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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25323
Albany Molecular Research, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 14-1742717
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
21 Corporate Circle, Albany, New York 12203
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (518) 464-0279
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant on March 18, 1999 was approximately $86.5 million
based upon the closing price per share of the Registrant's Common Stock as
reported on the Nasdaq National Market on March 18, 1999. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 18, 1999, there were 12,830,222 outstanding shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
Parts of this Report on Form 10-K indicated below:
(1) The Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on June 17, 1999.
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ALBANY MOLECULAR RESEARCH, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
<TABLE>
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Page No.
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<C> <S> <C> <C>
Part I.
Item 1. Business.............................................. 4
Item 2. Properties............................................ 12
Item 3. Legal Proceedings..................................... 12
Item 4. Submission of Matters to a Vote of Security Holders... 12
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 13
Item 6. Selected Financial Data............................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk................................................. 26
Item 8. Financial Statements and Supplementary Data........... 27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 43
Part III.
Item 10. Directors and Executive Officers of the Registrant.... 44
Item 11. Executive Compensation................................ 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 44
Item 13. Certain Relationships and Related Transactions........ 44
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.......................................... 45
</TABLE>
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This report contains statements that are "forward-looking statements." We
may also make written or oral forward-looking statements in other documents we
file with the Securities and Exchange Commission (the "Commission"), in our
annual reports to stockholders, in press releases and other written materials,
and in oral statements made by our officers, directors or employees. You can
identify forward-looking statements by the use of the words "believe,"
"expect," "anticipate," "intend," "estimate," "assume" and other similar
expressions which predict or indicate future events and trends and which do
not relate to historical matters. In addition, information concerning the
Company's growth, technology and industry, as well as the costs, timing and
effectiveness of Year 2000 compliance, are forward-looking statements. You
should not rely on forward-looking statements, because they involve known and
unknown risks, uncertainties and other factors, some of which are beyond the
control of the Company. These risks, uncertainties and other factors may cause
the actual results, performance or achievements of the Company to be
materially different from the anticipated future results, performance or
achievements expressed or implied by the forward-looking statements.
Some of the factors that might cause these differences are described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this report; and the Company and its customers and suppliers
may experience unanticipated delays or expenses in achieving Year 2000
compliance. You should carefully review all of these factors, and you should
be aware that there may be other factors that could cause these differences.
These forward-looking statements were based on information, plans and
estimates at the date of this report, and we do not promise to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.
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PART I
Item 1. Business.
The information contained in this report is provided as of December 31,
1998, unless otherwise indicated.
General Overview
Albany Molecular Research, Inc. 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. 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. ("HMRI") as Allegra in the Americas
and as Telfast elsewhere. Pursuant to a licensing agreement between the
Company and HMRI, the Company has received $19.6 million in milestones and
royalties for the year ended December 31, 1998, of which $3.7 million was from
non-recurring milestone payments and $4.4 million was from royalties related
to prior periods and is entitled to receive ongoing royalties from HMRI based
upon a percentage of sales of the product.
The Importance of Chemistry in the Drug Discovery and Development Process
General. 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.
[ARTWORK HERE]
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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
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.
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.]
[INSERT CHART HERE]
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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.
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.
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.
Analytical services provided by the Company include:
. Test method development and validation;
. Quality control and release 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.
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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 approximately 10 or more kilograms) of bulk
active ingredients (chemicals).
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. Seldane, a
pro-drug, was rapidly converted by the liver into its active form, a
metabolite known as 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 HMRI) to develop a synthetic form of the Seldane active
metabolite.
Independent of HMRI'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 HMRI. Under the terms of the
license agreement, the Company granted HMRI an exclusive, worldwide license to
any patents issued to the Company related to its original TAM patent
applications. In connection with the licensing arrangement, HMRI made a $2.0
million equity investment in the Company. Pursuant to the license agreement,
HMRI has paid the Company an initial license fee and the Company has earned
revenue from milestone payments and royalties. HMRI 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.
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 discovery or
development process.
In January 1998, the Company entered into an arrangement with Sphinx
Pharmaceuticals (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, in part, 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
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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.
In October 1998, the Company entered into an agreement with the National
Institute on Drug Abuse, a division of the National Institutes of Health, one
of eight health agencies under the Federal Department of Health and Human
Services ("NIDA") for the manufacture of bulk drug substances to be used in
NIDA's research for the study and treatment of drug abuse and addiction.
NIDA's scientific research programs address the most fundamental and essential
questions about drug abuse, ranging from its causes and consequences, to its
prevention and treatment. The contract, awarded through a competitive bidding
process, requires that NIDA's potential drug candidates be manufactured by the
Company under the strict requirements of cGMP. The Company was subsequently
awarded task orders under this contract for the production of two such
research compounds.
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 23.7% of
the Company's aggregate net contract revenue plus other operating revenue
(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 operating revenue
(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 (excluding licensing fees, milestones and royalties),
respectively. For the year ended December 31, 1998, net contract revenue from
the Company's three largest customers represented approximately 15%, 14% and
12% of total net contract revenue (excluding licensing fees, milestones and
royalties), 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 consultants.
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
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 licensing, milestone and royalty revenues received by the Company with
respect to such patent. The Company offers competitive salaries and benefits
to its scientists.
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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
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
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expire between 2013 and 2015 and New Zealand and Australian patents expire in
2014. 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.
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
results 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
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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.
Item 2. Properties.
The Company has two operating locations. The Company leases a two-story
90,500 square foot facility in Albany, New York. The lease for this facility
expires on November 30, 2007. The Company has an option to renew this lease
for an additional ten years. The lease also provides the Company an option to
purchase the building within the next five years for $3.5 million. The
Company's Albany facility has eight medicinal chemistry, four chemical
development and two analytical laboratories, five dedicated cGMP manufacturing
suites, four segregated cGMP dryer rooms, three analytical instrumentation
rooms, and two areas for stability chambers. The Company also leases
approximately 15,000-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 1998, the Company had total
operating lease costs of $559,000.
Item 3. Legal Proceedings.
The Company, from time to time, may be involved in various claims and legal
proceedings arising in the ordinary course of its business. The Company is not
currently a party to any such claims or proceedings which, if decided
adversely to the Company, would either individually or in the aggregate have a
material adverse effect on the Company's business, financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through solicitation of
proxies or otherwise.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. The Common Stock of the Company has been traded on
the Nasdaq National Market ("Nasdaq") since the Company's initial public
offering on February 4, 1999 and currently trades under the symbol "AMRI". The
following table sets forth the high and low of the average daily bid and asked
prices for the Company's Common Stock as reported by Nasdaq for the periods
indicated:
<TABLE>
<CAPTION>
Period High ($) Low ($)
------ -------- -------
<S> <C> <C>
1999
First Quarter (from February 4 through March 17, 1999)... 24.00 19.50
</TABLE>
(b) Holders. The number of record holders of the Company's Common Stock as
of March 17, 1999 was approximately 74. The Company believes that the number
of beneficial owners of the Company's Common Stock at that date was
substantially greater.
(c) Dividends. The Company has not declared any cash dividends on its Common
Stock since its inception in 1991. 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 bank 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.
(d) Recent Sales of Unregistered Securities; Use of Proceeds from Registered
Securities.
(a) Recent Sale of Unregistered Securities. Set forth in chronological
order below is information regarding the number of shares of capital stock
issued by the Company for the past three years beginning in February 1996.
Further included is the consideration, if any received by the Company for
such shares, and information relating to the section of the Securities Act
of 1933, as amended (the "Securities Act"), or rule of the Commission under
which exemption from registration was claimed. The following transactions
give effect to the Company's 2.25-for-1 stock split of its Common Stock,
which became effective in connection with its recent public offering.
1. In February 1998, the Registrant issued 6,750 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.
2. In February 1998, the Registrant issued 5,738 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.
3. In March 1998, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 33,750 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.
4. In March 1998, the Registrant issued 1,876 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.
5. In March 1998, the Registrant issued 5,175 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
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<PAGE>
Registrant in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
6. In March 1998, the Registrant issued 22,500 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.
7. In March 1998, the Registrant issued 11,250 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.
8. In April 1998, the Registrant issued 26,100 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.
9. In May 1998, the Registrant issued 9,000 shares of the
Registrant's Common Stock upon the exercise of an outstanding stock
option for an aggregate exercise price of $10,080 to an employee of the
Registrant in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
10. In June 1998, the Registrant issued 9,000 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.
11. In June 1998, the Registrant granted 788 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.
12. In July 1998, 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 $5,000 to a consultant of the
Registrant in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
13. In August 1998, the Registrant issued 9,000 shares of the
Registrant's Common Stock upon the exercise of an outstanding stock
option for an aggregate exercise price of $10,080 to an employee of the
Registrant in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
14. In October 1998, the Registrant issued 200,558 shares of the
Registrant's Common Stock upon the exercise of an outstanding stock
option for an aggregate exercise price of $141,560 to a former officer
of the Registrant in reliance upon the exemption from registration
under Rule 701 promulgated under the Securities Act.
