................... $459,057 $1,208,938 $2,146,820
======== ========== ==========
EARNINGS PER SHARE
Basic as reported............................. $ 0.07 $ 0.17 $ 0.31
Diluted as reported........................... $ 0.06 $ 0.16 $ 0.28
Basic pro forma............................... $ 0.07 $ 0.17 $ 0.30
Diluted pro forma............................. $ 0.06 $ 0.16 $ 0.27
</TABLE>
F-15
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
Following is a summary of the status of incentive and non-qualified options
during 1995, 1996, and 1997:
<TABLE>
<CAPTION>
INCENTIVE NON-QUALIFIED
------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995......... 614,250 $0.31 435,000 $3.23
Granted.............................. 72,000 2.75 45,000 2.75
Exercised............................ (30,000) 0.16 -- --
Forfeited............................ -- -- -- --
-------- ----- ------- -----
Outstanding at December 31, 1995....... 656,250 $0.58 480,000 $3.19
======== ===== ======= =====
Options exercisable at December 31,
1995.................................. 404,250 $0.34 435,000 $3.23
======== ===== ======= =====
<CAPTION>
INCENTIVE NON-QUALIFIED
------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996......... 656,250 $0.58 480,000 $3.19
Granted.............................. 63,750 3.45 11,250 3.27
Exercised............................ (108,825) 0.23 -- --
Forfeited............................ -- -- -- --
-------- ----- ------- -----
Outstanding at December 31, 1996....... 611,175 $0.58 491,250 $3.19
======== ===== ======= =====
Options exercisable at December 31,
1996.................................. 475,425 $0.33 435,000 $3.23
======== ===== ======= =====
<CAPTION>
INCENTIVE NON-QUALIFIED
------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997......... 611,175 $0.58 491,250 $3.19
Granted.............................. 240,807 4.99 52,293 4.92
Exercised............................ (5,861) 0.44 -- --
Forfeited............................ (15,000) 4.48 -- --
-------- ----- ------- -----
Outstanding at December 31, 1997....... 831,121 $2.07 543,543 $3.35
======== ===== ======= =====
Options exercisable at December 31,
1997.................................. 541,565 $0.65 435,000 $3.00
======== ===== ======= =====
</TABLE>
F-16
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
Following is a summary of the status of employee incentive options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
----------- ------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.165 - 0.33 408,750 5.22 years $0.25 408,750 $ 0.25
0.83 60,814 5.83 years 0.83 60,814 0.83
2.73 - 3.24 105,750 7.81 years 2.80 72,000 2.75
4.44 - 5.21 255,807 9.51 years 4.97 -- --
</TABLE>
The Company estimates that based on a five-year vesting period at December
31, 1997, on a weighted average basis, approximately 87% of such options will
eventually vest.
Following is a summary of the status of non-qualified options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
----------- ------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.33 15,000 1.52 years $0.33 15,000 $ 0.33
2.75 - 3.33 476,250 5.52 years 3.28 420,000 3.33
4.59 - 5.27 52,293 9.40 years 4.92 -- --
</TABLE>
The Company estimates that based on a three-year vesting period at December
31, 1997, on a weighted average basis, approximately 77% of such options will
eventually vest.
Any options issued to non-employees are expensed based upon the fair value
of the options.
9. ROYALTY & LICENSING ARRANGEMENT
On March 15, 1995, the Company entered into a License Agreement and a Stock
Purchase Agreement with Marion Merrell Dow Inc., now known as Hoechst Marion
Roussel, Inc. ("HMR"). Under the terms of the Stock Purchase Agreement, the
Company sold 1,084,821 shares of the Company's Common Stock to HMR for
$2.0 million. Under the terms of the License Agreement, the Company granted
HMR an exclusive, worldwide license, with the right to grant sublicenses, upon
the prior written consent of the Company, to any patents issued to the Company
related to its original terfenadine carboxylic acid metabolite patent
application. Terfenadine carboxylic acid metabolite is the active ingredient
in the new non-sedating antihistamine fexofenadine HCl, marketed as a
prescription medicine by HMR. In return for the license, HMR agreed to pay the
Company up to $6.5 million based upon the achievement of five patenting
milestones and future royalties based on sales of fexofenadine HCl. The five
patenting milestones consist of:
.Issuance of a U.S. "Intermediate Process Claim";
.Issuance of a U.S. "Process Manufacturing Claim";
.Issuance of an ex-U.S. "Process Manufacturing Claim";
.Issuance of a U.S. "Substantially Pure Claim"; and
.Issuance of an ex-U.S. "Substantially Pure Claim".
F-17
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
In October 1996, the Company was awarded a patent in Australia that
satisfied the ex-U.S. "Process Manufacturing Claim" milestone. In accordance
with the terms of the Agreement, the Company received a milestone payment and
will receive a royalty on all sales of fexofenadine HCl in that country. HMR
began selling a product using fexofenadine HCl in January, 1997 in Australia.
In November 1996, the Company was awarded a U.S. patent that satisfied the
U.S. "Substantially Pure Claim." However, under the terms of the Agreement,
HMR had the right to institute action to provoke an interference claim and,
upon successfully doing so, was not obligated to pay any milestones or
royalties until, and if, the interference was resolved in favor of the
Company. In February 1998, the United States Patent and Trademark Office
("PTO") Board of Patent Appeals and Interferences rendered a decision that the
Company was first to make the invention and confirming that the Company was
properly awarded the aforementioned patent. Accordingly, in the first six
months of 1998, the Company received and recognized the associated milestone
payment and royalties on all sales of fexofenadine HCl (Allegra) in the United
States from November 26, 1996 through December 31, 1997, as stipulated in the
Agreement. The total payment was $6.3 million. Because of the decision that
the Company was first to make the invention, the Company will be entitled to
receive royalties on all sales of fexofenadine HCl in the United States.
In December 1996, the PTO informed the Company that the Company's patent
application containing a U.S. "Process Manufacturing Claim" was in
interference with a patent application of HMR. In May 1997, the PTO Board of
Patent Appeals and Interferences rendered a decision that the Company was
first to make the invention. Under the terms of the Agreement, no milestones
or royalties are due to the Company until a patent issued. Under the
procedures of the PTO, a patent is not issued until the PTO publishes it. The
patent was published in May 1998. Upon the patent publication, the Company was
entitled to and did receive the milestone payment for a U.S. "Process
Manufacturing Claim." Additionally, the Company is entitled to receive a
royalty on worldwide "Sales" of fexofenadine HCl from the date of patent
issuance until expiration of the patent. In January 1997, the Company was
awarded a patent that satisfied the U.S. "Intermediate Process Claim"
milestone. In accordance with the terms of the Agreement, the Company received
a milestone payment. There are no royalties associated with this patent.
In July 1997, the Company was awarded a New Zealand patent that satisfied
the ex-U.S. "Substantially Pure Claim" milestone. In accordance with the terms
of the Agreement, the Company received a milestone payment and will receive
royalties on all sales of fexofenadine HCl in that country.
10. CONCENTRATION OF BUSINESS
For the years ended December 31, 1997, 1996 and 1995, net contract revenue
from the Company's three largest customers represented approximately 29%, 11%
and 9% for 1997, 34%, 9% and 9% for 1996, and 42%, 14% and 8% for 1995, of
total net contract revenue for such year, respectively. For the six months
ended June 30, 1998, net contract revenue from the Company's three largest
customers represented approximately 16%, 16% and 13% of total net contract
revenues, respectively. In the majority of circumstances, there are agreements
in force with these entities that guarantee the Company's continued
involvement in present research projects. However, there regularly exists the
possibility that the Company will have no further association with these
entities once these projects conclude.
11. TECHNOLOGY DEVELOPMENT INCENTIVE PLAN
In 1993, the Company adopted a Technology Development Incentive Plan to
provide a method to stimulate and encourage novel innovative technology
development. To be eligible to participate, the individual must be an
F-18
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
employee of the Company and must be the inventor or co-inventor of novel
technology that results in new revenues generated for, or by, the Company.
Eligible participants will share in awards based on ten percent (10%) of the
"Net Technology Revenue," as defined by the Plan.
In 1995, 1996 and 1997, the Company awarded Technology Incentive
Compensation to the inventor of the terfenadine carboxylic acid metabolite
technology. The inventor is a director, officer and shareholder of the
Company.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the financial
instruments is made in accordance with the requirements of Statement of
Financial Standards No. 107 "Fair Value of Financial Instruments." Although
the estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies,
estimates presented are not necessarily indicative of the amounts that the
Company could realize in current market exchanges.
The Company is estimating its fair value disclosures for financial
instruments used the following methods and assumptions:
Cash and short-term investments, receivables, and accounts payable: The
carrying amounts reported in the consolidated balance sheets approximate their
fair value.
Available-for-sale securities and other investments: The fair value of all
securities and investments are estimated from market prices (see Note 5).
The carrying value of long-term debt including current portion, was
approximately $2,828,389 and $2,223,708 at December 31, 1996 and 1997,
respectively, and $5,236,811 at June 30, 1998 while the estimated fair value
was $2,811,378 and $2,208,293 at December 31, 1996 and 1997, respectively, and
$5,234,030 at June 30, 1998 based upon interest rates available to the Company
for issuance of similar debt with similar terms and remaining maturities.
13. EARNINGS PER SHARE
The following table reconciles basic and diluted earnings per share
calculations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1996
------------------------------ ------------------------------
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
share.................. $479,546 6,841,844 $0.07 $1,233,789 7,137,476 $0.17
Dilutive effect of stock
options and grants..... -- 507,773 -- -- 543,057 --
Dilutive effect of
assumed preferred stock
conversion............. -- 30,000 -- -- 30,000 --
-------- --------- ----- ---------- --------- -----
Diluted earnings per
share.................. $479,546 7,379,617 $0.06 $1,233,789 7,710,533 $0.16
======== ========= ===== ========== ========= =====
</TABLE>
F-19
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
Not included in the December 31, 1995 shares above were 537,000 shares that
were anti-dilutive for earnings per share purposes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------
AVERAGE PER SHARE
NET INCOME SHARES AMOUNT
---------- --------- ---------
<S> <C> <C> <C>
Basic earnings per share.................... $2,189,215 7,173,884 $0.31
Dilutive effect of stock options and
grants..................................... -- 658,689 --
Dilutive effect of assumed preferred stock
conversion................................. -- 30,000 --
---------- --------- -----
Diluted earnings per share.................. $2,189,215 7,862,573 $0.28
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 SIX MONTHS ENDED JUNE 30, 1998
------------------------------ ------------------------------
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
share.................. $584,806 7,170,925 $0.08 $7,296,634 7,201,459 $1.01
Dilutive effect of stock
options and grants..... -- 640,426 -- -- 865,168 --
Dilutive effect of
assumed preferred stock
conversion............. -- 30,000 -- -- 30,000 --
-------- --------- ----- ---------- --------- -----
Diluted earnings per
share.................. $584,806 7,841,351 $0.07 $7,296,634 8,096,627 $0.90
======== ========= ===== ========== ========= =====
</TABLE>
14. NOTES RECEIVABLE
The notes receivable represents advances to two senior officers of the
Company. The notes receivable and accrued interest will not be repaid provided
the officers remain in the employ of the Company. If employment is terminated
within the five year amortization period, a pro-rata portion of the principal
and interest shall be repayable to the Company.
15. SUBSEQUENT EVENTS
On July 7, 1998, the Board of Directors declared a 3-for-2 split of the
Company's common stock to be effected in connection with the offering. The
accompanying financial statements have been adjusted to give effect to the
stock split as if it had occurred on December 31, 1994.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 25
Management............................................................... 37
Certain Transactions..................................................... 45
Principal Stockholders................................................... 46
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,200,000 SHARES
[ALBANY MOLECULAR RESEARCH, INC. LOGO APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
ING BARING FURMAN SELZ LLC
HAMBRECHT & QUIST
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- -----------
<S> <C>
SEC Registration Fee............................................ $ 12,688
NASD Filing Fee................................................. 4,801
Nasdaq Listing Fee.............................................. 70,625
Accounting Fees and Expenses.................................... 200,000
Legal Fees and Expenses......................................... 450,000
Printing Expenses............................................... 150,000
Blue Sky Qualification Fees and Expenses........................ 10,000
Transfer Agent's Fee............................................ 25,000
Miscellaneous................................................... 76,886
-----------
TOTAL......................................................... $ 1,000,000
===========
</TABLE>
- ----------
(1) The amounts set forth above, except for the SEC, NASD and Nasdaq fees, are
in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, Article VII of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the director derived an improper personal
benefit. In addition, the Certificate provides that if the Delaware General
Corporation Law is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Article V of the Company's Amended and Restated By-laws provides for
indemnification by the Company of its officers and certain non-officer
employees under certain circumstances against expenses (including attorneys
fees, judgments, fines and amounts paid in settlement) reasonably incurred in
connection with the defense or settlement of any threatened, pending or
completed legal proceeding in which any such person is involved by reason of
the fact that such person is or was an officer or employee of the Company if
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to criminal actions or proceedings, if such person had no reasonable
cause to believe his or her conduct was unlawful.
The Company has entered into indemnification agreements with each of its
directors reflecting the provisions of its By-laws and requiring the
advancement of expenses in proceedings involving such directors in most
circumstances.
Under Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto,
the Underwriters have agreed to indemnify, under certain conditions, the
Company, its directors, certain officers and persons who control the Company
within the meaning of the Securities Act against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by the Registrant for the past three years
beginning in July 1995. Further included is the consideration, if any,
received by the Registrant for such shares, and information relating to the
section of the Securities Act of 1933, as amended (the "Securities Act"), or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed. The following transactions give effect to the
Company's 3-for-2 stock split of its Common Stock, which will become effective
in August 1998.
(1) In August 1995, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 72,000 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(2) In October 1995, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 45,000 shares of
the Registrant's Common Stock to directors of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(3) In February 1996, the Registrant issued 52,500 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $11,550 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(4) In May 1996, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 45,000 shares of
the Registrant's Common Stock to employees and directors of the
Registrant in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
(5) In May 1996, the Registrant issued 30,075 shares of the Registrant's
Common Stock upon the exercise of outstanding stock options for an
aggregate exercise price of $5,063 to employees of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(6) In July 1996, the Registrant issued 22,500 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $4,950 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(7) In July 1996, the Registrant issued 3,750 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $3,125 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(8) In October 1996, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 15,000 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(9) In December 1996, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 15,000 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(10) In January 1997, pursuant to stock option agreements, the Registrant
granted options to purchase an aggregate of 22,743 shares of the
Registrant's Common Stock to employees of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(11) In January 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 56,232 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
II-2
<PAGE>
(12) In January 1997, the Registrant issued 75 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $63 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(13) In February 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 15,000 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(14) In April 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 11,250 shares of
the Registrant's Common Stock to directors of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(15) In May 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 45,000 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(16) In May 1997, the Registrant issued 1,435 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $1,196 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(17) In June 1997, the Registrant granted an aggregate of 4,431 shares of the
Registrant's Common Stock to directors of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(18) In July 1997, the Registrant issued 600 shares of the Registrant's Common
Stock upon the exercise of an outstanding stock option for an aggregate
exercise price of $500 to an employee of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(19) In September 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase 15,000 shares of the Registrant's
Common Stock to an employee of the Registrant in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
(20) In December 1997, pursuant to stock option agreements, the Registrant
granted options to purchase an aggregate of 18,300 shares of the
Registrant's Common Stock to employees of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(21) In December 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 109,575 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(22) In December 1997, the Registrant issued 3,750 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $825 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(23) In February 1998, the Registrant issued 4,500 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $990 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(24) In February 1998, the Registrant issued 3,825 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $638 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(25) In March 1998, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 22,500 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
II-3
<PAGE>
(26) In March 1998, the Registrant issued 1,251 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $3,444 to the estate of a former director of
the Registrant in reliance upon the exemption from registration under
Rule 701 promulgated under the Securities Act.
(27) In March 1998, the Registrant issued 3,450 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $575 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(28) In March 1998, the Registrant issued 15,000 shares of the Registrant's
Common Stock to Hoffman Enterprises, the Registrant's landlord, as
partial reimbursement for expenses incurred by Hoffman Enterprises in
relocating other tenants in order to facilitate the Company's expansion
in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
(29) In March 1998, the Registrant issued 7,500 shares of the Registrant's
Common Stock to Michael J. Sherrod in consideration of his interest in
his regulatory consulting business in reliance upon the exemption from
registration under Section 4(2) of the Securities Act.
(30) In April 1998, the Registrant issued 17,400 shares of the Registrant's
Common Stock upon the exercise of outstanding stock options for an
aggregate exercise price of $5,300 to employees of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(31) In May 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase 3,750 shares of the Registrant's
Common Stock to a director of the Registrant in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
(32) In May 1998, the Registrant issued 6,000 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $16,520 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(33) In June 1998, the Registrant issued 6,000 shares of the Registrant's
Common Stock upon the exercise of outstanding stock options for an
aggregate exercise price of $2,240 to employees of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(34) In June 1998, the Registrant granted 525 shares of the Registrant's
Common Stock to a director of the Registrant in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
(35) In July 1998, the Registrant issued 15,000 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $5,000 to a consultant of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation (to be filed
immediately prior to effectiveness of the Registration Statement).
3.3 Form of Restated Certificate of Incorporation (to be filed following the
closing of the offering referred to in the Registration Statement).
3.4 By-Laws.
3.5 Form of Amended and Restated By-laws (to be effective upon effectiveness
of the Registration Statement).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
*4.1 Specimen certificate for shares of Common Stock, $0.01 par value, of
the Registrant.
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the
securities being offered.
*10.1 Lease dated as of October 9, 1992 by and between the Registrant and
Hoffman Enterprises.
*10.2 1998 Stock Option and Incentive Plan of the Registrant.
10.3 Amended and Restated 1992 Stock Option Plan of the Registrant.
10.4 1998 Employee Stock Purchase Plan of the Registrant.