15. In October 1998, the Registrant issued 1,125 shares of the
Registrant's Common Stock to a director of the Registrant as
compensation for his services as a director in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
16. In October 1998, the Registrant granted options to purchase 5,625
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.
17. In December 1998, under the Registrant's 1992 Stock Option Plan,
the Registrant granted options to purchase 2,250 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
<PAGE>
(b) Use of Proceeds from Registered Securities.
(1) The effective date of the Securities Act registration statement for
which the use of proceeds information is being disclosed was February 3, 1999,
and the Commission file number assigned to the registration statement is 333-
58795.
(2) The offering commenced as of February 4, 1999.
(3) The offering did not terminate before any securities were sold.
(4)(i) As of the date of the filing of this report, the offering has
terminated and 2,815,000 of the securities registered were sold.
(ii) The names of the managing underwriters are ING Baring Furman Selz LLC
and Hambrecht & Quist LLC.
(iii) The Company's Common Stock, par value $0.01 per share, was the class
of securities registered.
(iv) The Company registered 2,875,000 shares of its Common Stock (which
includes 375,000 solely to cover over-allotments), having an aggregate price
of the offering amount registered of $57.5 million. As of the date of the
filing of this report, 2,815,000 of the total shares registered have been sold
at an aggregate offering price of $56.3 million.
(v) From February 4, 1999 to the date hereof, the amount of expenses
incurred by the Company in connection with the issuance and distribution of
the securities totaled $4.8 million, which consisted of direct payments of:
(i) $0.8 million in legal, accounting and printing fees; (ii) $3.9 million in
underwriters discount, fees and commissions; and (iii) $0.1 million in
miscellaneous expenses. No payments for such expenses were made to (i) any of
the Company's directors, officers, general partners or their associates, (ii)
any person(s) owning 10% or more of any class of equity securities of the
Company or (iii) the Company's affiliates.
(vi) The net offering proceeds to the Company after deducting its total
expenses was $51.5 million.
(vii) The Company used the net proceeds as follows: (i) approximately $7.9
million was used to repay indebtedness incurred in connection with the
repurchase by the Company on October 28, 1998 of a total of 1,131,903 shares
of Common Stock from the Company's former chief financial officer and a trust
for the benefit of his family for an aggregate purchase price of approximately
$9.9 million (the "Share Repurchase"); and (ii) approximately $5.0 million was
used to repay a portion of the Company's outstanding indebtedness under its
existing credit facility with Fleet Bank, N.A., including fees and accrued and
unpaid interest. Other than in connection with the Share Repurchase, no such
payments were made to (i) any of the Company's directors, officers, general
partners or their associates, (ii) any person(s) owning 10% or more of any
class of equity securities of the Company or (iii) the Company's affiliates.
(viii) The uses of proceeds described do not represent a material change in
the use of proceeds described in the Company's prospectus.
15
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1995 1996 1997 1998
------ ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net contract revenue............... $1,116 $ 2,959 $ 5,261 $ 8,104 $13,398
Cost of contract revenue........... 742 1,350 2,835 4,334 7,504
------ ------- ------- ------- -------
Gross profit from contract
revenue........................... 374 1,609 2,426 3,770 5,894
Licensing fees, milestones and
royalties, net.................... -- -- 900 2,278 17,823
Operating expenses:
Research and development........... 152 37 245 627 723
Selling, general and
administrative.................... 253 882 1,219 2,246 4,490
------ ------- ------- ------- -------
Total operating expenses......... 405 919 1,464 2,873 5,213
------ ------- ------- ------- -------
Income (loss) from operations...... (31) 690 1,862 3,175 18,504
Other income (expense):
Interest income (expense), net..... (30) 37 (11) (13) (43)
Other non-operating income
(expense), net.................... -- 5 20 (26) (37)
------ ------- ------- ------- -------
Total other income (expense)..... (30) 42 9 (39) (80)
------ ------- ------- ------- -------
Income (loss) before income taxes.. (61) 732 1,871 3,136 18,424
Income tax expense (benefit)....... (48) 252 637 947 6,979
------ ------- ------- ------- -------
Net income (loss).................. $ (13) $ 480 $ 1,234 $ 2,189 $11,445
====== ======= ======= ======= =======
Basic earnings (loss) per share.... $ -- $ 0.05 $ 0.12 $ 0.20 $ 1.07
Diluted earnings (loss) per share.. $ -- $ 0.04 $ 0.10 $ 0.18 $ 0.95
Weighted average common shares
outstanding, basic................ 8,856 10,263 10,706 10,761 10,683
Weighted average common shares
outstanding, diluted.............. 9,234 11,289 11,786 12,014 12,073
Consolidated Balance Sheet Data:
Cash and cash equivalents.......... $ 45 $ 35 $ 1,260 $ 1,262 $ 3,957
Working capital.................... 87 2,171 3,011 4,407 8,344
Total assets....................... 1,059 5,108 8,501 10,629 28,908
Long-term debt, less current
maturities........................ 204 748 2,375 1,776 13,349
Total stockholders' equity......... 566 3,156 4,411 6,654 9,280
</TABLE>
Item 7. 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 accompanying
Consolidated Financial Statements and the Notes thereto included within this
report. This Form 10-K contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company's actual results could differ materially from those projected in the
forward-looking statements and therefore, 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 factors set
forth under "Risk Factors and Certain Factors Affecting Forward-Looking
Statements," the discussion set forth below and the matters set forth in this
Form 10-K 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
16
<PAGE>
expanded and chemistry research outsourcing has increased, the Company has
expanded its service offerings. In January 1994, the Company added its first
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 recently completed its largest expansion to date.
After the latest expansion, the Company leases approximately 105,500 square
feet of total laboratory and office space.
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 rather
than licensing fees and royalties, which are dependent upon the Company's
licensee's sales. 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, 60 or 90 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.
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 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 HMRI 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 HMRI
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.
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.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net contract revenue. Net contract revenue increased 65.3% to $13.4 million
in 1998 from $8.1 million in 1997. The increase was due principally to the
performance of a greater number of projects under contract,
17
<PAGE>
primarily for medicinal and chemical development services, which were enabled
through an increase in the number of scientific staff to 87 at December 31,
1998 from 43 at December 31, 1997.
Gross profit. Gross profit increased 56.3% to $5.9 million in 1998 from $3.8
million in 1997. Gross profit remained relatively constant as a percentage of
net contract revenue.
Licensing fees, milestones and royalties, net. Net licensing fees,
milestones and royalties increased 682.5% to $17.8 million in 1998 from $2.3
million in 1997. As a result of the February 1998 PTO decision, the Company
met all prerequisites of the licensing agreement with HMRI 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
$19.6 million in milestones and royalties on all sales of fexofenadine HCl in
the United States for 1998. All licensing fees, milestones and royalties
associated with the HMRI license are subject to the Technology Development
Incentive Plan. The Company's milestones and royalties from fexofenadine HCl
for 1998 include $3.7 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 HMRI. In particular, no further milestone payments
are required under the agreement.
Research and development. Research and development expense increased to
$723,000 in 1998 from $626,000 in 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 99.9% to $4.5 million in 1998 from $2.2 million in 1997 and
represented 33.5% of net contract revenue in 1998 compared to 27.7% in 1997.
The 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, increased rent expense related to the ongoing
expansion of the Company's Albany facility and a one-time expense of $200,000
incurred in early 1998 as a result of the Company's partial reimbursement of
its landlord for expenses incurred by the landlord in relocating other tenants
in order to facilitate the Company's expansion.
Income tax expense. Income tax expense increased to $7.0 million in 1998
from $.9 million in 1997. The effective rate was 37.9% in 1998 and 30.2% in
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 utilization of New York State investment
tax credits in 1997, and an increase in the minimum effective federal rate
from 34% to 35% due to the fact that the Company's taxable income was in
excess of $10.0 million for 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.
Licensing fees, milestones and royalties, net. Licensing fees, milestones
and royalties, net of the Company's technology incentive award, 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 HMRI 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.
18
<PAGE>
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.
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 New York State investment tax credits in
1997, which were $161,858.
Liquidity and Capital Resources
The Company has funded its business through cash flows from operations,
proceeds from borrowings and net proceeds of $51.5 million from its initial
public offering completed in February 1999. During the years ended December
31, 1998, 1997 and 1996, the Company generated $11.2 million, $1.6 million and
$2.1 million, respectively, in cash flow from operations and raised $7.0
million and $1.0 million in borrowings during the years ended December 31,
1998 and 1996, respectively. The Company had no new borrowings during 1997.
The increase in cash flow for the year ended December 31, 1998 was principally
due to an increase in net licensing fees, milestones and royalties.
During the years ended December 31, 1998, 1997 and 1996, total capital
expenditures were $11.4 million, $0.9 million and $2.6 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 and
1996 facilities expansions. In December 1997, the Company began its most
recent phase of expansion at its main location in Albany, New York. The
expansion has added 60,000 square feet to its existing 30,500 square feet of
laboratory and administrative space. The expansion costs were approximately
$11.0 million and was completed during January 1999.