10.5 Form of Indemnification Agreement between the Registrant and each of
its directors.
10.6 Form of Employee Incentive Stock Option Certificate and Agreement for
Amended and Restated 1992 Stock Option Plan.
+10.7 License Agreement dated March 15, 1995 by and between the Registrant
and Marion Merrell Dow Inc. (now Hoechst Marion Roussel, Inc.)
(excluding certain portions which have been omitted as indicated based
upon a request for confidential treatment, but which have been filed
separately with the Commission).
+10.8 Principles of Cooperation Between Albany Molecular Research and Cambrex
Corporation dated February 1, 1997 by and between the Registrant and
Cambrex Corporation (excluding certain portions which have been omitted
as indicated based upon a request for confidential treatment, but which
have been filed separately with the Commission).
+10.9 Agreement dated December 16, 1997 by and between the Registrant and Eli
Lilly and Company (excluding certain portions which have been omitted
as indicated based upon a request for confidential treatment, but which
have been filed separately with the Commission).
10.10 Technology Development Incentive Plan.
*10.11 Form of Employment Agreement between the Registrant and Thomas E.
D'Ambra, Ph.D.
*10.12 Form of Employment Agreement between the Registrant and Harold M.
Armstrong, Jr.
*10.13 Form of Employment Agreement between the Registrant and Harold Meckler,
Ph.D.
*10.14 Form of Employment Agreement between the Registrant and Michael P.
Trova, Ph.D.
*10.15 Form of Employment Innovation, Proprietary Information and Post-
Employment Activity Agreement between the Registrant and each of its
Named Executive Officers.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
hereto).
23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of
+24.1 Powers of Attorney (included on pages II-4).
27.1 Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment to this Registration Statement.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because the
required information is given in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF ALBANY, STATE OF NEW YORK, ON AUGUST 14, 1998.
Albany Molecular Research, Inc.
/s/ Thomas E. D'Ambra, Ph.D.
By: _________________________________
Thomas E. D'Ambra, Ph.D.
Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE DATE
/s/ Thomas E. D'Ambra, Ph.D. Chairman of the August 14, 1998
- ------------------------------------- Board, Chief
THOMAS E. D'AMBRA, PH.D. Executive Officer
and Director
(Principal
Executive Officer)
* President and August 14, 1998
- ------------------------------------- Director
DONALD E. KUHLA, PH.D.
/s/ Harold M. Armstrong, Jr. Executive Vice August 14, 1998
- ------------------------------------- President, Chief
HAROLD M. ARMSTRONG, JR. Financial Officer,
Secretary,
Treasurer and
Director (Principal
Accounting Officer)
* Vice President, August 14, 1998
- ------------------------------------- Senior Research
CHESTER J. OPALKA Chemist and
Director
* Director August 14, 1998
- -------------------------------------
ANTHONY P. TARTAGLIA, M.D.
*By:/s/ Thomas E. D'Ambra, Ph.D.
----------------------------------
THOMAS E. D'AMBRA, PH.D.
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation (to be
filed immediately prior to effectiveness of the Registration
Statement).
3.3 Form of Restated Certificate of Incorporation (to be filed
following the closing of the offering referred to in the
Registration Statement).
3.4 By-Laws.
3.5 Form of Amended and Restated By-laws (to be effective upon
effectiveness of the Registration Statement).
*4.1 Specimen certificate for shares of Common Stock, $0.01 par
value, of the Registrant.
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the
securities being offered.
*10.1 Lease dated as of October 9, 1992 by and between the Registrant
and Hoffman Enterprises.
*10.2 1998 Stock Option and Incentive Plan of the Registrant.
10.3 Amended and Restated 1992 Stock Option Plan of the Registrant.
10.4 1998 Employee Stock Purchase Plan of the Registrant.
10.5 Form of Indemnification Agreement between the Registrant and
each of its directors.
10.6 Form of Employee Incentive Stock Option Certificate and
Agreement for Amended and Restated 1992 Stock Option Plan.
+10.7 License Agreement dated March 15, 1995 by and between the
Registrant and Marion Merrell Dow Inc. (now Hoechst Marion
Roussel, Inc.) (excluding certain portions which have been
omitted as indicated based upon a request for confidential
treatment, but which have been filed separately with the
Commission).
+10.8 Principles of Cooperation Between Albany Molecular Research and
Cambrex Corporation dated February 1, 1997 by and between the
Registrant and Cambrex Corporation (excluding certain portions
which have been omitted as indicated based upon a request for
confidential treatment, but which have been filed separately
with the Commission).
+10.9 Agreement dated December 16, 1997 by and between the Registrant
and Eli Lilly and Company (excluding certain portions which have
been omitted as indicated based upon a request for confidential
treatment, but which have been filed separately with the
Commission).
10.10 Technology Development Incentive Plan.
*10.11 Form of Employment Agreement between the Registrant and Thomas
E. D'Ambra, Ph.D.
*10.12 Form of Employment Agreement between the Registrant and Harold
M. Armstrong, Jr.
*10.13 Form of Employment Agreement between the Registrant and Harold
Meckler, Ph.D.
*10.14 Form of Employment Agreement between the Registrant and Michael
P. Trova, Ph.D.
*10.15 Form of Employment Innovation, Proprietary Information and Post-
Employment Activity Agreement between the Registrant and each of
its Named Executive Officers.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
hereto).
23.2 Consent of KPMG Peat Marwick LLP.
*23.3 Consent of
+24.1 Powers of Attorney (included on pages II-4).
27.1 Financial Data Schedule.
</TABLE>
- ----------
* To be filed by amendment to this Registration Statement.
+ Previously filed.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ALBANY MOLECULAR RESEARCH, INC.
ARTICLE I
---------
NAME
----
The name of the corporation is Albany Molecular Research, Inc. (the
"Corporation").
ARTICLE II
----------
REGISTERED OFFICE
-----------------
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
-----------
PURPOSE
-------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware (the "DGCL").
ARTICLE IV
----------
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is Ten Million One Hundred Thousand (10,100,000) shares,
of which (a) One Hundred Thousand (100,000) shares shall be Series A Convertible
Preferred Stock, par value $.01 per share (the "Convertible Preferred Stock"),
and (b) Ten Million (10,000,000) shares shall be common stock, par value $.01
per share (the "Common Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions on the authorized stock shall be as
follows:
<PAGE>
A. SERIES A CONVERTIBLE PREFERRED STOCK
------------------------------------
1. Designation; Ranking. A total of 100,000 shares of the Corporation's
--------------------
preferred stock shall be designated as Series A Convertible Preferred Stock (the
"Convertible Preferred Stock").
2. Voting. The Convertible Preferred Stock shall be non-voting, except
------
as required by the DGCL.
3. Dividends. When and as the Board of Directors declares a dividend
---------
payment on the Corporation's Common Stock, the Board of Directors shall also
declare a dividend on the Convertible Preferred Stock, such that each share of
Convertible Preferred Stock shall receive 3/10 of the dividend paid on each
share of Common Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation and it subsidiaries, whether voluntary or involuntary (a
"Liquidation Event"), the holders of Convertible Preferred Stock will be
entitled to be paid, before any distribution or payment is made upon any Common
Stock, an amount in cash equal to the aggregate Liquidation Value of all shares
of Convertible Preferred Stock outstanding, and the holders of Convertible
Preferred Stock will not be entitled to any further payment. If upon any such
Liquidation Event, the Corporation's assets to be distributed among the holders
of the Convertible Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid, then the
entire assets to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Convertible Preferred Stock
held by each such holder.
The Liquidation Value of each share of Convertible Preferred Stock shall be
$.75. The Corporation will mail written notice of such Liquidation Event, not
less than thirty (30) days prior to the payment date stated therein, to each
record holder of Convertible Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed to be
a Liquidation Event within the meaning of this Section 4.
5. Conversion.
----------
(a) Any holder of Convertible Preferred Stock may at any time convert
all or any portion of the Convertible Preferred Stock (including any
fraction of a share) held by such holder into a number of shares of the
Corporation's Common Stock computed by dividing the number of shares of
Convertible Preferred Stock to be converted by 3.33333.
(b) The Corporation may, in conjunction with the issuance of Common
Stock pursuant to a "public offering" or a private placement to persons
other than executive officers of the Corporation that would increase the
2
<PAGE>
number of issued and outstanding shares by ten percent (10%) or more
(before giving effect to the conversion of any convertible securities)
require the holders of Convertible Preferred Stock to convert all of their
Convertible Preferred Stock by sending written notice to all such holders
specifying the conversion date. All Common Stock originally issued by the
Corporation within any six month period shall be integrated for the purpose
of determining whether the ten percent (10%) trigger referred to in the
preceding sentence has been met. Any shares of Convertible Preferred Stock
that are not delivered to the Corporation in response to the written notice
on the conversion date specified therein shall lose all right to convert
the Convertible Preferred Stock to Common Stock.
The term "public offering" shall refer to the sale by the Corporation or a
subsidiary of its Common Stock on a best efforts or a firm offering made by
an investment banking firm acting as underwriter.
(c) Each conversion of Convertible Preferred Stock will be deemed to
have been effected as of the close of business on the date on which the
certificate or certificates representing the Convertible Preferred Stock to
be converted have been surrendered at the principal office of the
Corporation. At such time as such conversion has been effected, the rights
of the holder of such Convertible Preferred Stock as such holder will cease
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such
conversion will be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
(d) As soon as practicable after a conversion has been effected, the
Corporation will deliver to the converting holder:
(i) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(ii) payment in an amount equal to all declared and unpaid
dividends with respect to each share converted, which have not been
paid prior thereto; and
(iii) a certificate representing any shares of Convertible
Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted.
(e) If for any reason the Corporation is unable to pay any declared
and unpaid dividends on the Convertible Preferred Stock being converted,
the Corporation will pay such dividends to the converting holder as soon
thereafter
3
<PAGE>
as funds of the Corporation are legally available for such payment. At the
request of any such converting holder, the Corporation will provide such
holder with written evidence of its obligation to such holder.
(f) If the issuance of certificates for shares of Common Stock upon
conversion of Convertible Preferred Stock requires the payment of any
issuance tax in respect thereof or other cost incurred by the Corporation
in connection with such conversion and the related issuance of shares of
Common Stock, each holder of the Convertible Preferred Stock shall pay the
amount of the issuance tax to the Corporation at the time the Corporation
delivers the certificates to the holder.
(g) The Corporation will not close its books against the transfer of
Convertible Preferred Stock or of Common Stock issued or issuable upon
conversion of Convertible Preferred Stock in any manner which interferes
with the timely conversion of Convertible Preferred Stock.
6. Pre-emptive Rights. The holders of Convertible Preferred Stock, in
------------------
the case of the proposed issuance of Common Stock, or granting by the
Corporation of any rights or options to purchase any shares or other securities
convertible into or carrying rights or options to purchase Common Stock (in each
case, "Common Equity Shares"), shall, if the issuance of the Common Equity
Shares proposed to be issued would adversely affect the unlimited dividend
rights of such holders, have the right during a reasonable time and on
reasonable conditions, both to be fixed by the Board of Directors, to purchase
such Common Equity Shares in such proportions as shall be determined as provided
below.
The pre-emptive rights provided for in this Section 6 shall entitle the
holders of Convertible Preferred Stock to purchase Common Equity Shares to be
offered or optioned for sale as nearly as practicable in such proportions as
would, if such pre-emptive rights were exercised (and after giving effect to the
issuance and sale of the Common Equity Shares offered or optioned for sale),
preserve the relative unlimited dividend rights of such holders and at a price
or prices not less favorable than the price or prices at which such Common
Equity Shares are offered for sale to others, without deduction of such
reasonable expenses of and compensation for the sale, underwriting or purchase
of such Common Equity Shares by underwriters or dealers as may lawfully be paid
by the Corporation. The price at which such Common Equity Shares are offered,
if offered for consideration other than cash, shall equal the stated equivalent
dollar amount in any document between the Corporation and the offeree or, if
none is stated, by an independent appraiser.
Notwithstanding anything contained herein, the pre-emptive rights provided
for in this Section 6 will not apply to Common Equity Shares if they:
(1) Are to be issued by the Corporation to effect a merger;
(2) Are treasury shares;
4
<PAGE>
(3) Are to be issued under a plan of reorganization approved in a
proceeding under any applicable act of Congress relating to reorganization of
corporations; or
(4) Are, or may be converted to, not more than 1,500,000 shares of Common
Stock and which are issued pursuant to any stock incentive plan to any employee.
The Board of Directors shall cause to be given to each holder of
Convertible Preferred Stock, a notice directed to it setting forth the time
within which and the terms and conditions upon which the holder may purchase
such Common Equity Shares. Such notice shall be given personally or by mail at
least fifteen (15) days prior to the expiration of the period during which the
holder shall have the right to purchase. All holders entitled to pre-emptive
rights to whom notice shall have been given as aforesaid shall be deemed
conclusively to have had a reasonable time in which to exercise their pre-
emptive rights.
7. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
---------------------------------------------------------------
capital reorganization, reclassification, consolidation, merger or sale of all
or substantially all of the Corporation's assets to another person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." At least thirty (30) days prior to the consummation of any
Organic Change, the Corporation will give written notice to each holder of
Convertible Preferred Stock to insure that each of the holders of Convertible
Preferred Stock has the opportunity immediately prior to such Organic Change to
convert such holders' shares of Convertible Preferred Stock into Common Stock
pursuant to the terms of the Corporation's Certificate of Incorporation.
8. Registration of Transfer. The Corporation will keep at its principal
------------------------
office a register for the registration of Convertible Preferred Stock. Upon the
surrender of any certificate representing Convertible Preferred Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares as is requested by the holder of the surrendered certificate and will be
substantially identical in form to the surrendered certificate, and dividends
will accrue on the Convertible Preferred Stock represented by the surrendered
certificate.
9. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of any class of Convertible Preferred Stock and, in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is an institutional
--------
investor its own agreement will be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of
5
<PAGE>
such lost, stolen, destroyed or mutilated certificate, and dividends will accrue
on the Convertible Preferred Stock represented by such new certificate from the
date to which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
B. COMMON STOCK
------------
1. Designation; Ranking. A total of 10,000,000 shares of the
--------------------
Corporation's common stock shall be designated as Common Stock, $.01 par value
per share (the "Common Stock").
2. Voting. The holder of each share of Common Stock shall be entitled to
------
one vote for each such share as determined on the record date for the vote or
consent of stockholders upon any items submitted to a vote of stockholders.
3. Dividends. The holders of Common Stock shall be entitled to receive
---------
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in its sole discretion.
4. Liquidation. Upon any Liquidation Event, after the payment or
-----------
provision for payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of Convertible Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the holders
of Common Stock shall be entitled to share ratably in the remaining assets of
the Corporation available for distribution.
ARTICLE V
---------
INCORPORATOR
------------
The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Lisa R. Haddad Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
6
<PAGE>
ARTICLE VI
----------
DIRECTORS
---------
The number of Directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. The Directors shall
be classified, with respect to the term for which they severally hold office,
into three classes, as nearly equal in number as possible. The initial Class I
Director of the Corporation shall be Chester J. Opalka; the initial Class II
Directors of the Corporation shall be Harold M. Armstrong, Jr. and Donald E.
Kuhla, Ph.D.; and the initial Class III Directors of the Corporation shall be
Thomas E. D'Ambra, Ph.D. and Anthony M. Tartaglia, M.D. The mailing address of
each Director is c/o Albany Molecular Research, Inc., 21 Corporate Circle,
Albany, New York 12203-5154. The initial Class I Director shall serve for a
term expiring at the annual meeting of stockholders to be held in 1999, the
initial Class II Directors shall serve for a term expiring at the annual meeting
of stockholders to be held in 2000, and the initial Class III Directors shall
serve for a term expiring at the annual meeting of stockholders to be held in
2001. Elections of Directors need not be by written ballot unless the by-laws
of the Corporation shall so provide.
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the Director derived any improper personal benefit. If
the DGCL is amended after the effective date of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended. No amendment or repeal of this Article VII shall
adversely affect the rights and protection afforded to a Director of the
Corporation under this Article VII for acts or omissions occurring prior to such
amendment or repeal.
ARTICLE VIII
------------
AMENDMENT OF BY-LAWS
--------------------
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the by-
laws of the Corporation as provided therein.
7
<PAGE>
ARTICLE IX
----------
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
8
<PAGE>
THE UNDERSIGNED incorporator, for the purpose of forming a corporation
pursuant to the General Corporation Law of Delaware, does hereby make this
certificate, hereby declaring and certifying that it is her free act and deed
and the facts herein stated are true, and accordingly she has hereunto set her
hand this 6th day of August, 1998.
/s/ Lisa R. Haddad
------------------
Lisa R. Haddad, Incorporator
9
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALBANY MOLECULAR RESEARCH, INC.
ALBANY MOLECULAR RESEARCH, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Albany Molecular Research, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was August 6, 1998 (the "Original
Certificate of Incorporation").
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Original Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on August 6, 1998, and (i) was duly adopted by the Board of
Directors in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware (the "DGCL"), (ii) was declared
by the Board of Directors to be advisable and in the best interests of the
Corporation and was directed by the Board of Directors to be submitted to and be
considered by the stockholders of the Corporation entitled to vote thereon for
approval by the affirmative vote of such stockholders in accordance with Section
242 of the DGCL and (iii) was duly adopted by the stockholders, with the holders
of a majority of the outstanding shares of the Corporation's common stock, par
value $.01 per share, adopting this Amended and Restated Certificate of
Incorporation in accordance with the provisions of Section 242 of the DGCL and
the terms of the Original Certificate of Incorporation, such holders being all
of the holders of the Corporation's capital stock entitled to vote thereon.
3. The text of the Original Certificate of Incorporation is hereby
amended and restated in its entirety to provide as herein set forth in full.
ARTICLE I
---------
NAME
----
The name of the Corporation is Albany Molecular Research, Inc.
<PAGE>
ARTICLE II
----------
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
-----------
PURPOSE
-------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
----------
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is Fifty-Two Million One Hundred Thousand (52,100,000)
shares, of which (a) One Hundred Thousand (100,000) shares shall be Series A
Convertible Preferred Stock, par value $.01 per share (the "Convertible
Preferred Stock"), (b) Fifty Million (50,000,000) shares shall be common stock,
par value $.01 per share (the "Common Stock"), and (c) Two Million (2,000,000)
shares shall be undesignated preferred stock, par value $.01 per share (the
"Undesignated Preferred Stock").
Except as otherwise restricted by this Amended and Restated Certificate of
Incorporation, the Corporation is authorized to issue, from time to time, all or
any portion of the capital stock of the Corporation which may have been
authorized but not issued, to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and manner of any disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding)
2
<PAGE>
by the affirmative vote of the holders of a majority of the shares of Common
Stock entitled to vote, without a vote of the holders of the Undesignated
Preferred Stock.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. SERIES A CONVERTIBLE PREFERRED STOCK
------------------------------------
1. Designation; Ranking. A total of 100,000 shares of the Corporation's
--------------------
preferred stock shall be designated as Series A Convertible Preferred Stock (the
"Convertible Preferred Stock").
2. Voting. The Convertible Preferred Stock shall be non-voting, except
------
as required by the DGCL.
3. Dividends. When and as the Board of Directors declares a dividend
---------
payment on the Corporation's Common Stock, the Board of Directors shall also
declare a dividend on the Convertible Preferred Stock, such that each share of
Convertible Preferred Stock shall receive 3/10 of the dividend paid on each
share of Common Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation and it subsidiaries, whether voluntary or involuntary (a
"Liquidation Event"), the holders of Convertible Preferred Stock will be
entitled to be paid, before any distribution or payment is made upon any Common
Stock, an amount in cash equal to the aggregate Liquidation Value of all shares
of Convertible Preferred Stock outstanding, and the holders of Convertible
Preferred Stock will not be entitled to any further payment. If upon any such
Liquidation Event, the Corporation's assets to be distributed among the holders
of the Convertible Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid, then the
entire assets to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Convertible Preferred Stock
held by each such holder.
The Liquidation Value of each share of Convertible Preferred Stock shall be
$.75. The Corporation will mail written notice of such Liquidation Event, not
less than thirty (30) days prior to the payment date stated therein, to each
record holder of Convertible Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed to be
a Liquidation Event within the meaning of this Section 4.
3
<PAGE>
5. Conversion.
----------
(a) Any holder of Convertible Preferred Stock may at any
time convert all or any portion of the Convertible Preferred
Stock (including any fraction of a share) held by such holder
into a number of shares of the Corporation's Common Stock
computed by dividing the number of shares of Convertible
Preferred Stock to be converted by 3.33333.
(b) The Corporation may, in conjunction with the issuance
of Common Stock pursuant to a "public offering" or a private
placement to persons other than executive officers of the
Corporation that would increase the number of issued and
outstanding shares by ten percent (10%) or more (before giving
effect to the conversion of any convertible securities) require
the holders of Convertible Preferred Stock to convert all of
their Convertible Preferred Stock by sending written notice to
all such holders specifying the conversion date. All Common Stock
originally issued by the Corporation within any six month period
shall be integrated for the purpose of determining whether the
ten percent (10%) trigger referred to in the preceding sentence
has been met. Any shares of Convertible Preferred Stock that are
not delivered to the Corporation in response to the written
notice on the conversion date specified therein shall lose all
right to convert the Convertible Preferred Stock to Common Stock.
The term "public offering" shall refer to the sale by the Corporation or a
subsidiary of its Common Stock on a best efforts or a firm offering made by
an investment banking firm acting as underwriter.
(c) Each conversion of Convertible Preferred Stock will be
deemed to have been effected as of the close of business on the
date on which the certificate or certificates representing the
Convertible Preferred Stock to be converted have been surrendered
at the principal office of the Corporation. At such time as such
conversion has been effected, the rights of the holder of such
Convertible Preferred Stock as such holder will cease and the
person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon
such conversion will be deemed to have become the holder or
holders of record of the shares of Common Stock represented
thereby.
(d) As soon as practicable after a conversion has been
effected, the Corporation will deliver to the converting holder:
(i) a certificate or certificates representing
the number of shares of Common Stock issuable by reason
of such conversion in such name or names and such
denomination or denominations as the converting holder
has specified;
4
<PAGE>
(ii) payment in an amount equal to all declared
and unpaid dividends with respect to each share
converted, which have not been paid prior thereto; and
(iii) a certificate representing any shares of
Convertible Preferred Stock which were represented by
the certificate or certificates delivered to the
Corporation in connection with such conversion but
which were not converted.
(e) If for any reason the Corporation is unable to pay any
declared and unpaid dividends on the Convertible Preferred Stock
being converted, the Corporation will pay such dividends to the
converting holder as soon thereafter as funds of the Corporation
are legally available for such payment. At the request of any
such converting holder, the Corporation will provide such holder
with written evidence of its obligation to such holder.
(f) If the issuance of certificates for shares of Common
Stock upon conversion of Convertible Preferred Stock requires the
payment of any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion
and the related issuance of shares of Common Stock, each holder
of the Convertible Preferred Stock shall pay the amount of the
issuance tax to the Corporation at the time the Corporation
delivers the certificates to the holder.
(g) The Corporation will not close its books against the
transfer of Convertible Preferred Stock or of Common Stock issued
or issuable upon conversion of Convertible Preferred Stock in any
manner which interferes with the timely conversion of Convertible
Preferred Stock.
6. Pre-emptive Rights. The holders of Convertible Preferred Stock, in
------------------
the case of the proposed issuance of Common Stock, or granting by the
Corporation of any rights or options to purchase any shares or other securities
convertible into or carrying rights or options to purchase Common Stock (in each
case, "Common Equity Shares"), shall, if the issuance of the Common Equity
Shares proposed to be issued would adversely affect the unlimited dividend
rights of such holders, have the right during a reasonable time and on
reasonable conditions, both to be fixed by the Board of Directors, to purchase
such Common Equity Shares in such proportions as shall be determined as provided
below.
The pre-emptive rights provided for in this Section 6 shall entitle the
holders of Convertible Preferred Stock to purchase Common Equity Shares to be
offered or optioned for sale as nearly as practicable in such proportions as
would, if such pre-emptive rights were exercised (and after giving effect to the
issuance and sale of the Common Equity Shares offered or optioned for sale),
preserve the relative unlimited dividend rights of such holders and at a price
or prices not less favorable than the price or prices at which such Common
5
<PAGE>
Equity Shares are offered for sale to others, without deduction of such
reasonable expenses of and compensation for the sale, underwriting or purchase
of such Common Equity Shares by underwriters or dealers as may lawfully be paid
by the Corporation. The price at which such Common Equity Shares are offered,
if offered for consideration other than cash, shall equal the stated equivalent
dollar amount in any document between the Corporation and the offeree or, if
none is stated, by an independent appraiser.
Notwithstanding anything contained herein, the pre-emptive rights provided
for in this Section 6 will not apply to Common Equity Shares if they:
(1) Are to be issued by the Corporation to effect a merger;
(2) Are treasury shares;
(3) Are to be issued under a plan of reorganization approved in a
proceeding under any applicable act of Congress relating to reorganization of
corporations;
(4) Are, or may be converted to, not more than 1,500,000 shares of Common
Stock and which are issued pursuant to any stock incentive plan to any employee.
The Board of Directors shall cause to be given to each holder of
Convertible Preferred Stock, a notice directed to it setting forth the time
within which and the terms and conditions upon which the holder may purchase
such Common Equity Shares. Such notice shall be given personally or by mail at
least fifteen (15) days prior to the expiration of the period during which the
holder shall have the right to purchase. All holders entitled to pre-emptive
rights to whom notice shall have been given as aforesaid shall be deemed
conclusively to have had a reasonable time in which to exercise their pre-
emptive rights.
7. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
---------------------------------------------------------------
capital reorganization, reclassification, consolidation, merger or sale of all
or substantially all of the Corporation's assets to another person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." At least thirty (30) days prior to the consummation of any
Organic Change, the Corporation will give written notice to each holder of
Convertible Preferred Stock to insure that each of the holders of Convertible
Preferred Stock has the opportunity immediately prior to such Organic Change to
convert such holders' shares of Convertible Preferred Stock into Common Stock
pursuant to the terms of the Corporation's Amended and Restated Certificate of
Incorporation.
8. Registration of Transfer. The Corporation will keep at its principal
------------------------
office a register for the registration of Convertible Preferred Stock. Upon the
surrender of any certificate representing Convertible Preferred Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's
6
<PAGE>
expense) a new certificate or certificates in exchange therefor representing in
the aggregate the number of shares represented by the surrendered certificate.
Each such new certificate will be registered in such name and will represent
such number of shares as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the Convertible Preferred Stock
represented by the surrendered certificate.
9. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of any class of Convertible Preferred Stock and, in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is an institutional
--------
investor its own agreement will be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the Convertible
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
B. COMMON STOCK
------------
1. Designation; Ranking. A total of 50,000,000 shares of the
--------------------
Corporation's common stock shall be designated as Common Stock, $.01 par value
per share (the "Common Stock").
2. Voting.
------
(a) Election of Directors. The holders of Common Stock shall be
---------------------
entitled to elect all of the Directors of the Corporation. Such Directors
shall be the candidates receiving the highest number of affirmative votes
entitled to be cast (with each holder entitled to cast one vote for or
against each candidate with respect to each share held by such holder),
with votes cast against such candidates and votes withheld having no legal
effect. The election of such Directors shall occur at the annual meeting
of holders of capital stock or at any special meeting called and held in
accordance with the by-laws of the Corporation. If a person elected in
accordance with the foregoing provisions should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent
of holders of the outstanding shares entitled to vote for such Directors,
in the manner and on the basis specified above.
(b) Other Voting. The holder of each share of Common Stock shall be
------------
entitled to one vote for each such share as determined on the record date
for the vote or consent of stockholders upon any items submitted to a vote
of stockholders.
7
<PAGE>
3. Dividends. The holders of Common Stock shall be entitled to receive
---------
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in its sole discretion.
4. Liquidation. Upon any Liquidation Event, after the payment or
-----------
provision for payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of Convertible Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the holders
of Common Stock shall be entitled to share ratably in the remaining assets of
the Corporation available for distribution.
C. UNDESIGNATED PREFERRED STOCK
----------------------------
1. Authority to Issue. Subject to any limitations prescribed by law, the
------------------
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of the shares of Undesignated Preferred Stock in one
or more series of such stock, and by filing a certificate pursuant to applicable
law of the State of Delaware, to establish or change from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof. Any action by the Board of Directors or
any authorized committee thereof under this Article C shall require the
affirmative vote of a majority of the Directors then in office or a majority of
the members of such committee.
2. Powers, Preferences, Rights, Qualifications, Limitations and
------------------------------------------------------------
Restriction of Each Series of Undesignated Preferred Stock. The Board of
- ----------------------------------------------------------
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting rights and powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
8
<PAGE>
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall be
issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or series thereof) and whether such shares may be reissued
as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable.
ARTICLE V
---------
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
9
<PAGE>
ARTICLE VI
----------
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
------------------
be fixed by resolution duly adopted from time to time by the Board of Directors.
The Directors, other than those who may be elected by the holders of any series
of Undesignated Preferred Stock of the Corporation, shall be classified, with
respect to the term for which they severally hold office, into three classes, as
nearly equal in number as possible. The initial Class I Director of the
Corporation shall be Chester J. Opalka; the initial Class II Directors of the
Corporation shall be Harold M. Armstrong, Jr. and Donald E. Kuhla, Ph.D.; and
the initial Class III Directors of the Corporation shall be Thomas E. D'Ambra,
Ph.D. and Anthony P. Tartaglia, M.D. The initial Class I Director shall serve
for a term expiring at the annual meeting of stockholders to be held in 1999,
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 2000, and the initial Class III Directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in 2001. At each annual meeting of stockholders, the successor or successors of
the class of Directors whose term expires at that meeting shall be elected by a
plurality of the votes cast at such meeting and shall hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. The Directors elected to each class shall hold
office until their successors are duly elected and qualified or until their
earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have the
right, voting separately as a series or together with holders of other such
series, to elect Directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation and any certificate of designations applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI.3.
During any period when the holders of any series of Undesignated Preferred
Stock have the right to elect additional Directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues: (i) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors
10
<PAGE>
so provided for or fixed pursuant to said provisions, and (ii) each such
additional Director shall serve until such Director's successor shall have been
duly elected and qualified, or until such Director's right to hold such office
terminates pursuant to said provisions, whichever occurs earlier, subject to
such Director's earlier death, disqualification, resignation or removal. Except
as otherwise provided by the Board of Directors in the resolution or resolutions
establishing such series, whenever the holders of any series of Undesignated
Preferred Stock having such right to elect additional Directors are divested of
such right pursuant to the provisions of such stock, the terms of office of all
such additional Directors elected by the holders of such stock, or elected to
fill any vacancies resulting from the death, resignation, disqualification or
removal of such additional Directors, shall automatically terminate and the
total and authorized number of Directors of the Corporation shall be reduced
accordingly.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series of Undesignated Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; provided, however, that no decrease in the number of Directors
-------- -------
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
5. Removal. Subject to the rights, if any, of any series of Undesignated
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of such Director. At least thirty (30) days prior
to any meeting of stockholders at which it is proposed that any Director be
removed from office, written notice of such proposed removal shall be sent to
the Director whose removal will be considered at the meeting. For purposes of
this Amended and Restated Certificate of Incorporation, "cause," with respect to
the removal of any Director, shall mean only (i) conviction of a felony, (ii)
declaration of unsound mind by order of court, (iii) gross dereliction of duty,
(iv) commission of any action involving moral turpitude, or (v) commission of an
action which constitutes intentional misconduct or a knowing violation of law if
such action in either event results both in an improper substantial personal
benefit and a material injury to the Corporation.
11
<PAGE>
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Amended and Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
------------
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the By-
----------------------
laws of the Corporation may be amended or repealed by the Board of Directors by
the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least two-thirds of the total votes eligible to be cast
on such amendment or repeal by holders of voting stock, voting together as a
single class; provided, however, that if the Board of Directors recommends that
-------- -------
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cast on such amendment or repeal by holders of
voting stock, voting together as a single class.
12
<PAGE>
ARTICLE IX
----------
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by statute and this Amended and Restated Certificate of Incorporation, and all
rights conferred upon stockholders herein, are granted subject to this
reservation. No amendment or repeal of this Amended and Restated Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 242 of the DGCL, and, except as otherwise provided by
law, thereafter approved by the stockholders. Whenever any vote of the holders
of voting stock is required, and in addition to any other vote of holders of
voting stock that is required by this Amended and Restated Certificate of
Incorporation or by law, the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal, voting together as a single class, at a duly constituted meeting of
stockholders called expressly for such purpose shall be required to amend or
repeal any provisions of this Amended and Restated Certificate of Incorporation;
provided, however, that the affirmative vote of not less than 80% of the total
- -------- -------
votes eligible to be cast by holders of voting stock, voting together as a
single class, shall be required to amend or repeal any of the provisions of
Article V, Article VI, Article VII or Article IX of this Amended and Restated
Certificate of Incorporation.
13
<PAGE>
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of
this ____ day of _____, 1998.
ALBANY MOLECULAR RESEARCH, INC.
By:_________________________________________
Name:
Title:
14
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
ALBANY MOLECULAR RESEARCH, INC.
ALBANY MOLECULAR RESEARCH, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Albany Molecular Research, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was August 6, 1998.
2. This Restated Certificate of Incorporation restates and integrates,
but does not further amend, the provisions of the Amended and Restated
Certificate of Incorporation of the Corporation filed with the Secretary of
State of the State of Delaware on _______, 1998 (the "Certificate"), and there
is no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation. This Restated Certificate of Incorporation was
duly adopted by the Board of Directors in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware (the
"DGCL").
3. The text of the Certificate is hereby restated in its entirety to
provide as herein set forth in full.
ARTICLE I
---------
NAME
----
The name of the Corporation is Albany Molecular Research, Inc.
ARTICLE II
----------
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
<PAGE>
ARTICLE III
-----------
PURPOSE
-------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
----------
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is Fifty-Two Million (52,000,000) shares, of which (a)
Fifty Million (50,000,000) shares shall be common stock, par value $.01 per
share (the "Common Stock"), and (b) Two Million (2,000,000) shares shall be
undesignated preferred stock, par value $.01 per share (the "Undesignated
Preferred Stock").
Except as otherwise restricted by this Restated Certificate of
Incorporation, the Corporation is authorized to issue, from time to time, all or
any portion of the capital stock of the Corporation which may have been
authorized but not issued, to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and manner of any disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the shares of Common Stock entitled to vote, without a vote of the holders of
the Undesignated Preferred Stock.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
2
<PAGE>
A. COMMON STOCK
------------
1. Designation; Ranking. A total of 50,000,000 shares of the
--------------------
Corporation's common stock shall be designated as Common Stock, $.01 par value
per share (the "Common Stock").
2. Voting.
------
(a) Election of Directors. The holders of Common Stock shall be
---------------------
entitled to elect all of the Directors of the Corporation. Such Directors
shall be the candidates receiving the highest number of affirmative votes
entitled to be cast (with each holder entitled to cast one vote for or
against each candidate with respect to each share held by such holder),
with votes cast against such candidates and votes withheld having no legal
effect. The election of such Directors shall occur at the annual meeting of
holders of capital stock or at any special meeting called and held in
accordance with the by-laws of the Corporation. If a person elected in
accordance with the foregoing provisions should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent
of holders of the outstanding shares entitled to vote for such Directors,
in the manner and on the basis specified above.