Working capital was $8.4 million at December 31, 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 year ended December 31, 1998 was primarily
attributable to the milestones and royalties earned by the Company on its
license agreement with HMRI, less the associated technology incentive
compensation expense and income taxes. Of the $19.6 million in milestones and
royalties earned by the Company under the HMRI license agreement during the
year ended December 31, 1998, $3.7 million constituted non-recurring milestone
payments and $4.4 million constituted royalties relating to prior periods.
While the Company will continue to receive quarterly royalty payments under
the HMRI 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 year ended December 31, 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 HMRI and relies entirely on the
efforts of HMRI to manufacture, market and sell this product. There can be no
assurance that HMRI 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 HMRI 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. In December 1998,
the Company also entered into a license agreement with HMRI relating to
additional
19
<PAGE>
TAM technology. Under the terms of the license agreement the Company granted
HMRI an exclusive, worldwide license to the additional technology. In
connection with the license agreement, HMRI paid the Company $700,000.
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 bank credit facility to supplement its liquidity
needs. The bank credit facility consists of a $15 million, three-year,
revolving line of credit, which converts thereafter into a five-year term
loan. The bank credit facility expires in July 2006. As of December 31, 1998,
the Company had drawn an aggregate of $7.0 million under the bank credit
facility. Amounts outstanding under the bank 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
December 31, 1998 was 5.55% per annum. The bank 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 bank 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 HMRI under the license
agreement.
The Company used $5.0 million of the net proceeds from its initial public
offering to repay a portion of the outstanding indebtedness under the bank
credit facility. On October 28, 1998, the Company paid $2.0 million in cash
from borrowings under the bank credit facility and issued $7.9 million in
promissory notes in connection with the repurchase by the Company of a total
of 1,131,903 shares of Common Stock from the Company's former chief financial
officer and a trust for the benefit of his family. The Company repaid the
outstanding principal balance under the promissory notes out of the net
proceeds of its initial public offering. The Company believes that the
remaining net proceeds from this offering, together with cash generated from
operations and borrowings under the bank 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.
Year 2000 Compliance
General. 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 Year 2000 remediation and compliance program (the
"Year 2000 Project") is managed by a Task Force consisting of representatives
from all major operational units within the Company and is directed by the
Company's President. The Year 2000 Project Task Force's focus has been the
functional areas of information technology, non-information technology
(embedded processors) and customer/vendor Year 2000 assessment.
Information technology. The Company's Task Force and independent information
technology consultants have conducted a comprehensive assessment of the
Company's main computer system to identify the company-wide hardware and
software impact of the Year 2000 problem and to identify mission critical
software systems. They determined that no material changes are required for
the Company's hardware and software to be considered Year 2000 compliant.
Since substantially all of the Company's software are purchased "off the
shelf" packages, much of the remediation and testing process is dependent on
the accuracy of work performed by, and the Year 2000 compliance of, such
purchased software. The Company has initiated discussions with its information
technology vendors and will monitor their Year 2000 compliance programs and
compliance of their products or services with required standards.
Non-information technology. The Company's non-information technology systems
consist mainly of embedded processors such as microcontrollers in security,
fire prevention and climate control systems. The
20
<PAGE>
Company has initiated discussions with vendors supplying such equipment and
systems in order to assess the possibility of a Year 2000 failure in such
areas. Because of the Company's recent physical expansion at its Albany, New
York facility, a majority of the centralized microcontroller systems have been
either recently installed or upgraded in capacity. Thus, the Company believes
that a majority of the systems put in place during this expansion are
currently Year 2000 compliant.
Customer/vendor relationships. The Task Force is seeking to confirm the Year
2000 readiness of its material customers (such as Astra AB and Eli Lilly and
Company) and its key licensees (such as HMRI), along with the Company's
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.
Due to the non-proprietary nature of the Company's software systems,
combined with the recent acquisition of a majority of the Company's
information technology hardware, the Company anticipates that it will incur no
material costs to become Year 2000 compliant. Due to the unlikely nature of
internal failures at the Company, no contingency plans have been prepared to
address this problem. The most likely reasonable worst case scenario for the
Company with respect to the Year 2000 problem would be the failure of a
material customer or vendor, including an energy vendor, to be Year 2000
compliant such that the failure would either cause the Company to lose a
revenue stream or to experience a withholding of a vendor's goods or services
because of the situation. In the case of a material customer, this could
result in lost revenue, while in the case of a vendor, this could result in
higher than anticipated expenses, as the Company would be required to seek
alternative suppliers of these goods and services.
Risk Factors and Certain Factors Affecting Forward-Looking Statements
The following factors should be considered carefully in addition to the
other information in this Form 10-K. Except as mentioned above and except for
the historical information contained herein, the discussion contained in this
Form 10-K contains "forward-looking statements" that involve risk and
uncertainties within the meaning of Section 27A of the Securities Act, and
Section 21E of the Exchange Act. The Company's actual results could differ
materially from those discussed in this Form 10-K. Important factors that
could cause or contribute to such differences include those discussed below,
as well as those discussed elsewhere herein.
The Company may not be able to attract and retain 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 and 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.
The Company may be adversely affected by a decline in the recent trend of
pharmaceutical and biotechnology companies of outsourcing chemical research
and development. The Company has benefited 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
21
<PAGE>
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 year ended December 31, 1998, net contract revenue from
the Company's three largest customers represented approximately 15%, 14% and
12% of total net contract revenue, respectively. The Company's contracts
generally are terminable upon 30, 60 or 90 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.
The Company may not continue to receive significant royalties from the
Allegra/Telfast license agreement. Under the terms of a license agreement, the
Company has granted HMRI, 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 HMRI as a
prescription medicine. Fexofenadine HCl is 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 23.8% of the Company's aggregate net
contract revenue plus other operating revenue, and for the year ended December
31, 1998, the Company's milestones and royalties from fexofenadine HCl were
$19.6 million, or 59.5% of the Company's aggregate net contract revenue plus
other operating revenue. The Company's milestones and royalties from
fexofenadine HCl for the year ended December 31, 1998 include $3.7 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 HMRI. 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 HMRI and relies entirely on the efforts of HMRI to
manufacture, market and sell this product. There can be no assurance that HMRI
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 HMRI 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 HMRI 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.
The Company may not be able to obtain and enforce its intellectual property
and technology. 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
22
<PAGE>
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.
The Company may not effectively manage its growth. 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 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.
The Company may not be able to retain 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. Donald E.
Kuhla, the Company's President and Chief Operating Officer, Mr. David P.
Waldek, the Company's Chief Financial 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, Kuhla, Meckler, and Trova and Mr. Waldek, 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.
The Company's technologies and/or services may be replaced by its
competitors. 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.
23
<PAGE>
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.
The Company may not be able to attract new customers or build and maintain
efficient and effective sales and marketing initiatives. 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.
The Company's insurance policies may not adequately cover damage awards or
legal costs. 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. The Company currently maintains product
liability 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 current Good Manufacturing Practices ("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 Company's operations may be materially interrupted. 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
24
<PAGE>
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.
The Company may not be able to identify suitable acquisition candidates or
successfully integrate any future 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.
The Company's revenues from pharmaceutical and biotechnological industries
may decline as a result 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.
The Company may be liable in connection with its use of 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.
The price of the Company's Common Stock may fluctuate. 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 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. The stock market
has experienced extreme price and volume fluctuations which have affected
market prices of smaller capitalization companies and which
25
<PAGE>
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.
The Company and its computer systems may not adequately address 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 Astra AB and Eli Lilly and
Company), its key licensees (such as HMRI) 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.
The Company does not currently intend to pay dividends. 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 bank 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.