(b) Other Voting. The holder of each share of Common Stock shall be
------------
entitled to one vote for each such share as determined on the record date
for the vote or consent of stockholders upon any items submitted to a vote
of stockholders.
3. Dividends. The holders of Common Stock shall be entitled to receive
---------
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in its sole discretion.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation and its subsidiaries, whether voluntary or involuntary, after the
payment or provision for payment of all debts and liabilities of the
Corporation, the holders of Common Stock shall be entitled to share ratably in
the remaining assets of the Corporation available for distribution.
B. UNDESIGNATED PREFERRED STOCK
----------------------------
1. Authority to Issue. Subject to any limitations prescribed by law, the
------------------
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of the shares of Undesignated Preferred Stock in one
or more series of such stock, and by filing a certificate pursuant to applicable
law of the State of Delaware, to establish or change from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof.
3
<PAGE>
Any action by the Board of Directors or any authorized committee thereof under
this Article B shall require the affirmative vote of a majority of the Directors
then in office or a majority of the members of such committee.
2. Powers, Preferences, Rights, Qualifications, Limitations and
------------------------------------------------------------
Restriction of Each Series of Undesignated Preferred Stock. The Board of
- ----------------------------------------------------------
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting rights and powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall be
issued;
4
<PAGE>
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or series thereof) and whether such shares may be reissued
as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable.
ARTICLE V
---------
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
ARTICLE VI
----------
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
------------------
be fixed by resolution duly adopted from time to time by the Board of Directors.
The Directors, other than those who may be elected by the holders of any series
of Undesignated Preferred Stock of the Corporation, shall be classified, with
respect to the term for which they severally hold office, into three classes, as
nearly equal in number as possible. The initial Class I Director of the
Corporation shall be Chester J. Opalka; the initial Class II Directors of the
Corporation shall be Harold M. Armstrong, Jr. and Donald E. Kuhla, Ph.D.; and
the initial Class III Directors of the Corporation shall be Thomas E. D'Ambra,
Ph.D. and Anthony P. Tartaglia, M.D. The initial Class I Director shall serve
for a term expiring at the annual meeting of stockholders to be held in 1999,
the initial Class II Directors shall serve for a term expiring at the annual
meeting of stockholders to be held in 2000, and the initial Class III Directors
shall serve for a term expiring at the annual meeting of stockholders to be held
in 2001. At each annual meeting of stockholders, the successor or successors of
the class of Directors whose
5
<PAGE>
term expires at that meeting shall be elected by a plurality of the votes cast
at such meeting and shall hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election. The
Directors elected to each class shall hold office until their successors are
duly elected and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Restated Certificate of Incorporation, the holders of any one
or more series of Undesignated Preferred Stock shall have the right, voting
separately as a series or together with holders of other such series, to elect
Directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Restated Certificate of Incorporation and any
certificate of designations applicable thereto, and such Directors so elected
shall not be divided into classes pursuant to this Article VI.3.
During any period when the holders of any series of Undesignated Preferred
Stock have the right to elect additional Directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues: (i) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions, and
(ii) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Undesignated Preferred Stock having such right to elect additional
Directors are divested of such right pursuant to the provisions of such stock,
the terms of office of all such additional Directors elected by the holders of
such stock, or elected to fill any vacancies resulting from the death,
resignation, disqualification or removal of such additional Directors, shall
automatically terminate and the total and authorized number of Directors of the
Corporation shall be reduced accordingly.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series of Undesignated Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors
6
<PAGE>
shall determine the class or classes to which the increased or decreased number
of Directors shall be apportioned; provided, however, that no decrease in the
-------- -------
number of Directors shall shorten the term of any incumbent Director. In the
event of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
5. Removal. Subject to the rights, if any, of any series of Undesignated
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of such Director. At least thirty (30) days prior
to any meeting of stockholders at which it is proposed that any Director be
removed from office, written notice of such proposed removal shall be sent to
the Director whose removal will be considered at the meeting. For purposes of
this Restated Certificate of Incorporation, "cause," with respect to the removal
of any Director, shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission
of any action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Restated Certificate of Incorporation
to authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
7
<PAGE>
ARTICLE VIII
------------
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the By-
----------------------
laws of the Corporation may be amended or repealed by the Board of Directors by
the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least two-thirds of the total votes eligible to be cast
on such amendment or repeal by holders of voting stock, voting together as a
single class; provided, however, that if the Board of Directors recommends that
-------- -------
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cast on such amendment or repeal by holders of
voting stock, voting together as a single class.
ARTICLE IX
----------
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
statute and this Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein, are granted subject to this reservation. No amendment
or repeal of this Restated Certificate of Incorporation shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required, and
in addition to any other vote of holders of voting stock that is required by
this Restated Certificate of Incorporation or by law, the affirmative vote of a
majority of the total votes eligible to be cast by holders of voting stock with
respect to such amendment or repeal, voting together as a single class, at a
duly constituted meeting of stockholders called expressly for such purpose shall
be required to amend or repeal any provisions of this Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than 80%
-------- -------
of the total votes eligible to be cast by holders of voting stock, voting
together as a single class, shall be required to amend or repeal any of the
provisions of Article V, Article VI, Article VII or Article IX of this Restated
Certificate of Incorporation.
8
<PAGE>
THIS RESTATED CERTIFICATE OF INCORPORATION is executed as of this ____ day
of _____, 1998.
ALBANY MOLECULAR RESEARCH, INC.
By:______________________________________
Name:
Title:
9
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
ALBANY MOLECULAR RESEARCH, INC.
ARTICLE I
---------
Stockholders
------------
Section 1. Annual Meeting. The Annual Meeting of Stockholders shall be
--------------
held each year at the place, date and time determined by the Board of Directors.
The purposes for which the annual meeting is to be held, in addition to those
prescribed by law, by the Certificate of Incorporation or by these By-laws, may
be specified by the Board of Directors, the Chief Executive Officer or the
President. If no annual meeting has been held on the date fixed above, a
special meeting in lieu thereof may be held, and such special meeting shall
have, for the purposes of these By-laws or otherwise, all the force and effect
of an annual meeting.
Section 2. Special Meetings. Special meetings of the stockholders may be
----------------
called at any time by the President, the Chief Executive Officer or the Board of
Directors.
Section 3. Notice of Meetings. A written notice stating the place, date
------------------
and hour of the Annual Meeting of Stockholders shall be given by the Secretary
(or other person authorized by these By-laws or by law) not less than ten (10),
nor more than sixty (60), days before the meeting to each stockholder entitled
to vote thereat, and to each stockholder who, under the Certificate of
Incorporation or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears in the records of the Corporation.
Notice need not be given to a stockholder if a written waiver of notice is
executed before or after the meeting by such stockholder, if communication with
such stockholder is unlawful, or if such stockholder attends the meeting in
question, unless such attendance was for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened.
Notice of Special Meetings shall be given in the same manner as provided
for Annual Meetings, except that the written notice of Special Meetings shall
state clearly and briefly the purpose or purposes for which the meeting is
called. Only such purposes shall be considered or dealt with at Special
Meetings.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the stockholders need be specified in the written waiver
of notice.
<PAGE>
If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken, except that if the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
Section 4. Quorum. The holders of a majority of the shares entitled to
------
vote, present in person or represented by proxy, at a meeting shall constitute a
quorum. Any meeting may be adjourned from time to time by a majority of the
votes properly cast upon the question, whether or not a quorum is present.
Section 5. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period. Proxies shall be filed with the
Secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting. A proxy purporting to be executed by, or on
behalf of, a stockholder shall be deemed valid unless challenged at or prior to
its exercise, and the burden of proving invalidity shall rest on the challenger.
Section 6. Action at Meeting. When a quorum is present, any matter before
-----------------
the meeting shall be decided by vote of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote on
such matter except where a larger vote is required by law, by the Certificate of
Incorporation or by these By-laws. Any election of directors by stockholders
shall be determined by a plurality of the votes cast, except where a larger vote
is required by law, by the Certificate of Incorporation or by these By-laws. No
ballot shall be required for any election. The Corporation shall not directly
or indirectly vote any share of its own stock; provided, however, that the
-------- -------
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
Section 7. Action Without a Meeting. Any action required or permitted by
------------------------
law to be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
that number of outstanding shares of stock entitled to vote thereon as is
required by law, by the Certificate of Incorporation or by these By-Laws to
approve the action proposed to be taken.
Section 8. Stockholder Lists. The Secretary (or the corporation's
-----------------
transfer agent or other person authorized by these By-laws or by law) shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the
2
<PAGE>
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE II
----------
Directors
---------
Section 1. Powers. The business of tHe Corporation shall be managed by or
------
under the direction of a Board of Directors that may exercise all the powers of
the Corporation except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
Section 2. Number; Election and Qualification. The number of Directors
----------------------------------
shall not be less than one nor more than nine (9) and shall be fixed by
resolution duly adopted from time to time by the Board of Directors. At each
Annual Meeting, the stockholders shall elect the Directors, and the Directors
shall hold office, in the manner provided in the Certificate of Incorporation.
No Director need be a stockholder.
Section 3. Vacancies; Reduction of Board. Any vacancy in the Board of
-----------------------------
Directors, however occurring, including a vacancy resulting from the enlargement
of the Board of Directors, may be filled by the stockholders or by the Directors
then in office or by a sole remaining Director. In lieu of filling any such
vacancy, the stockholders or Board of Directors may reduce the number of
Directors, but not to a number less than the minimum number required by Section
2 of this Article II. When one or more Directors shall resign from the Board of
Directors, effective at a future date, a majority of the Directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
Section 4. Enlargement of the Board. The Board of Directors may be
------------------------
enlarged by the stockholders at any meeting or by vote of a majority of the
Directors then in office.
Section 5. Tenure. Except as otherwise provided by law, by the
------
Certificate of Incorporation or by these By-laws, Directors shall hold office
for one year or until their successors are elected and qualified or until their
earlier resignation or removal. Any Director may resign by delivering his
written resignation to the Corporation. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
3
<PAGE>
Section 6. Removal. A Director may be removed from office with or
-------
without cause by vote of the holders of a majority of the shares of stock
entitled to vote in the election of Directors.
Section 7. Meetings. The regular Annual Meeting of the Board of
--------
Directors shall be held immediately after the close of the Annual Meeting of the
Stockholders. No notice shall be required for this meeting. Other regular
meetings of the Board of Directors may be held without notice at such time, date
and place as the Board of Directors may from time to time determine. Special
meetings of the Board of Directors may be called, orally or in writing, by the
Chairman of the Board, if one is elected, or the President designating the time,
date and place thereof. Any matter of business which may properly come before
the Board of Directors may be transacted at either a regular or special meeting
thereof. Directors may participate in meetings of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all Directors participating in the meeting can hear each other, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting.
Section 8. Notice of Meetings. Notice of the time, date and place of all
------------------
special meetings of the Board of Directors shall be given to each Director by
the Secretary or Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the President. Notice shall be given
to each Director in person or by telephone or by telegram sent to his business
or home address at least twenty-four (24) hours in advance of the meeting, or by
written notice mailed to his business or home address at least forty-eight (48)
hours in advance of the meeting. Notice need not be given to any Director if a
written waiver of notice is executed by him before or after the meeting, or if
communications with such Director is unlawful, or if all of the Directors are
present at the meeting. A notice or waiver of notice of a meeting of the Board
of Directors need not specify the purpose of the meeting.
Section 9. Quorum. At any meeting of the Board of Directors, a majority
------
of the Directors then in office shall constitute a quorum. Less than a quorum
may adjourn any meeting from time to time and the meeting may be held as
adjourned without further notice.
Section 10. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a larger number is required
by law, by the Certificate of Incorporation or by these By-laws.
Section 11. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing, and the
writing or writings are filed with the minutes of the Board of Directors. Such
consent shall be treated as a vote of the Board of Directors for all purposes.
4
<PAGE>
Section 12. Committees. The Board of Directors, by vote of a majority of
----------
the Directors then in office, may elect from its number one or more committees
(each committee to consist of one or more of the Directors of the Corporation),
including an Executive Committee, a Compensation Committee and an Audit
Committee, and may delegate thereto some or all of its powers except those which
by law, by the Certificate of Incorporation, or by these By-laws may not be
delegated. Except as the Board of Directors may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the Board of Directors or in such rules, its business shall be
conducted so far as possible in the same manner as is provided by these By-laws
for the Board of Directors. All members of such committees shall hold such
offices at the pleasure of the Board of Directors. The Board of Directors may
abolish any such committee at any time. Any committee to which the Board of
Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
ARTICLE III
-----------
Officers
--------
Section 1. Enumeration. The officers of the Corporation shall consist of
-----------
a Chief Executive Officer, a President, a Secretary, a Treasurer and such other
officers, including one or more Vice Presidents, Assistant Secretaries and
Assistant Treasurers, as the Board of Directors may determine.
Section 2. Election. At its Annual Meeting, the Board of Directors shall
--------
elect the Chief Executive Officer, the President, the Secretary and the
Treasurer. Other officers may be chosen by the Board of Directors at such
meeting or any other meeting.
Section 3. Qualification. No officer need be a stockholder. No officer
-------------
need be a Director. Any person may occupy more than one office of the
Corporation at any time. Any officer may be required by the Board of Directors
to give bond for the faithful performance of his duties in such amount and with
such sureties as the Board of Directors may determine.
Section 4. Tenure. Except as otherwise provided by the Certificate of
------
Incorporation or by these By-laws, each of the officers of the Corporation shall
hold his office for one year or until his successor is elected and qualified or
until his earlier resignation or removal. Any officer may resign by delivering
his written resignation to the Corporation, and such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Section 5. Removal. The Board of Directors may remove any officer with
-------
or without cause by a vote of a majority of the Directors then in office;
provided that if an officer is to be
- --------
5
<PAGE>
removed for cause, he may only be removed after reasonable notice and an
opportunity to be heard by the Board of Directors.
Section 6. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
Section 7. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
Section 8. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
Section 9. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the direction of the Board of Directors, have general supervision and
control of the Corporation's business. If there is no Chairman of the Board or
if he is absent, the Chief Executive Officer shall preside, when present, at all
meetings of stockholders and of the Board of Directors. The Chief Executive
Officer shall have such other powers and perform such other duties as the Board
of Directors may from time to time designate.
Section 10. President. The President, if one is elected, shall have such
---------
powers and shall perform such duties as the Board of Directors may from time to
time designate.
Section 11. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
Section 12. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors, have general charge of the
financial affairs of the Corporation and shall cause to be kept accurate books
of account. The Treasurer shall have custody of all funds, securities and
valuable documents of the Corporation, except as the Board of Directors may
otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
Section 13. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In the absence of the Secretary from any such meeting, a temporary secretary
chosen at the meeting shall record the proceedings thereof. The Secretary shall
have charge of the stock ledger (which may, however, be kept by
6
<PAGE>
any transfer or other agent of the Corporation). The Secretary shall have
custody of the seal of the Corporation, and he, or an Assistant Secretary, shall
have authority to affix it to any instrument requiring it, and, when so affixed,
the seal may be attested by his signature. The Secretary shall have such other
duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
The Secretary or any Assistant Secretary may certify as to resolutions or
consents adopted by the Board of Directors and as to the incumbency of any
officer.
Section 14. Other Powers and Duties. Subject to these By-laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors.
ARTICLE IV
----------
Capital Stock
-------------
Section 1. Certificates of Stock. Each stockholder shall be entitled to
---------------------
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or the
Secretary. The signatures by the officers of the Corporation may be facsimile if
the certificate is manually countersigned by an authorized person on behalf of a
transfer agent or registrar other than the Corporation or its employee. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed on such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the time of its issue. Every certificate for
shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
Section 2. Transfers. Subject to any restrictions on transfer, shares of
---------
stock may be transferred only on the books of the Corporation by the surrender
to the Corporation or its transfer agent of the certificate therefor properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
7
<PAGE>
Section 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate of Incorporation or by these By-laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address.
Section 4. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action (other than determining stockholders
entitled to consent to corporate action in writing without a meeting), the Board
of Directors may fix in advance a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. In each case, only stockholders of record on such record
date shall be so entitled, notwithstanding any transfer of stock on the books of
the Corporation after the record date.
If no record date is fixed: (i) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (ii) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation; and (iii) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
8
<PAGE>
ARTICLE V
---------
Indemnification of Directors, Officers and Others
-------------------------------------------------
Section 1. Indemnifiable Events; Extent of Indemnification.
-----------------------------------------------
A. The Corporation shall indemnify, to the fullest extent permitted by
the General Corporation Law of the State of Delaware (as presently in effect or
as hereafter amended):
(1) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action or suit by or in the right of the Corporation) by reason of the fact
that he is or was a Director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such suit, action or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect
to any criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(2) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a Director or officer of the Corporation, or is
or was serving at the request of the Corporation as a director or officer
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless, and only to the extent that, the Court of Chancery of
the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
9
<PAGE>
(3) To the extent that a Director or officer of the Corporation has
been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in paragraphs (1) and (2), or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
B. The Board of Directors, in its discretion, may authorize the
Corporation to indemnify:
(1) Any person who was or is a party or is threatened to be made a
party to any threatened pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation) by reason of the fact that he
is or was an employee or agent of the Corporation, or is or was serving at
the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
---- ----------
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(2) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was an employee or agent of the Corporation, or is
or was serving at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation and except
that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Corporation
unless, and only to the extent that, the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
10
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Section 2. Determination of Entitlement. Any indemnification hereunder
----------------------------
(unless required by law or ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former Director, officer, employee or agent is
proper in the circumstances because such person has met the applicable standard
of conduct set forth in Section 1 of this Article V. Such determination shall
be made, with respect to a person who is a director or officer at the time of
such determination, (i) by a majority vote of the Directors who were not parties
to such action, suit or proceeding, even though less than a quorum, or (ii) by a
committee of such Directors designated by majority vote of such Directors, even
though less than a quorum, or (ii) if, by independent legal counsel in a written
opinion, or (iii) by the stockholders of the Corporation.