Anti-takeover provisions may interfere with changes in control that would be
beneficial to the interests of the Company's stockholders. Certain provisions
of the Company's Restated Certificate of Incorporation and Amended and
Restated 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 is 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Albany Molecular Research, Inc.:
We have audited the accompanying consolidated financial statements of Albany
Molecular Research, Inc. and subsidiary as listed in the accompanying index on
page 45. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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. and subsidiary at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Albany, New York
March 19, 1999
27
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ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 1,261,518 $ 3,957,091
Accounts receivable (net of allowance of for
doubtful accounts of $114,000 and $0 at December
31, 1997 and 1998, respectively)................... 1,976,637 2,798,742
Current installment of notes receivable............. -- 104,832
Royalty income receivable........................... -- 3,256,498
Investment securities, available-for-sale........... 1,949,546 2,026,620
Interest receivable................................. 25,961 27,043
Inventory........................................... 317,789 575,525
Unbilled services................................... 192,822 105,036
Income tax prepayments.............................. 312,377 517,840
Prepaid expenses.................................... 131,798 744,701
----------- -----------
Total current assets................................ 6,168,448 14,113,928
Property and equipment:
Laboratory equipment and fixtures................... 3,323,232 9,919,153
Office equipment.................................... 840,256 1,997,278
Leasehold improvements.............................. 1,000,120 4,019,378
Construction-in-progress............................ 76,574 615,571
----------- -----------
5,240,182 16,551,380
Accumulated depreciation and amortization........... (1,265,255) (2,233,163)
----------- -----------
Net property and equipment.......................... 3,974,927 14,318,217
Other assets:
Patents and patent application costs................ 212,291 224,449
Notes receivable, excluding current installment..... -- 60,000
Deferred income tax benefit......................... 230,000 61,000
Other assets........................................ 43,668 130,581
----------- -----------
Total other assets.................................. 485,959 476,030
----------- -----------
Total assets........................................ $10,629,334 $28,908,175
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses............... $ 898,256 $ 2,849,828
Unearned income..................................... 212,008 1,150,858
Customer deposits................................... 202,293 182,293
Current installments of obligation under capital
lease.............................................. 1,256 --
Current installments of long-term debt.............. 448,005 1,587,168
----------- -----------
Total current liabilities........................... 1,761,818 5,770,147
Long-term liabilities:
Long-term debt, excluding current installments...... 1,775,703 13,348,672
Deferred income taxes............................... 437,631 509,812
----------- -----------
Total liabilities................................... 3,975,152 19,628,631
Commitments (Notes 2, 7, 9, and 11)
Stockholders' equity:
Preferred stock, $0.01 par value, authorized
1,000,000 shares, issued and outstanding 100,000
shares............................................. 1,000 1,000
Common stock, $0.01 par value, authorized 50,000,000
shares; issued 10,770,767 shares in 1997 and
11,102,127 in 1998; outstanding 10,770,767 in 1997
and 9,970,224 in 1998.............................. 107,707 111,021
Additional paid-in capital.......................... 2,607,593 3,834,411
Retained earnings................................... 3,883,379 15,328,015
Treasury stock, at cost............................. -- (10,061,360)
Accumulated other comprehensive income.............. 54,503 66,457
----------- -----------
Total stockholders' equity.......................... 6,654,182 9,279,544
----------- -----------
Total liabilities and stockholders' equity.......... $10,629,334 $28,908,175
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Contract revenue.......................... $6,177,371 $8,805,066 $14,056,496
Reimbursed expenses....................... (916,027) (701,034) (658,875)
---------- ---------- -----------
Net contract revenue...................... 5,261,344 8,104,032 13,397,621
Cost of contract revenue.................. 2,834,760 4,334,245 7,503,785
---------- ---------- -----------
Gross profit from contract revenue........ 2,426,584 3,769,787 5,893,836
---------- ---------- -----------
Other operating revenue:
Non-recurring licensing fees, milestones
and royalties.......................... 1,000,000 2,500,000 8,068,921
Recurring royalties..................... -- 30,871 11,575,931
Technology incentive award.............. (100,000) (253,093) (1,821,628)
---------- ---------- -----------
Other operating revenue, net.......... 900,000 2,277,778 17,823,224
---------- ---------- -----------
Operating expenses:
Research and development................ 244,812 626,471 722,559
Selling, general and administrative..... 1,219,144 2,246,391 4,490,241
---------- ---------- -----------
Total operating expenses.............. 1,463,956 2,872,862 5,212,800
---------- ---------- -----------
Income from operations.................... 1,862,628 3,174,703 18,504,260
---------- ---------- -----------
Other income (expense):
Interest expense........................ (137,967) (175,969) (381,821)
Interest income......................... 126,474 163,051 338,090
Realized gain on sale of investment
securities............................. 3,895 -- --
Other non-operating income (expense).... 16,235 (25,629) (36,555)
---------- ---------- -----------
Total other income (expense).......... 8,637 (38,547) (80,286)
---------- ---------- -----------
Income before income tax expense.......... 1,871,265 3,136,156 18,423,974
Income tax expense........................ 637,476 946,941 6,979,338
---------- ---------- -----------
Net income................................ $1,233,789 $2,189,215 $11,444,636
========== ========== ===========
Basic earnings per share.................. $ 0.12 $ 0.20 $ 1.07
Diluted earnings per share................ $ 0.10 $ 0.18 $ 0.95
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
29
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
---------------- ------------------------------ Other
Compre- Number $0.01 Number $0.01 Additional Compre-
hensive of Par of Par Paid-in hensive Retained Treasury
Income Shares Value Shares Value Capital Income Earnings Stock Total
----------- -------- ------- ---------- -------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............ $ 100,000 $ 1,000 10,592,089 $105,921 $2,558,400 $30,067 $ 460,375 $ -- $ 3,155,763
Issuance of
common stock... -- -- -- 163,238 1,632 23,055 -- -- -- 24,687
Change in
unrealized gain
on securities
available-for-
sale, net of
tax of $4,281.. (6,422) -- -- -- -- -- (6,422) -- -- (6,422)
Tax benefit from
exercise of
stock options.. -- -- -- -- -- 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 10,755,327 $107,553 $2,584,152 $23,645 $ 1,694,164 $ -- $ 4,410,514
=========== ======== ======= ========== ======== ========== ======= =========== ============ ============
Issuance of
common stock... -- -- -- 15,440 154 23,441 -- -- -- 23,595
Change in
unrealized gain
on securities
available-for-
sale, net of
tax of
$20,572........ 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 10,770,767 $107,707 $2,607,593 $54,503 $ 3,883,379 $ -- $ 6,654,182
=========== ======== ======= ========== ======== ========== ======= =========== ============ ============
Issuance of
common stock... -- -- -- 331,360 3,314 484,243 -- -- -- 487,557
Tax benefit from
exercise of
stock options.. -- -- -- -- -- 742,575 -- -- -- 742,575
Change in
unrealized gain
on securities
available-for-
sale, net of
tax of $7,968.. 11,954 -- -- -- -- -- 11,954 -- -- 11,954
Purchase of
1,131,903
shares for
treasury
stock.......... -- -- -- -- -- -- -- -- (10,061,360) (10,061,360)
Net income for
1998........... 11,444,636 -- -- -- -- -- -- 11,444,636 -- 11,444,636
----------- -------- ------- ---------- -------- ---------- ------- ----------- ------------ ------------
Balance at
December 31,
1998............ $11,456,590 100,000 $ 1,000 11,102,127 $111,021 $3,834,411 $66,457 $15,328,015 $(10,061,360) $ 9,279,544
=========== ======== ======= ========== ======== ========== ======= =========== ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Operating Activities
Net income............................. $ 1,233,789 $ 2,189,215 $ 11,444,636
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 379,327 689,472 1,056,042
Net realized gain on security
transactions......................... (3,895) -- --
Net loss on sale of assets............ 1,578 9,398 44,005
Provision for doubtful accounts....... -- 114,000 (30,000)
Deferred income tax expense
(benefit)............................ 164,927 (39,919) 233,213
(Increase) decrease in:
Accounts receivable................... 35,622 (1,215,678) (753,867)
Royalty income receivable............. -- -- (3,256,498)
Inventory, prepaid expenses and income
tax prepayments...................... (85,728) (457,624) (519,667)
Interest receivable................... (7,616) (805) (1,081)
Unbilled services..................... (6,009) 9,300 87,786
Notes receivable...................... -- -- 43,070
Increase (decrease) in:
Accounts payable and accrued
expenses............................. (14,055) 575,502 1,951,572
Customer deposits..................... 30,000 37,293 (20,000)
Unearned income....................... 44,754 76,631 938,850
Income taxes payable.................. 338,684 (338,684) --
----------- ----------- ------------
Net cash provided by operating
activities............................ 2,111,378 1,648,101 11,218,061
----------- ----------- ------------
Investing activities
(Increase) decrease in certificate of
deposit.............................. (1,472) 52,551 --
Purchases of investment securities.... (274,146) (163,216) (57,151)
Proceeds from sales of investment
securities........................... 445,467 -- --
Purchases of property and equipment... (2,596,060) (869,954) (11,420,227)
Proceeds from sale of equipment....... 1,500 4,265 12,625
Purchase of customer list............. -- -- (18,000)
Payments for patent application and
other costs.......................... (39,185) (85,146) (176,808)
----------- ----------- ------------
Net cash used in investing activities.. (2,463,896) (1,061,500) (11,659,561)
----------- ----------- ------------
Financing activities
Principal payments on long-term debt.. $(2,163,883) $ (604,683) $ (2,223,708)
Principal payments under capital lease
obligations.......................... (3,478) (3,550) (1,256)
Proceeds from borrowings under long-
term debt............................ 3,720,000 -- 7,000,000
Payment to acquire treasury shares.... -- -- (2,125,520)
Proceeds from sale of common stock.... 24,687 23,595 487,557
----------- ----------- ------------
Net cash provided by (used in)
financing activities.................. 1,577,326 (584,638) 3,137,073
----------- ----------- ------------
Increase in cash and cash equivalents.. 1,224,808 1,963 2,695,573
Cash and cash equivalents at beginning
of period............................. 34,747 1,259,555 1,261,518
----------- ----------- ------------
Cash and cash equivalents at end of
period................................ $ 1,259,555 $ 1,261,518 $ 3,957,091
=========== =========== ============
Noncash items:
Purchase of treasury stock through
issuance of long-term debt........... $ -- $ -- $ 7,935,840
Common stock issued for purchase of
customer list........................ $ -- $ -- $ 100,000
Common stock issued for relocation
incentive............................ $ -- $ -- $ 200,000
Increase (decrease) in net unrealized
gain on securities available-for-
sale, net of tax..................... $ (6,422) $ 30,858 $ 11,954
Tax benefit from exercise of stock
options.............................. $ 2,697 $ -- $ 742,575
Additional disclosures relative to cash
flows:
Interest paid......................... $ 120,058 $ 175,616 $ 381,821
Income taxes paid..................... $ 91,800 $ 1,637,921 $ 6,209,012
Property and equipment depreciation
expense.............................. $ 368,738 $ 684,909 $ 1,020,305
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
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 the Company
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.
32
<PAGE>
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over their estimated lives, generally three to ten years. The
Company utilizes accelerated depreciation methods for tax purposes over the
minimum statutory period allowed.
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
consist 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.
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.
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
33
<PAGE>
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 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 1998 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 twenty (20) preferred shares
to nine (9) 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 isssued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
established standards for reporting information about operating segments,
geographic areas and major customers. The Company does not have any reportable
segments as defined by SFAS No. 131. The Company has made the required
disclosures concerning geographic areas and major customers.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain 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 because the Company does not utilize derivative
investments or engage in hedging activities.
In April 1998, 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 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 at the
option of the Company, 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.
34
<PAGE>
Minimum future payments under noncancelable operating leases as of December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 517,543
2000............................................................. 516,928
2001............................................................. 426,110
2002............................................................. 336,092
2003............................................................. 327,715
Thereafter....................................................... 1,078,160
----------
Total minimum future lease payments............................ $3,202,548
==========
</TABLE>
Rental expense amounted to approximately $173,000, $240,000, and $559,000
during the years ended December 31, 1996, 1997 and 1998, respectively.
3. Long-Term Debt
Long-term debt is comprised as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- -----------
<S> <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 5.55% at December 31, 1998). Principal
payments are due after the facilities' conversion to
the term loan......................................... $ -- $ 7,000,000
Note payable to former chief financial officer, due in
annual installments of $1,587,168, through October
2003, plus interest due quarterly at the prime rate
(7.75% at December 31, 1998).......................... -- 7,935,840
Note payable to a bank in monthly installments of
$29,762, through October 2003, plus interest at LIBOR
plus 1.75%............................................ 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........................ 181,747 --
Subordinated note payable to the Albany Local
Development Corporation in monthly installments of
$2,970, including interest at 7.00%, through December
1, 2000............................................... 96,194 --
Subordinated note payable to the Albany Local
Development Corporation in monthly installments of
$2,115, including interest at 7.00%, through June 1,
1998.................................................. 12,434 --
---------- -----------
Total long-term debt................................. 2,223,708 14,935,840
Less payments due within one year...................... 448,005 1,587,168
---------- -----------
Total long-term debt, net............................ $1,775,703 $13,348,672
========== ===========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 and thereafter, are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 1,587,168
2000............................................................. 1,587,168
2001............................................................. 2,287,168
2002............................................................. 2,987,168
2003............................................................. 2,987,168
Thereafter....................................................... 3,500,000
-----------
Total long-term debt........................................... $14,935,840
===========
</TABLE>
35
<PAGE>
In connection with the above bank line of credit, the Company has entered
into a general security agreement in which all tangible assets now owned and
hereafter acquired by the Company collateralize the line of credit.
4. Notes Receivable
The notes receivable includes 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 repaid to the Company.
5. Investment Securities, Available-for-Sale
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>
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale securities by major security type at December 31,
1998 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.... $1,671,577 $109,033 $ -- $1,780,610
Corporate debt
obligations............... 158,073 2,200 (472) 159,801
Bond mutual funds.......... 86,209 -- -- 86,209
---------- -------- ----- ----------
$1,915,859 $111,233 $(472) $2,026,620
========== ======== ===== ==========
</TABLE>
There were no sales of available-for-sale securities during 1997 or 1998.
Maturities of debt securities classified as available-for-sale at December
31, 1998 were as follows:
<TABLE>
<CAPTION>
Amortized Cost Fair Value
-------------- ----------
<S> <C> <C>
Due after one year through five years................ $ 815,198 $ 845,363
Due after five years through ten years............... 713,577 771,246
Due after ten years.................................. 300,875 323,802
---------- ----------
Total debt securities.............................. $1,829,650 $1,940,411
========== ==========
</TABLE>
6. Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal........................................ $437,800 $916,288 $6,363,149
State.......................................... 34,749 70,572 382,976
-------- -------- ----------
472,549 986,860 6,746,125
-------- -------- ----------
Deferred:
Federal........................................ 159,052 102,117 64,173
State.......................................... 5,875 (142,036) 169,040
-------- -------- ----------
164,927 (39,919) 233,213
-------- -------- ----------
Total income tax expense..................... $637,476 $946,941 $6,979,338
======== ======== ==========
</TABLE>
36
<PAGE>
The differences between income tax expense and income taxes computed using a
federal statutory rate of 34% for the years ended December 31, 1996 and 1997,
and 35% for the year ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Amount computed using
statutory rate........... $636,230 $1,066,293 $6,448,391
Increase (reduction) in
taxes resulting from:
Tax-free interest
income................. (31,940) (30,171) (31,330)
Alternative minimum
tax.................... (5,540) -- --
State taxes, net of
federal benefit........ 22,914 (47,166) 358,986
Others, net............. 15,812 (42,015) 203,291
-------- ---------- ----------
Total income tax
expense................ $637,476 $ 946,941 $6,979,338
======== ========== ==========
</TABLE>
The tax effects of temporary differences giving rise to the Company's
deferred tax assets and liabilities as of December 31, 1997 and 1998 are
presented below:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets (liabilities):
Nondeductible reserves................................... 46,284 32,349
Nondeductible amortization............................... -- 8,962
Nondeductible lease costs................................ -- 73,169
State tax credits........................................ 230,000 61,000
--------- ---------
Gross deferred tax assets.............................. 276,284 175,480
Accelerated depreciation for tax purposes................ (447,579) (579,988)
--------- ---------
Net deferred tax (liability)........................... $(171,295) $(404,508)
========= =========
</TABLE>
The preceding table does not include the deferred tax liability of $36,336
and $44,304 at December 31, 1997 and 1998, respectively, associated with the
unrealized gain on the investment securities, available for sale, discussed in
note 5. Income taxes payable have been reduced by tax benefits resulting from
the exercise of stock options of $2,697 in 1996 and $742,575 in 1998.
The Company had available New York State investment tax credits of
approximately $230,000 and $61,000 at December 31, 1997 and 1998,
respectively. These credits have a ten-year carry forward period, with
expiration dates ranging from 2002 to 2008.
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 and $10,000 per annum in
1998. The Company currently makes matching contributions equal to 50% of the
participant's contributions (up to a limit of 6% 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 $10,000,
$21,000 and $60,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
8. Stock Option Plan
The Company has a 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
37
<PAGE>
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 1996, 1997 and 1998: no dividend yield for all
years; zero expected volatility for all years; risk-free interest rates of
6.80%, 5.69%, and 4.45%, respectively, and expected lives of five years for
the incentive options for all 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>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Net income
As reported................................. $1,233,789 $2,189,215 $11,444,636
Pro forma................................... $1,208,938 $2,146,820 $11,365,876
Earnings per share
Basic as reported........................... $ 0.12 $ 0.20 $ 1.07
Diluted as reported......................... $ 0.10 $ 0.18 $ 0.95
Basic pro forma............................. $ 0.11 $ 0.20 $ 1.06
Diluted pro forma........................... $ 0.10 $ 0.18 $ 0.94
</TABLE>
Following is a summary of the status of incentive and non-qualified options
during 1996, 1997 and 1998:
<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, 1996......... 984,353 $ 0.39 720,000 $ 2.13
Granted.............................. 95,625 2.30 16,875 2.18
Exercised............................ (163,238) 0.15 -- --
Forfeited............................ -- -- -- --
--------- -------
Outstanding at December 31, 1996....... 916,740 $ 0.52 736,875 $ 2.13
========= ====== ======= ======
Options exercisable at December 31,
1996.................................. 713,138 $ 0.22 674,775 $ 2.13
========= ====== ======= ======
<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......... 916,740 $ 0.52 736,875 $ 2.13
Granted.............................. 361,211 3.32 78,440 3.28
Exercised............................ (8,791) 0.29 -- --
Forfeited............................ (22,500) 2.99 -- --
--------- -------
Outstanding at December 31, 1997....... 1,246,660 $ 1.31 815,315 $ 2.23
========= ====== ======= ======
Options exercisable at December 31,
1997.................................. 812,347 $ 0.22 674,775 $ 2.14
========= ====== ======= ======
</TABLE>
38
<PAGE>
<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, 1998......... 1,246,660 $1.31 815,315 $2.23
Granted.............................. 126,000 7.82 67,500 8.89
Exercised............................ (271,751) 0.64 (24,377) 0.34
Forfeited............................ (59,198) 2.76 (31,873) 2.16
--------- ----- ------- -----
Outstanding at December 31, 1998....... 1,041,711 $2.20 826,565 $2.84
========= ===== ======= =====
Options exercisable at December 31,
1998.................................. 572,835 $0.36 686,138 $2.20
========= ===== ======= =====
</TABLE>
Following is a summary of the status of employee incentive options
outstanding at December 31, 1998:
<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>
$0.11-0.15................... 352,462 4.32 years $0.14 352,462 $ 0.14
0.22......................... 45,000 5.69 years 0.22 45,000 0.22
0.56......................... 85,373 4.82 years 0.56 85,373 0.56
1.12......................... 90,000 6.50 years 1.12 90,000 1.12
1.90-2.18.................... 28,125 7.33 years 1.96 -- --
2.99-3.60.................... 314,751 8.50 years 3.30 -- --
4.92......................... 33,750 9.19 years 4.92 -- --
8.89......................... 92,250 9.57 years 8.89 -- --
</TABLE>
The Company estimates that based on a five-year vesting period at December
31, 1998, on a weighted average basis, approximately 78% of such options will
eventually vest.