Section 3. Advance Payments. Expenses (including attorneys' fees)
----------------
incurred in defending a civil, criminal, administrative or investigative action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the Director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that such person is entitled to be
indemnified by the Corporation as authorized in this Article V. Such expenses
(including attorneys' fees) incurred by former Directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the Corporation deems appropriate.
Section 4. Non-Exclusive Nature of Indemnification. The indemnification
---------------------------------------
provided herein shall not be deemed exclusive of any other rights to which any
person, whether or not entitled to be indemnified hereunder, may be entitled
under any statute, by-law, agreement, vote of stockholders or Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. Each
person who is or becomes a Director or officer as aforesaid shall be deemed to
have served or to have continued to serve in such capacity in reliance upon the
indemnity provided for in this Article V.
Section 5. Insurance. The Corporation may purchase and maintain insurance
---------
on behalf of any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of the General
Corporation Law of the State of Delaware (as presently in effect or hereafter
amended), the Certificate of Incorporation or these By-laws.
Section 6. No Duplicate Payments. The Corporation's indemnification under
---------------------
Section 1 of this Article V of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
11
<PAGE>
shall be reduced by any amounts such person receives as indemnification (i)
under any policy of insurance purchased and maintained on his behalf by the
Corporation, (ii) from such other corporation, partnership, joint venture, trust
or other enterprise, or (iii) under any other applicable indemnification
provision.
Section 7. Amendment. This Article V may be amended only so as to have a
---------
prospective effect. Any amendment to this Article V which would result in any
person having a more limited entitlement to indemnification may be approved only
by the stockholders.
ARTICLE VI
----------
Transactions with Related Parties
---------------------------------
Section 1. Transactions Not Void. No contract or transaction between the
---------------------
Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof,
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee thereof or the stockholders.
Section 2. Quorum. Interested Directors may be counted in determining the
------
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 3. Limitation. Nothing herein contained shall protect or purport
----------
to protect any Director or officer of the Corporation against any liability to
the Corporation or its security
12
<PAGE>
holders to which he would otherwise be subject by reason of his willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE VII
-----------
Miscellaneous Provisions
------------------------
Section 1. Fiscal Year. The fiscal year of the Corporation shall end on
-----------
December 31 of each year.
Section 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
Section 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action may
be executed on behalf of the Corporation by the Chief Executive Officer, the
President or any Vice President.
Section 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chief Executive Officer, the President or the Treasurer may waive
notice of and act on behalf of this Corporation, or appoint another person or
persons to act as proxy or attorney in fact for this Corporation with or without
discretionary power and/or power of substitution, at any meeting of stockholders
or shareholders of any other corporation or organization, any of whose
securities are held by this Corporation.
Section 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
Section 6. Corporate Records. The original or attested copies of the
-----------------
Certificate of Incorporation, By-laws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock and
transfer records, which shall contain the names of all stockholders, their
record addresses and the amount of stock held by each, shall be kept at the
principal office of the Corporation, at the office of its counsel, or at an
office of its transfer agent.
Section 7. Certificate of Incorporation. All references in these By-laws
----------------------------
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the Corporation, as amended and in effect from time to time.
Section 8. Amendments. These By-laws may be altered, amended or repealed
----------
by the vote of a majority in interest of the stockholders of the Corporation at
any regular or special meeting thereof; or by the vote of a majority of the
Board of Directors at any regular or special meeting thereof, without any action
on the part of the stockholders, unless otherwise provided
13
<PAGE>
herein; provided that (i) the Board of Directors may not amend or repeal this
--------
Section 8 nor may it amend or repeal any other provision of these By-laws to the
extent such amendment or repeal requires action by the stockholders, and (ii)
any amendment or repeal of these By-laws by the Board of Directors and any
provision of these By-laws adopted by the Board of Directors may be amended or
repealed by the stockholders.
Adopted and Effective: August 7, 1998
14
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED
BY-LAWS
OF
ALBANY MOLECULAR RESEARCH, INC.
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
-------------------------------------------
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (a) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (b) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (a) the 75th day prior to the scheduled date of such
Annual Meeting or (b) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made or sent by the
Corporation. For all subsequent
<PAGE>
Annual Meetings, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
less than 75 days nor more than 120 days prior to the anniversary date of the
immediately preceding Annual Meeting (the "Anniversary Date"); provided,
--------
however, that in the event the Annual Meeting is scheduled to be held on a date
- -------
more than 30 days before the Anniversary Date or more than 60 days after the
Anniversary Date, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the later of (a) the 75th day prior to the
scheduled date of such Annual Meeting or (b) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each matter
proposed to be brought before an Annual Meeting: (a) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting, (b) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (c) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (d) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (e) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (f) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the manner set
forth above, the presiding officer of the Annual Meeting shall determine whether
the stockholder proposal was made in accordance with the terms of this Section
2. If the presiding officer determines that any stockholder proposal was not
made in a timely fashion in accordance with the provisions of this Section 2 or
that the information provided in a
2
<PAGE>
stockholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
Section 2, the presiding officer shall so declare at the Annual Meeting.
Notwithstanding the foregoing provisions of this By-law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2, and nothing
in this Section 2 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
----------------
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Chairman of the Board, if one is elected, or the Board of Directors pursuant
to a resolution approved by the affirmative vote of a majority of the directors
then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
--------------------------------------------
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of each
--------------------------------
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the
"Certificate") or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be given
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business
3
<PAGE>
because the meeting was not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any Annual Meeting or special meeting of
stockholders need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall
the public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; provided, however, that if the adjournment is for more than 30
-------- -------
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-laws, is entitled to such notice.
SECTION 6. Quorum. The holders of shares of voting stock representing a
------
majority of the voting power of the outstanding shares of voting stock issued,
outstanding and entitled to vote at a meeting of stockholders, represented in
person or by proxy at such meeting, shall constitute a quorum; but if less than
a quorum is present at a meeting, the holders of voting stock representing a
majority of the voting power present at the meeting or the presiding officer may
adjourn the meeting from time to time, and the meeting may be held as adjourned
without further notice, except as provided in Section 5 of this Article I. At
such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate.
Stockholders may vote either in person or by proxy, but no proxy shall be voted
or acted upon after three years from its date, unless
4
<PAGE>
the proxy provides for a longer period. Proxies shall be filed with the
Secretary of the meeting before being voted. Except as otherwise limited therein
or as otherwise provided by law, proxies shall entitle the persons authorized
thereby to vote at any adjournment of such meeting, but they shall not be valid
after final adjournment of such meeting. A proxy with respect to stock held in
the name of two or more persons shall be valid if executed by or on behalf of
any one of them unless at or prior to the exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid, and the burden of proving invalidity shall rest on the challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter before
-----------------
any meeting of stockholders shall be decided by the vote of a majority of the
voting power of shares of voting stock present in person or represented by proxy
at such meeting and entitled to vote on such matter, except where a larger vote
is required by law, by the Certificate or by these By-laws. Any election of
directors by stockholders shall be determined by a plurality of the votes cast,
except where a larger vote is required by law, by the Certificate or by these
By-laws. The Corporation shall not directly or indirectly vote any shares of
its own stock that belong to the Corporation; provided, however, that the
-------- -------
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary (or
-----------------
the Corporation's transfer agent or other person authorized by these By-laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
5
<PAGE>
SECTION 11. Voting Procedures and Inspectors of Elections. The
---------------------------------------------
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation
----------------
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
--------------------
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3 and who seeks to make such a nomination, or his, her or its
representative, must be present in person at the Annual Meeting. Only persons
nominated in accordance with the procedures set forth in this Section 3 shall be
eligible for election as directors at an Annual Meeting.
6
<PAGE>
Nominations, other than those made by, or at the direction of, the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3. For the first Annual Meeting
following the initial public offering of common stock of the Corporation, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (a) the 75th day prior to the scheduled date of such
Annual Meeting or (b) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made or sent by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the Anniversary Date; provided, however, that in the event the Annual Meeting is
-------- -------
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(a) the 75th day prior to the scheduled date of such Annual Meeting or (b) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such stockholder notice, and (d) the consent
of each nominee to serve as a director if elected. A stockholder's notice to
the Secretary shall further set forth as to the stockholder giving such notice:
(a) the name and address, as they appear on the Corporation's stock transfer
books, of such stockholder and of the beneficial owners (if any) of the
Corporation's capital stock registered in such stockholder's name and the name
and address of other stockholders known by such stockholder to be supporting
such nominee(s), (b) the class and number of shares of the Corporation's capital
stock which are held of record, beneficially owned or represented by proxy by
such stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3 or that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this
7
<PAGE>
Section 3, the presiding officer of the Annual Meeting shall determine whether a
nomination was made in accordance with such provisions. If the presiding officer
determines that any stockholder nomination was not made in a timely fashion in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this
Section 3 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if such notice shall be delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than the close of business on the 15th day following the day on
which such public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
SECTION 4. Qualification. No director need be a stockholder of the
-------------
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
---------
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
preferred stock to elect directors, when the number of directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the
8
<PAGE>
increased or decreased number of directors shall be apportioned; provided,
--------
however, that no decrease in the number of directors shall shorten the term of
- -------
any incumbent director. In the event of a vacancy in the Board of Directors,
the remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in the manner
-------
provided in the Certificate.
SECTION 7. Resignation. A director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may
be held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer. The person calling any such special meeting of the Board of Directors
may fix the hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting
of the Board of Directors shall be given to each director in person, by
telephone, or by facsimile, telex, telecopy, telegram, or other written form of
electronic communication, sent to his or her business or home address, at least
24 hours in advance of the meeting, or by written notice mailed to his or her
business or home address, at least 48 hours in advance of the meeting. Such
notice shall be deemed to be delivered when hand delivered to such address, read
to such director by telephone, deposited in the mail so addressed, with postage
thereon prepaid if mailed, dispatched or transmitted if faxed, telexed or
telecopied, or when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an
9
<PAGE>
announcement at the meeting at which such adjournment is taken of the hour, date
and place to which the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a majority
------
of the directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 13. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
-----------------------
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority of
----------
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation and Option
Committee and an Audit Committee, and may delegate thereto some or all of its
powers except those which by law, by the Certificate or by these By-laws may not
be delegated. Except as the Board of Directors may otherwise determine, any
such committee may make rules for the conduct of its business, but unless
otherwise provided by the Board of Directors or in such rules, its business
shall be
10
<PAGE>
conducted so far as possible in the same manner as is provided by these
By-laws for the Board of Directors. All members of such committees shall hold
such offices at the pleasure of the Board of Directors. The Board of Directors
may abolish any such committee at any time. Any committee to which the Board of
Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors; provided that directors who are serving the Corporation as
--------
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board, a Chief Executive Officer and one
or more Vice Presidents (including Executive Vice Presidents or Senior Vice
Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board following
--------
the Annual Meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by
------
these By-laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
11
<PAGE>
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 10. Chief Executive Officer. The Chief Executive Officer, if one
-----------------------
is elected, shall, subject to the direction of the Board of Directors, have
general supervision and control of the Corporation's business. If there is no
Chairman of the Board or if he or she is absent, the Chief Executive Officer
shall preside, when present, at all meetings of stockholders and of the Board of
Directors. The Chief Executive Officer shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.
SECTION 11. President. The President shall generally have such powers and
---------
shall perform such duties as the Board of Directors may from time to time
designate. However, if no Chief Executive Officer is elected, the President
shall have general supervision and control of the Corporation's business. If
there is neither a Chairman of the Board nor a Chief Executive Officer or if
both such officers are absent, the President shall preside, when present, at all
meetings of stockholders and of the Board of Directors.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation
12
<PAGE>
and shall cause to be kept accurate books of account. The Treasurer shall have
custody of all funds, securities, and valuable documents of the Corporation. He
or she shall have such other duties and powers as may be designated from time to
time by the Board of Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such
13
<PAGE>
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the time of
its issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney properly executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate or by these By-laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (a) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (b) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
14
<PAGE>
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Director" means any person who serves or has served the Corporation
as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as an
employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry, investigation,
administrative hearing or other proceeding, whether civil, criminal,
administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the case
of a Director, is or was a director of the Corporation and is or was acting in
such capacity, (ii) in the case of an Officer, is or was an officer, employee or
agent of the Corporation or is or was a director, officer, employee or agent of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such Officer is or was serving at the request of the
Corporation, and (iii) in the case of a Non-Officer Employee, is or was an
employee of the Corporation or is or was a director, officer, employee or agent
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Non-Officer Employee is or was serving at
the request of the Corporation. For purposes of subsection (ii) of this Section
1(f), an officer or director of the Corporation who is serving as a director,
partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to
be serving at the request of the Corporation;
15
<PAGE>
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding; and
(h) "Subsidiary" shall mean any corporation, partnership, limited liability
company, joint venture, trust or other entity of which the Corporation owns
(either directly or through or together with another Subsidiary of the
Corporation) either (i) a general partner, managing member or other similar
interest or (ii) (A) 50% or more of the voting power of the voting capital
equity interests of such corporation, partnership, limited liability company,
joint venture or other entity, or (B) 50% or more of the outstanding voting
capital stock or other voting equity interests of such corporation, partnership,
limited liability company, joint venture or other entity.
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification under these by-laws.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses, judgments, penalties,
fines and amounts reasonably paid in settlement that are incurred by such Non-
Officer Employee or on such Non-Officer Employee's behalf in connection with any
threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by
16
<PAGE>
reason of such Non-Officer Employee's Corporate Status, if such Non-Officer
Employee acted in good faith and in a manner such Non-Officer Employee
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The rights of indemnification
provided by this Section 3 shall exist as to a Non-Officer Employee after he or
she has ceased to be a Non-Officer Employee and shall inure to the benefit of
his or her heirs, personal representatives, executors and administrators.
Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer
Employee seeking indemnification in connection with a Proceeding initiated by
such Non-Officer Employee only if such Proceeding was authorized by the Board of
Directors of the Corporation.
SECTION 4. Good Faith. Unless ordered by a court or required by Section
----------
145(c) of the DGCL, no indemnification shall be provided pursuant to this
Article V to a Director, to an Officer or to a Non-Officer Employee unless a
determination shall have been made that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal Proceeding, such
person had no reasonable cause to believe his or her conduct was unlawful. Such
determination shall be made by (a) a majority vote of the Disinterested
Directors, even though less than a quorum of the Board of Directors, (b) a
committee comprised of Disinterested Directors, such committee having been
designated by a majority vote of the Disinterested Directors (even though less
than a quorum), (c) if there are no such Disinterested Directors, or if a
majority of Disinterested Directors so directs, by independent legal counsel in
a written opinion, or (d) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within 10 days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees
-------------------------------------------------------------
Prior to Final Disposition.
- --------------------------
(a) Advancement to Officers. The Corporation may, at the discretion of the
-----------------------
Board of Directors of the Corporation, advance any or all Expenses incurred by
or on behalf of any Officer in connection with any Proceeding in which such is
involved by reason of such Officer's Corporate Status upon the receipt by the
Corporation of a statement or statements from such Officer requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
17
<PAGE>
evidence the Expenses incurred by such Officer and shall be preceded or
accompanied by an undertaking by or on behalf of such to repay any Expenses so
advanced if it shall ultimately be determined that such Officer is not entitled
to be indemnified against such Expenses.
(b) Advancement to Non-Officer Employees. The Corporation may, at the
------------------------------------
discretion of the Board of Directors or of any Officer who is authorized to act
on behalf of the Corporation, advance any or all Expenses incurred by or on
behalf of any Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved by reason of such Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Non-Officer Employee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such Non-Officer Employee to repay any Expenses
so advanced if it shall ultimately be determined that such Non-Officer Employee
is not entitled to be indemnified against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of this
----------------------------
Article V shall be deemed to be a contract between the Corporation and each
Director and Officer entitled to the benefits hereof at any time while this
Article V is in effect, and any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any Proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer is
not paid in full by the Corporation within (a) 60 days after receipt by the
Corporation of a written claim for indemnification, or (b) in the case of a
Director, 10 days after receipt by the Corporation of documentation of Expenses
and the required undertaking, such Director or Officer may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, such Director or Officer shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these By-
laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
18
<PAGE>
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of this Corporation, or appoint
another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
19
<PAGE>
SECTION 7. Certificate. All references in these By-laws to the
-----------
Certificate shall be deemed to refer to the Certificate of Incorporation of the
Corporation, as amended and in effect from time to time.
SECTION 8. Amendment of By-laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
----------------------
By-laws may be amended or repealed by the Board of Directors.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
-------------------------
at any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the total
votes eligible to be cast on such amendment or repeal by holders of voting
stock, voting together as a single class; provided, however, that if the Board
-------- -------
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
Adopted August 7, 1998 and effective as of _______, 1998.
20
<PAGE>
EXHIBIT 5.1
[Letterhead of Goodwin, Procter & Hoar LLP]
August 14, 1998
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203
Ladies and Gentlemen:
We have acted as special counsel to Albany Molecular Research, Inc., a
Delaware corporation (the "Company"), in connection with the offer and sale by
the Company of up to 2,530,000 shares of common stock, par value $0.01 per share
("Common Stock"), of the Company (the "Shares"). The Shares include an
overallotment option of up to 330,000 shares of Common Stock. This opinion is
being delivered in connection with the Company's Registration Statement on Form
S-1 (No. 333-58795) (the "Registration Statement") relating to the registration
of the offering and sale of the Shares under the Securities Act of 1933, as
amended. All of the Shares are to be sold by the Company to the several
underwriters (the "Underwriters") of which ING Baring Furman Selz LLC and
Hambrecht & Quist LLC are the representatives (the "Representatives") pursuant
to an Underwriting Agreement (the "Underwriting Agreement") to be entered into
between the Company and the Representatives of the Underwriters.
As the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of public
officials and other instruments as we have deemed necessary or advisable for the
purposes of this opinion. In such examination, we have assumed the authenticity
of all documents submitted to us as originals and the conformity with the
original documents of all documents submitted to us as copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that the Shares to be sold by the Company to the
Underwriters as described in the Registration Statement have been duly
authorized and, upon delivery of such Shares and payment therefor in accordance
with the Underwriting Agreement, will be validly issued, fully paid and non-
assessable.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
1992 STOCK OPTION PLAN
OF
ALBANY MOLECULAR RESEARCH, INC.
-------------------------------
1. Purpose. The purpose of this Amended and Restated 1992 Stock Option
-------
Plan is to advance the interests of Albany Molecular Research, Inc. (the
"Company") by encouraging and enabling the acquisition of a larger personal
proprietary interest in the Company by Eligible Recipients upon whose judgment
and keen interest the Company and its Subsidiaries are largely dependent for the
successful conduct of their operations. It is anticipated that the acquisition
of such proprietary interest in the Company will stimulate the efforts of such
Eligible Recipients on behalf of the Company and its Subsidiaries and strengthen
their desire to remain with the Company and its Subsidiaries. It is also
expected that the opportunity to acquire such a proprietary interest will enable
the Company and its Subsidiaries to attract desirable personnel.
2. Definitions. When used in this Plan, unless the context otherwise
-----------
requires:
(a) "Act" shall mean the Securities Exchange Act of 1934, as amended.
(b) "Board of Directors" or "Board" shall mean the Board of Directors
of Albany Molecular Research, Inc. as constituted at any time.
(c) "Chairman of the Board" shall mean the person who at the time
shall be Chairman of the Board of Directors.
(d) "Committee" shall mean the Stock Option Committee of the Board of
Directors, as described in Section 3.
(e) "Company" shall mean Albany Molecular Research, Inc.
(f) "Eligible Recipients" shall mean employees of the Company or its
Subsidiaries, including directors who are also employees but not
directors who are not employees; provided, however, that neither
Thomas E. D'Ambra, a member of the Board and President of the
Company, nor Chester J. Opalka, a member of the Board and Vice
President of the Company, as of the date of adoption of this
Plan, shall be an Eligible Recipient.
(g) "Fair Market Value" on a specified date shall mean the average of
the bid and asked closing prices at which one Share is traded on
the over-the-counter market, as reported on the National
Association of Securities
<PAGE>
Dealers Automated Quotation System, or the closing price for a
Share on the stock exchange, if any, on which Shares are
primarily traded, but if no Shares were traded on such date, then
on the last previous date on which a Share was so traded, or, if
none of the above is applicable, the value of a Share as
established by the Board of Directors for such date using any
reasonable method of valuation.
(h) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(i) "Options" shall mean the stock options issued pursuant to this
Plan.
(j) "Plan" shall mean this Amended and Restated 1992 Stock Option
Plan of Albany Molecular Research, Inc., as such Plan may be
amended from time to time.
(k) "Share" shall mean a share of common stock of the Company, par
value $.01.
(l) "Subsidiary" shall mean any corporation or other entity (other
than the Company) in any unbroken chain of corporations or other
entities, beginning with the Company, if each of the corporations
or entities (other than the last corporation or entity in the
unbroken chain) owns stock or other interests possessing 50
percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of
the other corporations or entities in the chain.
3. Administration of the Plan. The Board of Directions shall appoint a
--------------------------
Committee of at least three (3) members of the Board of Directors, each of whom
shall be a "disinterested person" within the meaning of Rule 16b-3(d)(3) under
the Securities Exchange Act of 1934, as amended, which shall have the authority
to administer the Plan as provided herein. Each member of the Committee shall
hold office until the next regular annual meeting of the Board of Directors
following his designation and until his successor is designated as a member of
the Committee. Any vacancy in the Committee may be filled by a resolution
adopted by a majority of the full Board of Directors. Any member of the
Committee may be removed at any time, with or without cause, by resolution
adopted by a majority of the full Board of Directors. A member of the Committee
may resign from the Committee at any time by giving written notice to the
President or Secretary of the Company, and unless otherwise specified therein,
such resignation shall take effect upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective. The Committee shall
establish such rules and procedures as are necessary or advisable to administer
the Plan.
2
<PAGE>
4. Participants. Except as hereinafter provided, the class of
------------
individuals who are potential recipients of Options to be granted under this
Plan consists of those individuals who are Eligible Recipients, as determined by
the Committee. The Eligible Recipients to whom Options are granted under this
Plan and the number of Shares subject to each such Option shall be determined by
the Committee, in its sole discretion, in accordance with the terms and
conditions of this Plan.
5. Shares; Grant of Options. The Committee may, but shall not be
------------------------
required to, grant, in accordance with this Plan, Options to purchase an
aggregate of up to 1,000,000 Shares, which may be either Treasury Shares or
authorized but unissued Shares.
Options granted under this Plan may be either "incentive stock options
(within the meaning of Section 422A of the Internal Revenue Code) or non-
qualified stock options. An Option granted under this Plan shall be deemed to
be an incentive stock option (within the meaning of Section 422A of the Internal
Revenue Code), unless the Committee, in its sole discretion, designates
otherwise. Options which are designated not to be incentive stock options shall
be treated as such for purposes of this Plan and the Internal Revenue Code.
If any Option shall expire, be cancelled or terminate for any reason
without having been exercised in full, the unpurchased Shares subject thereto
may again be made subject to Options under the Plan.
Nothing herein contained shall be construed to prohibit the grant of
Options at different times to the same Eligible Recipient.
The form of Option shall be determined from time to time by the Committee.
The terms and provisions of the Option shall be set forth in writing in a
certificate or agreement (the "Option Certificate") signed by the Option holder
and on behalf of the Company by the Chairman of the Board of Directors or the
President or a Vice President of the Company. The Option Certificate shall
state whether or not the Option is an incentive stock option. The Committee
may, in its sole discretion, at the time an Option is granted, establish one or
more conditions to the exercise of an Option, provided that, if such Option is
designated as an incentive stock option, then such condition or conditions shall
not be inconsistent with Section 422A of the Internal Revenue Code.
6. Price. The exercise price per Share of the Shares to be purchased
-----
pursuant to any Option shall be fixed by the Committee at the time an Option is
granted, but in no event shall the exercise price for Incentive Stock Options be
less than the Fair Market Value of a Share on the day on which the Option is
granted.
7. Duration of Options. The duration of any Option granted under this
-------------------
Plan shall be for a period fixed by the Committee, but not more than ten (10)
years from the date upon which the Option is granted.
3
<PAGE>
8. Limitations Regarding Ten Percent Stockholders. No Option which is
----------------------------------------------
intended to qualify as an incentive stock option may be granted under this Plan
to any Eligible Recipient who, at the time the Option is granted, owns, or is
considered as owning, within the meaning of Section 422A of the Internal Revenue
Code, shares possessing more than ten percent (10%) of the total combined voting
power or value of all classes of the stock of the Company or a Subsidiary,
unless the exercise price under such Option is at least 110 percent (110%) of
the Fair Market Value of a Share on the date such Option is granted and the
duration of such Option is no more than five (5) years.
9. Option Holder Not a Stockholder. An Option holder shall not be deemed
-------------------------------
to be the holder of, or to have any of the rights of a stockholder with respect
to, any Shares subject to such Option unless and until the Option shall have
been exercised pursuant to the terms thereof, the Company shall have issued and
delivered Shares to the Option holder, and said holder's name shall have been
entered as a stockholder of record on the books of the Company. Thereupon, said
holder shall have full voting, dividend and other ownership rights with respect
to such Shares.
10. Consideration for Options. As consideration for the grant of an
-------------------------
Option, the Company may, in its discretion, obtain in each case: (a) from any
Eligible Recipient who is an employee of the Company or a Subsidiary and who, at
the time the Option is granted, shall not have been under a contract of
employment, an option to have the services of such Eligible Recipient for such
period, up to one (1) year, as the Company shall determine; or (b) from any
Eligible Recipient who is under an employment contract at the time the Option is
granted, an option to extend the term of his contract for a period of up to one
(1) year upon such terms and conditions as the Company and the Eligible
Recipient may agree, but if they are unable to agree, then upon the same terms
and conditions of such contract; or (c) from either an Eligible Recipient who is
or is not under an employment contract at the time the Option is granted, such
other consideration as the Committee, in its discretion, shall request.
11. Non-transferability of Options. Options and all rights thereunder
------------------------------
shall be non-transferable and non-assignable by the holder thereof, except to
the extent that the representative of the estate of the heirs of a deceased
Option holder may be permitted to exercise them, and during the holder's
lifetime shall be exercisable only by the holder.
12. Exercise of Options. Except as otherwise provided herein, an Option,
-------------------
after the grant thereof, shall be exercisable by the holder at such rate and
times as may be fixed by the Committee at the time the Option is granted.
Notwithstanding any other provision of this Plan to the contrary, any
Option granted under the Plan which is an incentive stock option shall not be
exercisable to the extent that the Fair Market Value of the Shares (determined
as of the date of grant) with respect to which such Option (and any other
incentive stock option granted to the holder under this Plan or any other stock
option plan maintained by the Company or any Subsidiary) first becomes
exercisable in any calendar year exceeds $100,000.
4
<PAGE>
All or any part of any remaining unexercised Options granted to any person
may be exercised in full, whether or not then exercisable, upon the occurrence
of such special circumstance or event as in the sole discretion of the Committee
merits special consideration.
An Option shall be exercised by the delivery of a written notice duly
signed by the Option holder thereof (or the representative of the estate or the
heirs of a deceased Option holder) to such effect, together with the Option
Certificate and either cash, a certified check payable to the order of the
Company or Shares duly endorsed over to the Company (which Shares shall be
valued at their Fair Market Value as of the date preceding the day of such
exercise) or any combination of such methods of payment, which together amount
to the full exercise price of the Shares purchased pursuant to the exercise of
the Option, to the Chairman of the Board, the President or an officer of the
Company who has been designated for the purpose of receiving the same; provided,
however, that from and after the time that the Company becomes subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended, a
holder may not use any Shares acquired pursuant to the exercise of an Option
granted under this Plan or any other stock option plan maintained by the Company
or any Subsidiary unless the holder has beneficially owned such Shares for at
least six months, unless such transaction is not prohibited by, or require
disgorgement of profits under, the Exchange Act or other applicable securities
laws. No Option may be granted pursuant to the Plan or exercised at any time
when such Option, or the granting or exercise thereof, may result in the
violation of any law or governmental order or regulation.
Within a reasonable time after exercise of an Option, the Company shall
cause to be delivered to the person entitled thereto a certificate for the
Shares purchased pursuant to the exercise of the Option. If the Option shall
have been exercised with respect to less than all of the Shares subject to the
Option, the Company shall also cause to be delivered to the person entitled
thereto a new Option Certificate in replacement of the Option Certificate
surrendered at the time of the exercise of the Option, indicating the number of
Shares with respect to which the Option remains available for exercise, or the
original Option Certificate shall be endorsed to give effect to the partial
exercise thereof.
13. Termination of Services. All or any part of any Option, to the extent
-----------------------
unexercised, shall terminate immediately if the Option holder ceases to be an
employee of the Company or a Subsidiary, except that the Option holder shall
have until the end of the fifth (5th) business day following the date he ceases
to be an employee of the Company, or a Subsidiary, and no longer, to exercise
any unexercised Option that he could have exercised on the day on which such
employment or position terminated; provided that such exercise must be
accomplished prior to the expiration of the term of such Option.
Notwithstanding the foregoing, if an individual ceases to be an employee of the
Company or a Subsidiary due to retirement on or after attaining the age of
sixty-five (65) years (or such earlier date as such person shall be permitted to
retire under the Company's retirement plan, if any), or to disability (as such
term is defined in Section 422A(c)(7) of the Internal Revenue Code, the
existence of which disability shall be determined by the Committee, in its sole
discretion, which determination shall be conclusive) or to death, the Option
holder, or the representative
5
<PAGE>
of the estate or the heirs of a deceased Option holder, shall have the privilege
of exercising the Options which are unexercised at the time of such retirement,
disability or death, but only to the extent that such Options are then
exercisable: (a) within three (3) months of the Option holders retirement; (b)
within one year of the Option holders' disability; or (c) within one year of the
Option holder's death, as the case may be; provided, however, that such exercise
must be accomplished prior to the expiration of the term of such Option. If an
Option holder ceases to be an employee of the Company or a Subsidiary because of
the Option holder's violation of his duties to the Company and its Subsidiaries
as he may from time to time have, the existence of which violation shall be
determined by the Committee, in its sole discretion (which determination by the
Committee shall be conclusive), all unexercised Options of such Option holder
shall terminate immediately upon such termination and such Option holder shall
have no right after such termination to exercise any unexercised Option he might
have exercised prior to the date he ceased to be an employee of the Company or a
Subsidiary.
Nothing contained herein or in the Option Certificate shall be construed to
confer on any Eligible Recipient any right to continue in the employ of the
Company or its Subsidiaries or as a director of the Company or its Subsidiaries
or derogate from any right of the Company or its Subsidiaries to retire, request
the resignation of or discharge such Eligible Recipient, at any time, with or
without cause.
14. Adjustment of Shares. If prior to the complete exercise of any Option
--------------------
there shall be declared and paid a stock dividend upon the common stock of the
Company or if the common stock of the Company shall be split-up, converted,
exchanged, reclassified, or in any way substituted for, the Option, to the
extent that it has not been exercised, shall entitle the holder thereof upon the
future exercise of the Option to such number and kind of securities or cash or
other property, subject to the terms of the Option, to such number and kind of
securities or cash or other property, subject to the terms of the Option, to
which he would have been entitled had he actually owned the Shares subject to
the unexercised portion of the Option at the time of the occurrence of such
stock dividend, split-up, conversion, exchange, reclassification or
substitution; and the aggregate exercise price upon the future exercise of the
Option shall be the same as if the originally optioned Shares were being
purchased thereunder. If prior to the complete exercise of any Option there
shall be a spin-off transaction pursuant to the reorganization of the Company,
the Option to the extent that it has not been exercised, shall be adjusted by
adjusting the exercise prices thereto, in order to reflect the decrease, if any,
in the fair market value of the Shares resulting from the spin-off transaction;
in any case, the Option, as adjusted, shall entitle the holder thereof, upon the
future exercise of the Option, to the number of Shares which have a fair market
value immediately after the occurrence of the spin-off transaction equal to the
fair market value of the Share subject to the Option on the day before the
occurrence of such spin-off transaction, and the aggregate exercise price upon
the future exercise of the Option shall be the same as the aggregate exercise
price of the Shares subject to the Option on the day before the occurrence of
such spin-off transaction. Any fractional shares or other securities payable
upon the exercise of the Option as a result of such adjustment due to the
occurrence of such stock dividend, split-up, conversion, exchange,
reclassification, substitution or spin-off shall be payable in cash based upon
the Fair Market Value of such shares or securities
6
<PAGE>
at the time of such exercise. If any such event should occur, the number of
Shares with respect to which Options remain to be issued, or with respect to
which Options may be reissued, shall be adjusted in a similar manner.
In the case of and subject to the consummation of (i) the dissolution or
liquidation of the Company, (ii) the sale of all or substantially all of the
assets of the Company on a consolidated basis to an unrelated person or entity,
(iii) a merger, reorganization or consolidation in which the holders of the
Company's outstanding voting power immediately prior to such transaction do not
own a majority of the outstanding voting power of the surviving or resulting
entity immediately upon completion of such transaction, (iv) the sale of all of
the common stock of the Company to an unrelated person or entity or (v) any
other transaction in which the owners of the Company's outstanding voting power
prior to such transaction do not own at least a majority of the outstanding
voting power of the relevant entity after the transaction (in each case, a
"Covered Transaction"), all Options that are not exercisable shall become fully
exercisable. Upon the consummation of the Covered Transaction, the Plan and all
outstanding Options granted hereunder shall terminate, unless provision is made
in connection with the Covered Transaction for the assumption of Options
heretofore granted, or the substitution of such Options with new Options of the
successor entity or parent thereof, with appropriate adjustment as to the number
and kind of shares and, if appropriate, the per share exercise prices, as
provided above. In the event of such termination, each Option holder shall be
permitted, within a specified period of time determined by the Committee prior
to consummation of the Covered Transaction, to exercise all outstanding Options
held by such Option holder, including those that are not then exercisable,
subject to the consummation of the Covered Transaction.
14A. Change of Control Provisions. Upon the occurrence of a Change of
----------------------------
Control as defined in this Section 14A, except as otherwise provided in the
applicable Option Certificate, each outstanding Option shall automatically
become fully exercisable.