Following is a summary of the status of non-qualified options outstanding at
December 31, 1998:
<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>
$1.84-2.22.................. 686,250 4.41 years 2.20 682,425 2.20
3.06-3.51................... 72,815 8.39 years 3.27 3,713 3.34
8.89........................ 67,500 9.37 years 8.89 -- --
</TABLE>
The Company estimates that based on a three-year vesting period at December
31, 1998, on a weighted average basis, approximately 95% 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. ("HMRI"). Under the terms of the Stock Purchase Agreement, the
Company sold 1,627,231 shares of the Company's Common Stock to HMRI for $2.0
million. Under the terms of the License Agreement, the Company granted HMRI an
exclusive, worldwide
39
<PAGE>
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 HMRI.
In return for the license, HMRI 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".
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. HMRI
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,
HMRI 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 HMRI. 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 is 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.
Subsantially all of the Company's other operating revenue is derived from
milestones and royalties related to its patented fexofenadine HCl technology.
10. Concentration of Business
For the years ended December 31, 1996, 1997 and 1998, net contract revenue
from the Company's three largest customers represented approximately 34%, 9%
and 9% for 1996, 29%, 11% and 9% for 1997, and 15%,
40
<PAGE>
14% and 12% for 1998, of total net contract revenue for such years,
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.
The Company's net contract revenue in 1996, 1997 and 1998 was earned from
customers in the following geographic regions:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
United States................................................ 66% 71% 86%
Europe....................................................... 34% 29% 14%
--- --- ---
Total........................................................ 100% 100% 100%
=== === ===
</TABLE>
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 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 1996, 1997 and 1998, 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 SFAS 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 using 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 $2,223,708 and $14,935,840 at December 31, 1997 and 1998,
respectively, while the estimated fair value was $2,208,293 and $14,935,840 at
December 31, 1997 and 1998, respectively, based upon interest rates available
to the Company for issuance of similar debt with similar terms and remaining
maturities.
13. Earnings Per Share
On November 30, 1998, the Board of Directors approved a 3-for-2 split of the
Company's common stock to shareholders of record effective on that date. All
share and per share information included in the accompanying financial
statements has been restated to reflect the 3-for-2 stock split and the
reincorporation by merger discussed under note 15 below.
41
<PAGE>
The following table reconciles basic and diluted earnings per share
calculations:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Year Ended December 31, 1997
---------------------------- ----------------------------
Per Per
Average Share Average Share
Net Income Shares Amount Net Income Shares Amount
---------- ---------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
share.................. $1,233,789 10,706,214 $0.12 $2,189,215 10,760,827 $0.20
Dilutive effect of stock
options and grants..... -- 1,034,349 -- -- 1,207,798 --
Dilutive effect of
assumed preferred stock
conversion............. -- 45,000 -- -- 45,000 --
---------- ---------- ---------- ----------
Diluted earnings per
share.................. $1,233,789 11,785,563 $0.10 $2,189,215 12,013,625 $0.18
========== ========== ===== ========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------
Average Per Share
Net Income Shares Amount
----------- ---------- ---------
<S> <C> <C> <C>
Basic earnings per share..................... $11,444,636 10,683,131 $1.07
Dilutive effect of stock options and grants.. -- 1,344,551 --
Dilutive effect of assumed preferred stock
conversion.................................. -- 45,000 --
----------- ----------
Diluted earnings per share................... $11,444,636 12,072,682 $0.95
=========== ========== =====
</TABLE>
14. Selected Quarterly Financial Data (unaudited)
The following table presents unaudited financial data for each quarter of
1997 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net contract revenue............... $1,508,741 $2,098,728 $2,211,958 $2,284,605
Gross Profit....................... 580,700 1,073,228 1,038,794 1,077,065
Milestones and royalties, net...... -- 450,000 1,800,570 27,208
Income from operations............. 101,038 829,723 2,168,811 75,131
Net income......................... 75,320 509,486 1,554,512 49,871
Net income per share:
Basic............................ $ 0.01 $ 0.05 0.14 --
Diluted.......................... $ 0.01 $ 0.04 $ 0.13 --
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net contract revenue............... $2,873,008 $3,091,168 $3,685,168 $3,748,277
Gross Profit....................... 1,365,287 1,346,687 1,617,378 1,564,484
Milestones and royalties, net...... 7,288,741 3,959,246 2,964,464 3,610,773
Income from operations............. 7,362,045 4,148,557 3,333,792 3,659,866
Net income......................... 4,538,663 2,757,971 2,003,525 2,144,477
Net income per share:
Basic............................ $ 0.42 $ 0.26 $ 0.18 $ 0.21
Diluted.......................... $ 0.38 $ 0.23 $ 0.16 $ 0.18
</TABLE>
15. Subsequent Events
In February 1999, the Company consummated its initial public offering of
2,815,000 shares of common stock. The Company received net proceeds of $51.5
million from the public offering, which is net of underwriting discounts and
commissions of $3.9 million and offering expenses of $0.9 million.
42
<PAGE>
In connection with the filing of the registration statement with the
Securities and Exchange Commission for the Company's initial public offering
of common stock, the Company effected a reincorporation by merger. In
connection with the reincorporation, each share of outstanding common stock of
Albany Molecular Research, Inc. (incorporated in New York) was exchanged for
1-1/2 shares of common stock of a new company, Albany Molecular Research, Inc.
(incorporated in Delaware). All share and per share information included in
the accompanying financial statements has been restated to reflect the
reincorporation by merger and the 3-for-2 stock split discussed under note 13
above.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
43
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information appearing under the captions "Executive Officers, Directors
and Key Employees" and "Board of Directors" in the registrant's definitive
proxy statement relating to the Annual Meeting of Stockholders to be held on
June 17, 1999 is incorporated herein by reference.
Item 11. Executive Compensation.
The information appearing under the captions "Executive Compensation,"
"Employee Stock and Other Benefit Plans," and "Agreements with Named Executive
Officers" in the registrant's definitive proxy statement relating to the
Annual Meeting of Stockholders to be held on June 17, 1999 is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under the caption "Principal Stockholder" in the
registrant's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on June 17, 1999 is incorporated herein by reference.
Item 13. Certain Relationships And Related Transactions.
The information appearing under the caption "Certain Transactions" in the
registrant's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on June 17, 1999 is incorporated herein by reference.
44
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
(1) Financial Statements
The consolidated financial statements and notes are listed under Part II,
Item 8, Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements.
(a) Consolidated balance sheets at December 31, 1997 and 1998.
(b) Consolidated statements of operations for the Years Ended December
31, 1996, 1997 and 1998.
(c) Consolidated statements of stockholders' equity for the Years Ended
December 31, 1996, 1997 and 1998.
(d) Consolidated statements of cash flows for the Years Ended December
31, 1996, 1997 and 1998.
(e) Notes to consolidated financial statements.
(2) Financial Statement Schedules
The following financial schedule of Albany Molecular Research, Inc. is
included in this annual report on Form 10-K.
<TABLE>
<CAPTION>
Page
Number
------
<C> <S> <C>
Schedule II --Valuation and Qualifying Accounts 47
</TABLE>
Schedules other than that which is listed above have been omitted since they
are either not required, are not applicable, or the required information is
shown in the consolidated financial statements or related notes.
(3) Exhibits
Exhibits are as set forth in the "Index to Exhibits" which follows the Notes
to the Consolidated Financial Statements and immediately precedes the exhibits
filed.
(b) Reports on Form 8-K.
The Company was not subject to the reporting requirements of the Exchange
Act during the last quarter of the period covered by this report, and,
therefore, did not file any reports on Form 8-K during such quarter.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
Exhibits listed in the attached Exhibit Index on pages 47 and 48 of this
Annual Report.
(d) Financial Statement Schedules.
The Company hereby files as part of this Annual Report on Form 10-K the
financial statement schedule listed in Item 14(a)(2) set forth above.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Albany Molecular Research, Inc.
/s/ Thomas E. D'Ambra, Ph.D.
By: _________________________________
Thomas E. D'Ambra, Ph.D.
Chairman of the Board, Chief
Executive Officer and Director
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas E. D'Ambra, Ph.D. Chairman of the Board, March 29, 1999
______________________________________ Chief Executive Officer
Thomas E. D'Ambra, Ph.D. and Director (Principal
Executive Officer)
/s/ David P. Waldek Chief Financial Officer March 29, 1999
______________________________________ and Treasurer (Principal
David P. Waldek Financial and Accounting
Officer)
/s/ Donald E. Kuhla, Ph.D. President, Chief Operating March 29, 1999
______________________________________ Officer and Secretary and
Donald E. Kuhla, Ph.D. Director
/s/ Chester J. Opalka Vice President, Director, March 29, 1999
______________________________________ Laboratory Operations and
Chester J. Opalka Director
/s/ Anthony M. Tartaglia, M.D. Director March 29, 1999
______________________________________
Anthony M. Tartaglia, M.D.
/s/ Frank W. Haydu, III Director March 29, 1999
______________________________________
Frank W. Haydu, III
</TABLE>
46
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, December 31, 1997 and December 31, 1998
<TABLE>
<CAPTION>
Balance at Charged to Charged to Deductions
Beginning Cost and Other Charged to Balance at
Description of Period Expenses Accounts Reserves End of Period
----------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for Trade
Accounts
and Notes
Receivable
1996 -- -- -- -- --
1997 -- 114,000 -- -- 114,000
1998 114,000 (30,000) -- -- 84,000
</TABLE>
EXHIBIT INDEX
Listed and indexed below are all Exhibits filed as part of this Report.
Certain Exhibits are incorporated by reference to documents previously filed
by the Company with the Securities and Exchange Commission pursuant to Rule
12b-32 under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
* 3.1 Amended and Restated By-Laws of the Registrant.
* 3.2 Restated Certificate of Incorporation of the Registrant.
4.1 Specimen certificate for shares of Common Stock, $0.01 par value,
of the Registrant.(1)
10.1 Lease dated as of October 9, 1992, as amended, by and between the
Registrant and Hoffman Enterprises.(2)
10.2 1998 Stock Option and Incentive Plan of the Registrant.(3)
10.3 1992 Stock Option Plan of the Registrant.(4)
10.4 1998 Employee Stock Purchase Plan of the Registrant.(5)
10.5 Form of Indemnification Agreement between the Registrant and each
of its directors.(6)
10.6 Form of Employee Incentive Stock Option Certificate and Agreement
for Amended and Restated 1992 Stock Option Plan.(7)
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 an order for confidential
treatment, but which has been filed separately with the
Commission).(8)
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 an order for
confidential treatment, but which has been filed separately with
the Commission).(9)
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 an order for confidential
treatment, but which has been filed separately with the
Commission).(10)
10.10 Technology Development Incentive Plan.(11)
*10.11 Employment Agreement between the Registrant and Thomas E. D'Ambra,
Ph.D.
*10.12 Employment Agreement between the Registrant and Harold Meckler,
Ph.D.
*10.13 Employment Agreement between the Registrant and Michael P. Trova,
Ph.D.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.14 Form of Employee Innovation, Proprietary Information and Post-
Employment Activity Agreement between the Registrant and each of
its named executive officers.(12)
10.15 Letter Agreement between the Registrant and Harold M. Armstrong,
Jr.(13)
*10.16 Employment Agreement between the Registrant and Donald E. Kuhla,
Ph.D.
*10.17 Employment Agreement between the Registrant and Lawrence D. Jones,
Ph.D.
*10.18 Employment Agreement between the Registrant and David P. Waldek.
21.1 Subsidiaries of the Registrant.(14)
*27.1 Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
(1) Filed with the Commission as Exhibit 4.1 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(2) Filed with the Commission as Exhibit 10.1 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(3) Filed with the Commission as Exhibit 10.2 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(4) Filed with the Commission as Exhibit 10.3 to the Registrant's Amendment
No. 2 to Form S-1 Registration Statement under the Securities Act on
August 14, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(5) Filed with the Commission as Exhibit 10.4 to the Registrant's Amendment
No. 2 to Form S-1 Registration Statement under the Securities Act on
August 14, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(6) Filed with the Commission as Exhibit 10.5 to the Registrant's Amendment
No. 2 to Form S-1 Registration Statement under the Securities Act on
August 14, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(7) Filed with the Commission as Exhibit 10.6 to the Registrant's Amendment
No. 2 to Form S-1 Registration Statement under the Securities Act on
August 14, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(8) Filed with the Commission as Exhibit 10.7 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(9) Filed with the Commission as Exhibit 10.8 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(10) Filed with the Commission as Exhibit 10.9 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(11) Filed with the Commission as Exhibit 10.10 to the Registrant's Amendment
No. 2 to Form S-1 Registration Statement under the Securities Act on
August 14, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(12) Filed with the Commission as Exhibit 10.14 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(13) Filed with the Commission as Exhibit 10.15 to the Registrant's Amendment
No. 3 to Form S-1 Registration Statement under the Securities Act on
December 8, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
(14) Filed with the Commission as Exhibit 21.1 to the Registrant's Amendment
No. 2 to Form S-1 Registration Statement under the Securities Act on
August 14, 1998 (Commission File No. 333-58795), and is incorporated
herein by reference thereto.
48
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
BY-LAWS
OF
ALBANY MOLECULAR RESEARCH, INC.
ARTICLE I
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Stockholders
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SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
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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
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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
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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 of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
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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
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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 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
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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
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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
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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.
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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 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
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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
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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.
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SECTION 7. Voting and Proxies. Stockholders shall have one vote for each
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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 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
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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
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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
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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
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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
<PAGE>
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.
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SECTION 11. Voting Procedures and Inspectors of Elections. The
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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
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Directors
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SECTION 1. Powers. The business and affairs of the Corporation shall be
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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
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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
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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.
<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
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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
<PAGE>
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 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
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Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
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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
<PAGE>
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 increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in
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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
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provided in the Certificate.
SECTION 7. Resignation. A director may resign at any time by giving
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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
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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
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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
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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.
<PAGE>
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 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
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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
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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
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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
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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
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the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation and Option
<PAGE>
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 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
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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
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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
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Officers
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SECTION 1. Enumeration. The officers of the Corporation shall consist of
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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
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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.
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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.
<PAGE>
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.
<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
<PAGE>
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. 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.
<PAGE>
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 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,
<PAGE>
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.
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;
<PAGE>
(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;
(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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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.
<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.
<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 February 3, 1999
<PAGE>
EXHIBIT 3.2
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 February 3, 1999, as heretofore amended (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 Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 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.
<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
<PAGE>
qualifications, limitations and restrictions thereof. 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;
<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.
<PAGE>
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 Directors of the
Corporation shall be Chester J. Opalka and Frank W. Haydu III; the initial Class
II Director of the Corporation shall be 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 Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 1999, the initial
Class II Director 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 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.
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
THIS RESTATED CERTIFICATE OF INCORPORATION is executed as of this 10th
----------------------------------------------------------------------
day of February, 1999.
- ----------------------
ALBANY MOLECULAR RESEARCH, INC.
-------------------------------
By: /s/ Thomas E. D'Ambra
-------------------------
Thomas E. D'Ambra, Ph.D.
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 3rd day of
November, 1998, by and between Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), and Thomas E. D'Ambra, Ph.D. (the "Executive").
WHEREAS, the Executive is an officer and key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Executive's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company hereby
----------
employs the Executive and the Executive accepts such employment upon the terms
and conditions hereinafter set forth.
2. Term of Employment. The term of the Executive's employment pursuant to
------------------
this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for
periods of one (1) year (each a "Renewal Term") commencing at the third
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless notice that this Agreement will not be extended is given by either the
Executive or the Company not less than sixty (60) days prior to the expiration
of the Term (as extended by any Renewal Term); provided that if the Company
--------
elects not to extend this Agreement for any reason, the Executive shall receive
the payments set forth in Section 6(e). The period during which the Executive
serves as an employee of the Company in accordance with and subject to the
provisions of this Agreement is referred to in this Agreement as the "Term of
Employment."
3. Capacity.
--------
(a) Duties. During the Term of Employment, the Executive shall report
------
directly to the Board of Directors of the Company and (i) shall serve as an
executive officer of the Company with the title Chairman and Chief Executive
Officer, subject to election by the Board of Directors of the Company, (ii)
shall perform such duties and responsibilities as may be reasonably determined
by the Board of Directors of the Company consistent with the Executive's title
and position, duties and responsibilities as an executive officer of the Company
as of the Effective Date; provided that such duties and responsibilities shall
--------
be within the general area of the Executive's experience and skills, (iii) upon
the request of the Board of Directors of the Company, shall serve as an officer
and/or director of the Company and any of its subsidiaries or affiliates
(provided that the Company shall indemnify the Executive for liabilities
- ---------
incurred as such in accordance with its current practices to the fullest extent
permitted by applicable law); and (iv) shall render all services incident to the
foregoing.