"Change of Control" shall mean the occurrence of any one of the following
events:
(i) any "Person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any
trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of
its Subsidiaries and other than Thomas E. D'Ambra, Ph.D.),
together with all "affiliates" and "associates" (as such terms
are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
the Company representing 25 percent or more of the combined
voting power of the Company's then outstanding securities having
the right to vote in an election of the Company's Board of
Directors ("Voting Securities") (in such case other than as a
result of an acquisition of securities directly from the
Company); or
7
<PAGE>
(ii) persons who, as of August 7, 1998, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a
tender offer, proxy contest, merger or similar transaction,
to constitute at least a majority of the Board, provided
that any person becoming a director of the Company
subsequent to August 7, 1998 shall be considered an
Incumbent Director if such person's election was approved by
or such person was nominated for election by either (A) a
vote of at least a majority of the Incumbent Directors or
(B) a vote of at least a majority of the Incumbent Directors
who are members of a nominating committee comprised, in the
majority, of Incumbent Directors; but provided further, that
any such person whose initial assumption of office is in
connection with an actual or threatened election contest
relating to the election of members of the Board of
Directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than
the Board, including by reason of agreement intended to
avoid or settle any such actual or threatened contest or
solicitation, shall not be considered an Incumbent Director;
or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Act), directly or
indirectly, shares representing in the aggregate more than
50 percent of the voting shares of the corporation issuing
cash or securities in the consolidation or merger (or of its
ultimate parent corporation, if any), (B) any sale, lease,
exchange or other transfer (in one transaction or a series
of transactions contemplated or arranged by any party as a
single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation
or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person to 25 percent or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
8
<PAGE>
15. Issuance Of Shares and Compliance with Securities Laws. Before
------------------------------------------------------
issuing and delivering any Shares to an Option holder, the Company may: (i)
require the holder to give satisfactory assurances that the Shares are being
purchased for investment and not with a view to resale or distribution, and will
not be transferred in violation of applicable securities laws; (ii) restrict the
transferability of such shares and require a legend to be endorsed on the
certificate representing the Shares; and (iii) condition the exercise of an
Option or the issuance and delivery of Shares upon the listing, registration or
qualification of the Shares covered by such Option upon a securities exchange or
under applicable securities laws.
The Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, as amended. Any provision inconsistent with such Rule
shall be inoperative and shall not affect the validity of the Plan.
16. Income Tax Withholding. If the Company or a Subsidiary shall be
----------------------
required to withhold any amounts by reason of any federal, state or local tax
rules or regulations in respect of the issuance of Shares pursuant to the
exercise of the Option, the Company or such Subsidiary shall be entitled to
deduct and withhold such amount from any cash payments to be made to the Option
holder. In any event, the holder shall make available to the Company or such
Subsidiary, promptly when requested by the Company or such Subsidiary,
sufficient funds to meet the requirements of such withholding, and the Company
or such Subsidiary shall be entitled to take and authorize such steps as it may
deem advisable in order to have such funds made available to the Company or such
Subsidiary out of any funds or property due to or to become due to the holder.
17. Administration and Amendment of the Plan. Except as hereinafter
----------------------------------------
provided, the Board of Directors and the Committee, if any, may at the time
withdraw or from time to time amend the Plan as it relates to, and the terms and
conditions of, any Options not theretofore granted, and the Board of Directors
and the Committee, if any, with the consent of each adversely affected Option
holder, may at any time cancel any outstanding Option or withdraw or from time
to time amend the Plan as it relates to, and the terms and conditions of, any
outstanding Option. Notwithstanding the foregoing, any amendment which would
increase the number of Shares issuable under Options or change the class of
employees to whom Options may be granted must be adopted by the Board of
Directors and shall be subject to the approval of the stockholders of the
Company within one (1) year of such amendment.
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and Options shall be
final. The Committee may authorize and establish such rules, regulations and
revisions thereof, not inconsistent with the provisions of the Plan, as it may
deem advisable to make the Plan and Options effective or provide for their
administration, and may take such other action with regard to the Plan and
Options as it shall deem desirable to effectuate their purpose.
9
<PAGE>
18. Indemnification of Committee. In addition to such other rights of
----------------------------
indemnification as they may have as members of the Board of Directors or as
members of the Committee, the Company shall indemnify the members of the
Committee against all costs and expenses reasonably incurred by them in
connection with any action, suit or any action taken or failure to act under or
in connection with the Plan or any award made under the Plan, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit or proceeding, a Committee member shall
notify the Company in writing, giving the Company an opportunity, at its own
expense, to handle and defend the same before such Committee member undertakes
to handle it on his own behalf.
19. Effective Date. The original version of this Plan became effective as
--------------
of August 1, 1992, the date on which the plan was adopted by the Board of
Directors of the Company and approved by the holders of a majority of the
outstanding Shares of the Company at a duly held Stockholders' meeting. This
Plan shall be effective as of August 7, 1998, the date on which the plan was
adopted by the Board of Directors of the Company. This Plan amends in certain
respects and integrates and supersedes versions of the Plan as heretofore in
effect.
20. Final Issuance Date. No Option shall be granted under the Plan after
-------------------
August 1, 2002.
10
<PAGE>
EXHIBIT 10.4
ALBANY MOLECULAR RESEARCH, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Albany Molecular Research, Inc. 1998 Employee Stock
Purchase Plan ("the Plan") is to provide eligible employees of Albany Molecular
Research, Inc. (the "Company") and its subsidiaries with opportunities to
purchase shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). Two hundred thousand (200,000) shares of Common Stock in the
aggregate have been approved and reserved for this purpose. The Plan is
intended to constitute an "employee stock purchase plan" within the meaning of
Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and shall be interpreted in accordance with that intent.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a committee appointed by the Board for such
purpose (the "Committee"). The Board or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
No member of the Board or the Committee shall be liable for any action or
determination with respect to the Plan or any option granted hereunder.
2. Offerings. The Company will make one or more offerings to eligible
---------
employees to purchase the Common Stock under the Plan ("Offerings"). The
initial Offering will begin on January 1, 1999 and will end on June 30, 1999.
Thereafter, an Offering will begin on the first business day occurring on or
after each January 1 and July 1 and will end on the last business day occurring
on or before the following June 30 and December 31, respectively. The Committee
may, in its discretion, choose an Offering period of six months or less for each
of the Offerings and choose a different Offering period for each Offering.
<PAGE>
3. Eligibility. All employees of the Company (including employees who
-----------
are also directors of the Company) and all employees of each Designated
Subsidiary (as defined in Section 11) are eligible to participate in any one or
more of the Offerings under the Plan, provided that as of the first day of the
applicable Offering (the "Offering Date") they are customarily employed by the
Company or a Designated Subsidiary for more than twenty (20) hours a week.
4. Participation. An employee eligible on any Offering Date may
-------------
participate in such Offering by submitting an enrollment form to his or her
appropriate payroll location at least fifteen (15) business days before the
Offering Date (or by such other deadline as shall be established for the
Offering). The form will (a) state a whole percentage to be deducted from such
employee's Compensation (as defined in Section 11) per pay period, (b) authorize
the purchase of Common Stock for such employee in each Offering in accordance
with the terms of the Plan and (c) specify the exact name or names in which
shares of Common Stock purchased for such employee are to be issued pursuant to
Section 10. An employee who does not enroll in accordance with these procedures
will be deemed to have waived the right to participate. Unless an employee
files a new enrollment form or withdraws from the Plan, such employee's
deductions and purchases will continue at the same percentage of Compensation
for future Offerings, provided such employee remains eligible. Notwithstanding
the foregoing, participation in the Plan will neither be permitted nor be denied
contrary to the requirements of the Code.
2
<PAGE>
5. Employee Contributions. Each eligible employee may authorize payroll
----------------------
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his or her Compensation for each pay period. The Company will maintain book
accounts showing the amount of payroll deductions made by each participating
employee for each Offering. No interest will accrue or be paid on payroll
deductions.
6. Deduction Changes. An employee may not increase his or her payroll
-----------------
deduction during any Offering, but may decrease his or her payroll deduction for
the remainder of the Offering. An employee may also terminate his or her
payroll deduction for the remainder of the Offering, either with or without
withdrawing from the Offering under Section 7. To reduce or terminate his or
her payroll deduction (without withdrawing from the Offering), an employee must
submit a new enrollment form at least fifteen (15) business days (or such
shorter period as shall be established) before the payroll date on which the
change becomes effective. Subject to the requirements of Sections 4 and 5, an
employee may either increase or decrease his or her payroll deduction with
respect to the next Offering by filing a new enrollment form at least fifteen
(15) business days before the next Offering Date (or by such other deadline as
shall be established for the Offering).
7. Withdrawal. An employee may withdraw from participation in the Plan
----------
by delivering a written notice of withdrawal to his or her appropriate payroll
location. The employee's withdrawal will be effective as of the next business
day. Following an employee's withdrawal, the Company will promptly refund such
employee's entire account balance under the Plan (after payment for any Common
Stock purchased before the effective date of withdrawal). Partial withdrawals
are not permitted. The employee may not begin participation
3
<PAGE>
again during the remainder of the Offering, but may enroll in a subsequent
Offering in accordance with Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to
----------------
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, a maximum of one thousand (1,000)
shares of Common Stock reserved for the purposes of the Plan, or such other
maximum number of shares as shall have been established by the Board or the
Committee in advance of the offering. The purchase price for each share
purchased under such Option (the "Option Price") will be 85% of the Fair Market
Value of the Common Stock on the Offering Date or the Exercise Date, whichever
is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
or her rights to purchase stock under the Plan, and any other employee stock
purchase plan of the Company and its Parents and Subsidiaries, to accrue at a
rate which exceeds $25,000 of the fair market value of such stock (determined on
the option grant date or dates) for each calendar year in which the Option is
4
<PAGE>
outstanding at any time. The purpose of the limitation in the preceding sentence
is to comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee who
-----------------------------------------
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his or her Option on such date and shall acquire from the
Company such number of whole shares of Common Stock reserved for the purpose of
the Plan as his or her accumulated payroll deductions on such date will purchase
at the Option Price, subject to any other limitations contained in the Plan.
Any amount remaining in an employee's account at the end of an Offering solely
by reason of the inability to purchase a fractional share will be carried
forward to the next Offering; any other balance remaining in an employee's
account at the end of an Offering will be refunded to the employee promptly.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or in the name of a broker authorized by the
employee to be his or her nominee for such purpose.
11. Definitions.
-----------
The term "Compensation" means the amount of total cash compensation, prior
to salary reduction pursuant to either Section 125 or 401(k) of the Code,
including base pay, overtime, commissions and bonuses, but excluding allowances
and reimbursements for expenses such as relocation allowances or travel
expenses, income or gains on the exercise of Company stock options, and similar
items.
5
<PAGE>
The term "Designated Subsidiary" means any present or future Subsidiary (as
defined below) that has been designated by the Board or the Committee to
participate in the Plan. The Board or the Committee may so designate any
Subsidiary, or revoke any such designation, at any time and from time to time,
either before or after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the Common
Stock is admitted to trading on a national securities exchange or the National
Association of Securities Dealers National Market System, the closing price
reported for the Common Stock on such exchange or system for such date or, if no
sales were reported for such date, for the last date preceding such date for
which a sale was reported, or (ii) if clause (i) does not apply but the Common
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the average of the highest bid and lowest
asked prices of the Common Stock reported on NASDAQ for such date or, if no bid
and asked prices were reported for such date, for the last day preceding such
date for which such prices were reported.
The term "Parent" means a "parent corporation" with respect to the Company,
as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a participating employee's
-----------------------------------
employment terminates for any reason before the Exercise Date for any Offering,
no payroll deduction will be taken from any pay due and owing to such employee
and the balance in such employee's account will be paid to such employee or, in
the case of death, to such employee's
6
<PAGE>
designated beneficiary as if such employee had withdrawn from the Plan under
Section 7. An employee will be deemed to have terminated employment, for this
purpose, if the corporation that employs such employee, having been a Designated
Subsidiary, ceases to be a Subsidiary, or if such employee is transferred to any
corporation other than the Company or a Designated Subsidiary.
13. Special Rules. Notwithstanding anything herein to the contrary, the
-------------
Board or the Committee may adopt special rules applicable to the employees of a
particular Designated Subsidiary, whenever the Board or the Committee determines
that such rules are necessary or appropriate for the implementation of the Plan
in a jurisdiction where such Designated Subsidiary has employees; provided that
such rules are consistent with the requirements of Section 423(b) of the Code.
Such special rules may include (by way of example, but not by way of limitation)
the establishment of a method for employees of a given Designated Subsidiary to
fund the purchase of shares other than by payroll deduction, if the payroll
deduction method is prohibited by local law or is otherwise impracticable. Any
special rules established pursuant to this Section 13 shall, to the extent
possible, result in the employees subject to such rules having substantially the
same rights as other participants in the Plan.
14. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his or her pay shall constitute such employee a
holder of the shares of Common Stock covered by an Option under the Plan until
such shares have been purchased by and issued to such employee.
7
<PAGE>
15. Rights Not Transferable. Rights under the Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
16. Application of Funds. All funds received or held by the Company under
--------------------
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
17. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
18. Amendment of the Plan. The Board or the Committee may at any time,
---------------------
and from time to time, amend the Plan in any respect, except that without the
approval, within twelve (12) months of such Board or Committee action, by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, no amendment
shall be made increasing the number of shares approved for the Plan or making
any other change that would require stockholder approval in order for the Plan,
as amended, to qualify as an "employee stock purchase plan" under Section 423(b)
of the Code.
8
<PAGE>
19. Insufficient Shares. If the total number of shares of Common Stock
-------------------
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any time by
-----------------------
the Board or the Committee. Upon termination of the Plan, all amounts in the
accounts of participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under the Plan is subject to obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Tax Withholding. Participation in the Plan is subject to any required
---------------
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
9
<PAGE>
24. Notification Upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
25. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect on the first day of the Company's initial public offering, subject to
approval by the holders of a majority of the shares of stock of the Company
present or represented and entitled to vote at a meeting of stockholders, which
approval must occur within twelve (12) months of the adoption of the Plan by the
Board.
10
<PAGE>
EXHIBIT 10.5
FORM OF
-------
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement is made as of this _____ day of ______________, 1998
("Agreement"), by and between Albany Molecular Research, Inc., a Delaware
corporation (the "Company," which term shall include, where appropriate, any
Entity (as hereinafter defined) controlled directly or indirectly by the
Company) and ____________________ ("Indemnitee").
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's Amended and Restated By-laws require it to indemnify
its directors to the fullest extent permitted by law and permit it to make other
indemnification arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless of, among other things, any amendment
to or revocation of any such By-laws or any change in the ownership of the
Company or the composition of its Board of Directors); and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in continuing in Indemnitee's position as a director of the Company.
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
-----------
(a) "Corporate Status" describes the status of a person who is
----------------
serving or has served (i) as a director of the Company, (ii) in any capacity
with respect to any employee benefit plan of the Company, or (iii) as a
director, partner, trustee, officer, employee or agent of any other Entity at
the request of the Company. For purposes of subsection (iii) of this Section
1(a), an officer or director of the Company who is serving or has served as a
director, partner, trustee, officer, employee or agent of a Subsidiary shall be
deemed to be serving at the request of the Company.
(b) "Entity" shall mean any corporation, partnership, limited
------
liability company, joint venture, trust, foundation, association, organization
or other legal entity.
<PAGE>
(c) "Expenses" shall mean all fees, costs and expenses incurred in
--------
connection with any Proceeding (as defined below), including, without
limitation, attorneys' fees, disbursements and retainers (including, without
limitation, any such fees, disbursements and retainers incurred by Indemnitee
pursuant to Sections 10 and 11(c) of this Agreement), fees and disbursements of
expert witnesses, private investigators and professional advisors (including,
without limitation, accountants and investment bankers), court costs, transcript
costs, fees of experts, travel expenses, duplicating, printing and binding
costs, telephone and fax transmission charges, postage, delivery services,
secretarial services, and other disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
---------------------- -------------------------
"Indemnifiable Amounts" shall have the meanings ascribed to those terms in
- ----------------------
Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
-----------
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed
----------
claim, action, suit, arbitration, alternate dispute resolution process,
investigation, administrative hearing, appeal, or any other proceeding, whether
civil, criminal, administrative, arbitrative or investigative, whether formal or
informal, including a proceeding initiated by Indemnitee pursuant to Section 10
of this Agreement to enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership, limited
----------
liability company, joint venture, trust or other Entity of which the Company
owns (either directly or through or together with another Subsidiary of the
Company) either (i) a general partner, managing member or other similar interest
or (ii) (A) 50% or more of the voting power of the voting capital equity
interests of such corporation, partnership, limited liability company, joint
venture or other Entity, or (B) 50% or more of the outstanding voting capital
stock or other voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.
2. Services of Indemnitee. In consideration of the Company's covenants
----------------------
and commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee as
----------------------
follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason of
Indemnitee's Corporate Status, Indemnitee shall
2
<PAGE>
be indemnified by the Company against all Expenses and Liabilities incurred or
paid by Indemnitee in connection with such Proceeding (referred to herein as
"Indemnifiable Expenses" and "Indemnifiable Liabilities," respectively, and
collectively as "Indemnifiable Amounts").
(b) Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company to procure a judgment in its favor
by reason of Indemnitee's Corporate Status, Indemnitee shall be indemnified by
the Company against all Indemnifiable Expenses.
4. Exceptions to Indemnification. Indemnitee shall be entitled to
-----------------------------
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it has
been adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim for
indemnification has arisen, Indemnitee failed to act (i) in good faith and (ii)
in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, or, with respect to any criminal action or proceeding,
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful, Indemnitee shall not be entitled to payment of Indemnifiable Amounts
hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the Proceeding out of which
the claim for indemnification has arisen, Indemnitee failed to act (A) in good
faith and (B) in a manner Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company, Indemnitee shall not be entitled to
payment of Indemnifiable Expenses hereunder; or
(ii) it has been adjudicated finally by a court of competent
jurisdiction that Indemnitee is liable to the Company with respect to any claim,
issue or matter involved in the Proceeding out of which the claim for
indemnification has arisen, including, without limitation, a claim that
Indemnitee received an improper personal benefit, no Indemnifiable Expenses
shall be paid with respect to such claim, issue or matter unless the Court of
Chancery or another court in which such Proceeding was brought shall determine
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for such Indemnifiable Expenses which such court shall deem proper.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
----------------------------------------------
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee
within twenty (20) calendar days of receipt of the request. At the request of
the Company, Indemnitee shall furnish such
3
<PAGE>
documentation and information as are reasonably available to Indemnitee and
necessary to establish that Indemnitee is entitled to indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, and without
- ----------
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or termination
-----------------------------
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
8. Agreement to Advance Expenses; Conditions. The Company shall pay to
-----------------------------------------
Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in
advance of the final disposition of such Proceeding. To the extent required by
Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable
Expenses paid to Indemnitee if it is finally determined by a court of competent
jurisdiction that Indemnitee is not entitled under this Agreement to
indemnification with respect to such Expenses. This undertaking is an unlimited
general obligation of Indemnitee.
9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to
-----------------------------------------
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than twenty (20) calendar days after the Company's receipt of such
request.
4
<PAGE>
10. Remedies of Indemnitee.
----------------------
(a) Right to Petition Court. In the event that Indemnitee makes a
-----------------------
request for payment of Indemnifiable Amounts under Sections 3 and 5 above or a
request for an advancement of Indemnifiable Expenses under Sections 8 and 9
above and the Company fails to make such payment or advancement in a timely
manner pursuant to the terms of this Agreement, Indemnitee may petition the
Court of Chancery to enforce the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under Section
---------------
10(a) above, the Company shall have the burden of proving that Indemnitee is not
entitled to payment of Indemnifiable Amounts hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in full for
--------
any Expenses incurred by Indemnitee in connection with investigating, preparing
for, litigating, defending or settling any action brought by Indemnitee under
Section 10(a) above, or in connection with any claim or counterclaim brought by
the Company in connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
---------------------
asserting in any Proceeding, including, without limitation, an action under
Section 10(a) above, that the provisions of this Agreement are not valid,
binding and enforceable or that there is insufficient consideration for this
Agreement and shall stipulate in court that the Company is bound by all the
provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the Company
----------------------------
(including its Board of Directors or any committee thereof, independent legal
counsel or stockholders) to make a determination concerning the permissibility
of the payment of Indemnifiable Amounts or the advancement of Indemnifiable
Expenses under this Agreement shall not be a defense in any action brought under
Section 10(a) above, and shall not create a presumption that such payment or
advancement is not permissible.
11. Defense of the Underlying Proceeding.
------------------------------------
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company
--------------------
promptly upon being served with any summons, citation, subpoena, complaint,
indictment, information, or other document relating to any Proceeding which may
result in the payment of Indemnifiable Amounts or the advancement of
Indemnifiable Expenses hereunder; provided, however, that the failure to give
-------- -------
any such notice shall not disqualify Indemnitee from the right to receive
payments of Indemnifiable Amounts or advancements of Indemnifiable Expenses
unless the Company's ability to defend in such Proceeding is materially and
adversely prejudiced thereby.
5
<PAGE>
(b) Defense by Company. Subject to the provisions of the last
------------------
sentence of this Section 11(b) and of Section 11(c) below, the Company shall
have the right to defend Indemnitee in any Proceeding which may give rise to the
payment of Indemnifiable Amounts hereunder; provided, however that the Company
-------- -------
shall notify Indemnitee of any such decision to defend within ten (10) days of
receipt of notice of any such Proceeding under Section 11(a) above. The Company
shall not, without the prior written consent of Indemnitee, consent to the entry
of any judgment against Indemnitee or enter into any settlement or compromise
which (i) includes an admission of fault of Indemnitee or (ii) does not include,
as an unconditional term thereof, the full release of Indemnitee from all
liability in respect of such Proceeding, which release shall be in form and
substance reasonably satisfactory to Indemnitee. This Section 11(b) shall not
apply to a Proceeding brought by Indemnitee under Section 10(a) above or
pursuant to Section 19 below.
(c) Indemnitee's Right to Counsel. Notwithstanding the provisions of
-----------------------------
Section 11(b) above, if in a Proceeding to which Indemnitee is a party by reason
of Indemnitee's Corporate Status, Indemnitee reasonably concludes that it may
have separate defenses or counterclaims to assert with respect to any issue
which may not be consistent with the position of other defendants in such
Proceeding, or if the Company fails to assume the defense of such proceeding in
a timely manner, Indemnitee shall be entitled to be represented by separate
legal counsel of Indemnitee's choice at the expense of the Company. In
addition, if the Company fails to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any action, suit
or proceeding to deny or to recover from Indemnitee the benefits intended to be
provided to Indemnitee hereunder, Indemnitee shall have the right to retain
counsel of Indemnitee's choice, at the expense of the Company, to represent
Indemnitee in connection with any such matter.
12. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
---------
enter into, and be bound by the terms of, this Agreement, and the execution,
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by
--------------
the Company in accordance with the provisions hereof, shall be a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting the enforcement of creditors' rights generally.
6
<PAGE>
13. Insurance. The Company shall, from time to time, make the good faith
---------
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with a reputable insurance company
providing Indemnitee with coverage for losses from wrongful acts, and to ensure
the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. Contract Rights Not Exclusive. The rights to payment of Indemnifiable
-----------------------------
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's By-laws or Certificate
of Incorporation, or any other agreement, vote of stockholders or directors (or
a committee of directors), or otherwise, both as to action in Indemnitee's
official capacity and as to action in any other capacity as a result of
Indemnitee's serving as a director of the Company.
15. Successors. This Agreement shall be (a) binding upon all successors
----------
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This Agreement
shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. Subrogation. In the event of any payment of Indemnifiable Amounts
-----------
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. Change in Law. To the extent that a change in Delaware law (whether
-------------
by statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the By-laws of the
Company and this Agreement,
7
<PAGE>
Indemnitee shall be entitled to such broader indemnification and advancements,
and this Agreement shall be deemed to be amended to such extent.
18. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this
-----------------------
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless such
Company has consented to the initiation of such Proceeding. This Section shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.
20. Modifications and Waiver. Except as provided in Section 17 above with
------------------------
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. General Notices. All notices, requests, demands and other
---------------
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(i) If to Indemnitee, to:
___________________________
___________________________
___________________________
___________________________
8
<PAGE>
(ii) If to the Company, to:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
or to such other address as may have been furnished in the same manner by any
party to the others.
22. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced under the laws of Delaware without giving effect to the provisions
thereof relating to conflicts of law.
23. Consent to Jurisdiction. The Company hereby irrevocably and
-----------------------
unconditionally consents to the jurisdiction of the courts of the State of
Delaware and the United States District Court for the District of Delaware. The
Company hereby irrevocably and unconditionally waives any objection to the
laying of venue of any Proceeding arising out of or relating to this Agreement
in the courts of the State of Delaware or the United States District Court for
the District of Delaware, and hereby irrevocably and unconditionally waives and
agrees not to plead or claim that any such Proceeding brought in any such court
has been brought in an inconvenient forum.
[Remainder of Page Intentionally Left Blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:_______________________________
Name:
Title:
INDEMNITEE:
__________________________________
[INSERT NAME OF INDEMNITEE]
10
<PAGE>
EXHIBIT 10.6
EMPLOYEE INCENTIVE STOCK OPTION
CERTIFICATE AND AGREEMENT
AGREEMENT, dated as of this __st day of _________, 19__ between Albany
Molecular Research, Inc. (the "Company"), a New York corporation, and
_____________ ("The Optionee").
WITNESSETH:
-----------
WHEREAS:
A. The directors and shareholders of the Company have heretofore adopted
the 1992 Stock Option Plan of Albany Molecular Research, Inc. (the "Plan") to
permit options to be granted to certain key employees of the Company to purchase
shares of the Common Stock of the Company (the "Common Stock"); and
B. The Optionee is now employed by the Company in a key capacity, and the
Company desires (i) Optionee to remain in such employ and (ii) to secure or
increase his/her stock ownership in the Company in order to increase his/her
incentive and personal interest in the welfare of the Company;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Nothing herein contained shall be deemed to confer upon the Optionee
any right to continue in the employ of the Company, nor to interfere in any way
with the right of the Company to terminate the employment of the Optionee.
2. The Company hereby grants to the Optionee an incentive stock option,
within the meaning of Section 422A of the Internal Revenue Code, (the "Option")
to purchase from the Company, in accordance with the Vesting Schedule below, in
whole of the aggregate number of options vested at any time after three (3)
years from the date hereof, or in part, provided that the minimum number of
options exercised is at least 500 (or <<Vest1>>if under 500), from time to time
after three (3) years from the date hereof, during the ten (10) year period
commencing from the date hereof, an aggregate of <<Shares>> shares of Common
Stock (the "Optioned Shares").
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEARS OF SERVICE PERCENTAGE VESTED AGGREGATE NUMBER OF SHARES
------------------------------------------------------------------
<S> <C> <C>
Less than 3 0% 0
------------------------------------------------------------------
3 60% <<Vest 1>>
------------------------------------------------------------------
4 80% <<Vest 2>>
------------------------------------------------------------------
5 100% <<Shares>>
------------------------------------------------------------------
</TABLE>
-1-
<PAGE>
3. The option price is $________ per Optioned Share, subject to
adjustment as provided in Section 8 hereof, which was not less than 100% of the
fair market value of the optioned shares on the grant date.
4. The Option may be exercised Option, delivered or mailed to the
Company at its principal office, specifying the number of only by written
notice of the Optioned Shares in respect of which the Option is being
exercised, and accompanied by intent to exercise the payment for such shares by
certified check, subject to collection, payable to the order of the Company;
provided however, that if in its sole discretion and in accordance with the
- ------- -------
Plan, the Administrator (as defined in Section 8 below) shall so determine, all
or any portion of such payment may be made in kind by the delivery of shares of
Common Stock having a fair market value at the time of payment equal to the
portion of the option price so paid. Upon payment of the purchase price, the
purchased Optioned Shares shall be fully paid and non-assessable.
5. If the Company shall be required to withhold any amounts by reason of
any federal, state or local rules or regulation in respect to the issuance of
shares pursuant to the exercise of the Option, the Company shall be entitled to
deduct and withhold such amount from any cash payments to be made to the
Optionee, whether from wages, bonus or otherwise. In any event, the Optionee
shall pay to the Company, promptly upon request by the Company, sufficient funds
to meet the requirements of such withholding, and the Company shall be entitled
to take and authorize such funds made available to it out of any funds or
property due or to become due to the Optionee.
6. During the life of the Optionee, the Option shall not be transferable
and may be exercised only by the Optionee. In the event the employment of the
Optionee is terminated by reason of his disability, the Option, to the extent it
has not theretofore expired or been exercised or otherwise cancelled, shall
terminate upon the earlier date to occur of the expiration of twelve months
after the date of separation from service due to such disability and the
expiration date specified in Section 2 hereof. In the event of the death of the
Optionee while an employee of the Company, the Option, to the extent it has not
theretofore expired or been exercised or otherwise canceled, shall become
exercisable in full by the person to whom the Option is transferred by will or
the applicable laws of decent and distribution and shall, to the extent it has
not theretofore been exercised or become unexercisable, terminate upon the
earlier date to occur of the expiration of twelve months after the date of the
Optionee's death and the expiration date specified in Section 2 hereof.
7. In the event that an Optionee's employment with the Company is
terminated, whether voluntarily or otherwise, but other than by reason of
his/her disability or death, the Option, to the extent it has not theretofore
expired or been exercised or otherwise canceled, shall terminate upon the
earlier date to occur of the expiration of five (5) business days after the date
of termination of employment and the date specified in Section 2.
8. In the event that a dividend shall be declared upon the Common Stock
payable in shares of Common Stock, the Optioned Shares shall be adjusted by
adding to each such share the number of shares which would be distributable
thereon if such Shares had been outstanding on the date fixed for determining
the shareholders entitled to receive such stock
-2-
<PAGE>
dividend. In the event that the outstanding shares of Common Stock shall be
changed into or exchanged for a different number or kind of shares of stock or
other securities of the Company or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares, sale of
assets, merger or consolidation, then there shall be substituted for each
Optioned Share the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be changed or for which each
such share shall be exchanged. In the event that there shall be any change,
other than as specified above in this paragraph, in the number or kind of
outstanding shares of Common Stock, or of any stock or other securities into
which Common Stock shall have been changed, or for which it shall have been
exchanged, then, if the Board of Directors (the "Board") of the Company or a
Committee, selected by the Board, to whom the administration of the Plan is
delegated under the provisions thereof (such Board or Committee, as the case may
be, being hereinafter referred to as the "Administrator") shall, in its sole
discretion, determine that such change equitably requires an adjustment in the
number or kind of Optioned Shares, such adjustment shall be made by the
Administrator and shall be effective and binding for all purposes of this
Agreement. In case of any such substitution or adjustment pursuant to this
paragraph, the option price for each Optioned Share will be the option price for
all shares of Common Stock or other securities which shall have been substituted
for Optioned Shares or to which such Shares shall have been adjusted pursuant to
this paragraph divided by the total number of Optioned Shares, as adjusted or
substituted. No adjustment or substitution provided for in this paragraph shall
apply to any share of Common Stock issued in respect of an Option exercised
prior to the effective date of such adjustment or substitution or shall require
the Company to sell a fractional share. In the event of dissolution or
liquidation of the Company or, except as otherwise provided in the second
sentence of this Section 8, a sale of assets, merger or consolidation of the
Company, the Option, to the extent not theretofore exercised, shall terminate.
9. The Optionee shall not be deemed for any purposes to be a stockholder
of the Company with respect to any of the Optioned Shares except to the extent
that the Option shall have been duly exercised with respect thereto and a stock
certificate issued therefore.
10. The existence of the Option shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company or any sale of transfer of all or part
of its assets or business, or any other corporation act or proceeding, whether
of a similar character or otherwise.
11. Unless prior to the issuance thereof the Optioned Shares shall be
registered under the Securities Act of 1933, as amended (the "Act"), as a
condition precedent to the valid exercise if his/her option, the Optionee shall
represent in writing to the Company that he is acquiring such Shares for his/her
own account as an investment and not with a view to, or for sale in connection
with, the distribution of any thereof. If the Optioned Shares shall not be
-3-
<PAGE>
registered under the Act at or prior to the issuance thereof, each certificate
representing Optioned Shares shall bear a legend substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and they may
not be sold or transferred in the absence of an effective registration
statement for the shares under the Act, or an opinion of counsel for
the Company that registration is not required under said Act."
In the event of the death of the Optionee, a condition precedent to the valid
exercise of any Option shall be the delivery to the Company of such tax waivers
and other documents as the Administrator shall determine.
12. As a condition of the granting of the Option the Optionee agrees, for
himself and his/her personal representatives, that any dispute or disagreement
which may arise under, or as a result of, or pursuant to, this agreement shall
be determined by the Administrator in its sole discretion, and that any
interpretations by the Administrator of the terms of this Agreement shall be
final, binding and conclusive.
13. Anything to the contrary contained herein notwithstanding, this
Agreement and the option granted hereby are subject to and shall be construed
and regulated in accordance with the provisions of the Plan. The provisions of
the Plan shall have control over the provisions contained in this Agreement.
14. This Agreement has been executed in, and shall be construed and
regulated in accordance with the substantive laws of the State of New York.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:__________________________________
OPTIONEE:____________________________
Name:________________________________
-4-
<PAGE>
EXHIBIT 10.10
TECHNOLOGY DEVELOPMENT INCENTIVE PLAN
Purpose: To provide a method in which the company can stimulate
- -------
and encourage novel innovative technology development
and to provide a means by which to determine and
measure the parameters under which compensation will be
awarded.
Participation: Any employee of the company who is determined to be the
- -------------
inventor or co-inventor of novel technology which
results in new revenues generated for, or by, the
company which the company would not already have a
right to receive (i.e. Development of any sort of a
project which the company is obligated to perform
through a prior negotiated contract [contract research
or manufacturing] would not result in Technology
Incentive Compensation (TIC). However, if during the
performance of a contract an employee develops novel
technology which is subsequently licensed and/or the
company receives direct compensation for the
technology, the employee would be eligible for TIC.).
Basis of Compensation: TIC will be determined on an annual basis, based on
- ---------------------
revenue received (cash basis) solely for the novel
technology, reduced by any and all costs (Net
Technology Revenue), excluding TIC, incurred by the
company that directly relate to the development or
continued support of the technology. Included in direct
cost and support are: direct labor; direct materials
(included in materials is any specialty equipment or
asset or glassware that can only be utilized by the
company for the technology developed, limited to a
period of two years subsequent to last use); direct
allocated overhead; other expenses such as legal costs
and direct management support; and company profit
amounting to the total of all direct costs.
TIC will be awarded based on 10% of the Net Technology
Revenue as previously defined.
An annual calculation of the TIC basis and TIC will be
performed by the company's Chief Financial Officer and
the company's Independent Accountants will review the
calculation as to the appropriateness of the
calculation in light of this agreement.
<PAGE>
TECHNOLOGY DEVELOPMENT INCENTIVE PLAN
Definitions:
- -----------
Novel Technology: Can be evidenced by its patentability or proprietary
nature.
Inventor:
Co-Inventor:
Proof of Inventorship:
Dispute: Any disputes under this agreement will be subject to
binding arbitration.
2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Albany Molecular Research Export, Inc. Barbados
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Albany Molecular Research, Inc.:
We consent to the use of our report included herein and the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Albany, New York
August 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,571,458
<SECURITIES> 1,949,708
<RECEIVABLES> 2,313,198
<ALLOWANCES> 0
<INVENTORY> 512,592
<CURRENT-ASSETS> 16,143,000
<PP&E> 11,032,133
<DEPRECIATION> 1,681,803
<TOTAL-ASSETS> 25,973,425
<CURRENT-LIABILITIES> 6,055,363
<BONDS> 0
0
1,000
<COMMON> 72,460
<OTHER-SE> 14,206,734
<TOTAL-LIABILITY-AND-EQUITY> 25,973,425
<SALES> 5,914,091
<TOTAL-REVENUES> 18,543,649
<CGS> 3,252,117
<TOTAL-COSTS> 5,501,273
<OTHER-EXPENSES> 1,337,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,284
<INCOME-PRETAX> 11,611,732
<INCOME-TAX> 4,315,098
<INCOME-CONTINUING> 7,296,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,296,634
<EPS-PRIMARY> 1.01
<EPS-DILUTED> .90
</TABLE>