(b) Extent of Service. The Executive agrees to diligently serve the
-----------------
1
<PAGE>
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the performance of his duties and
responsibilities hereunder; provided that nothing in this Agreement shall be
--------
construed as preventing the Executive from (i) investing the Executive's assets
in any entity in a manner not prohibited by Section 7 and in such form or manner
as shall not require any material activities on the Executive's part in
connection with the operations or affairs of the entities in which such
investments are made, or (ii) engaging in religious, charitable or other
community or non-profit activities that do not impair the Executive's ability to
fulfill the Executive's duties and responsibilities under this Agreement.
4. Compensation.
------------
(a) Salary. During the Term of Employment, the Company shall pay the
------
Executive a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
-------- -------
such rate per annum be less than $200,000.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior executives, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
-----
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Executive during the prior year, and the Company may provide the Executive
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior executives of the Company. Any such
bonus plan shall have such terms as may be established in the sole discretion of
the Board of Directors of the Company or the Compensation Committee of the Board
of Directors.
5. Benefits.
--------
(a) Regular Benefits. During the Term of Employment, the Executive
----------------
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior executives of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the Effective Date.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
-------------------------
2
<PAGE>
the Executive for all reasonable business expenses incurred by the Executive
during the Term of Employment in accordance with the Company's practices for
senior executives of the Company, as in effect from time to time.
(c) Vacation. During the Term of Employment, the Executive shall
--------
receive at least four (4) weeks paid vacation annually or such greater amount as
is in accordance with the Company's practices for senior executives of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section
-------------------------
2, the Executive's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Executive's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Executive's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Executive's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Executive's employment under this Agreement
--------------
may be terminated at any time by the mutual consent of the Executive and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated by the Company for "cause" at
any time upon written notice to the Executive without further liability on the
part of the Company. For purposes of this Agreement, a termination shall be for
"cause" if:
(i) the Executive shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contendere to any felony or any crime
involving moral turpitude;
(ii) the Executive shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen (15) days after delivery to the Executive by the
Company of written notice thereof;
(iii) the Executive shall commit a material breach of any of the
covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which breach has not been remedied within thirty (30) days after
delivery to the Executive by the Company of written notice thereof; or
(iv) the Executive shall have disobeyed reasonable written
instructions from the Company's Board of Directors, Compensation Committee or
other appropriate governing committee which are consistent with the terms and
conditions of this Agreement or
3
<PAGE>
shall have deliberately, willfully, substantially and continuously failed to
perform the Executive's duties hereunder, after written notice and under
circumstances effectively constituting a voluntary resignation of the
Executive's position with the Company.
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death; Disability. The Executive's employment under this
-----------------
Agreement may be terminated by the Company upon the earlier of death or
permanent disability (as defined below) of the Executive continuing for a period
of one hundred eighty (180) days. Upon any such termination of the Executive's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
--------
payments as provided by Section 4(a) shall continue to be made to the Executive
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Executive or his estate under any applicable
disability or life insurance policy is less than the amount the Executive would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
executive officers of the Company, pro-rated on the basis of the number of days
of the Executive's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Executive's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Executive, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Executive of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Executive. At any time during the
--------------------------------------
Term of Employment, the Executive may terminate his employment under this
Agreement upon sixty (60) days' prior written notice to the Company. Upon
termination by the Executive as provided in this Section 6(d), all obligations
of the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
(e) Termination by the Company Without Cause. The Executive's
----------------------------------------
employment under this Agreement may be terminated by the Company at any time
without "cause" (as defined in Section 6(b)) by the Company upon sixty (60)
days' prior written notice to the Executive. Upon any such termination of the
Executive's employment, all obligations of the Company under this Agreement
shall thereupon immediately terminate other than any obligations with respect to
earned but unpaid Base Salary and bonus under Section 4. In addition, subject
to the Executive signing a general release of claims in a form and manner
satisfactory to the Company, the Company shall continue to pay the Executive his
Base Salary at the rate then in effect pursuant to Section 4(a) for a period of
one (1) year from the Date of
4
<PAGE>
Termination and shall pay to the Executive in monthly installments over such one
year period, an amount equal to the Executive's cash bonus, if any, received in
respect of the immediately preceding year pursuant to Section 4(b).
(f) Termination by the Executive upon Company Breach. The Executive
------------------------------------------------
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Executive that is adverse to the Executive or (ii) a breach by the
Company of any of its material obligations hereunder, in each case after the
Executive has given written notice to the Company specifying such default by the
Company and giving the Company a reasonable time, not less than thirty (30)
days, to conform its performance to its obligations hereunder. The failure of
the Executive to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Executive's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Executive's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Executive signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Executive his Base Salary at the rate then in effect
pursuant to Section 4(a) for a period of one (1) year from the Date of
Termination and shall pay to the Executive in monthly installments over such
one-year period, an amount equal to the Executive's cash bonus, if any, received
in respect of the immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a Change
-------------------------------------------
of Control, as defined below, during the Term of Employment, the provisions of
this Section 6(g) shall apply and shall continue to apply throughout the
remainder of the Term (as extended by any Renewal Term). If, within one (1)
year following a Change of Control, the Executive's employment is terminated by
the Company without cause (in accordance with Section 6(e) above) or by the
Executive for "Good Reason" (as defined in Section 6(g)(ii) below), the Company
shall pay to the Executive (or the Executive's estate, if applicable) a lump sum
amount equal to three (3) times the sum of (x) the Executive's Base Salary at
the rate then in effect pursuant to Section 4(a), plus (y) an amount equal to
----
the Executive's cash bonus, if any, received in respect of the immediately
preceding year pursuant to Section 4(b).
(i) "Change of Control" shall mean the occurrence of any one of
-----------------
the following events:
(A) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (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 twenty-five percent (25%) 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
5
<PAGE>
Board of Directors ("Voting Securities") (in such case other than as a result of
an acquisition of securities directly from the Company);
(B) persons who, as of the Effective Date, 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 the Effective
Date shall be considered an Incumbent Director if such person's election was
approved by or such person was nominated for election by either (1) a vote of at
least a majority of the Incumbent Directors or (2) 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
(C) the stockholders of the Company shall approve (1) 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 fifty percent (50%) of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (2) 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 (3) 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 (A) 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 twenty-five
percent (25%) 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 (A).
(ii) "Good Reason" shall mean the occurrence of any of the
-----------
following:
(A) a material adverse change or diminution in the nature or
scope of the powers, functions, titles, duties or responsibilities of the
Executive that is adverse to the Executive;
(B) a breach by the Company of any of its material
obligations hereunder;
6
<PAGE>
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
(D) the relocation of the offices at which the Executive is
principally employed as of the Change of Control to a location more than fifty
(50) miles from such offices, which relocation is not approved by the Executive.
(iii) The Executive shall provide the Company with reasonable notice
and an opportunity to cure any of the events listed in Section 6(g)(ii) and
shall not be entitled to compensation pursuant to this Section 6(g) unless the
Company fails to cure within a reasonable period of not less than thirty (30)
days; and
(iv) It is the intention of the Executive and of the Company that no
payments by the Company to or for the benefit of the Executive under this
Agreement or any other agreement or plan, if any, pursuant to which the
Executive is entitled to receive payments or benefits shall be nondeductible to
the Company by reason of the operation of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to parachute payments or any
like statutory or regulatory provision. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan, if by reason of
the operation of said Section 280G or any like statutory or regulatory
provision, any such payments exceed the amount which can be deducted by the
Company, such payments shall be reduced to the maximum amount which can be
deducted by the Company. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive, such
excess payments shall be refunded to the Company with interest thereon at the
applicable Federal rate determined under Section 1274(d) of the Code, compounded
annually, or at such other rate as may be required in order that no such
payments shall be nondeductible to the Company by reason of the operation of
said Section 280G or any like statutory or regulatory provision. To the extent
that there is more than one method of reducing the payments to bring them within
the limitations of said Section 280G or any like statutory or regulatory
provision, the Executive shall determine which method shall be followed;
provided that if the Executive fails to make such determination within forty-
- --------
five (45) days after the Company has given notice of the need for such
reduction, the Company may determine the method of such reduction in its sole
discretion.
(h) No Mitigation. Without regard to the reason for the termination
-------------
of the Executive's employment hereunder, the Executive shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Executive is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
---------------
(a) Because the Executive's services to the Company are special and
because the Executive has access to the Company's confidential information,
during the Term of Employment, the Executive shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent or consultant, or in
7
<PAGE>
any other capacity, any Person (as hereinafter defined) other than the Company
and its affiliates in the Designated Industry (as hereinafter defined);
provided, however, that nothing herein shall be construed as preventing
- -------- -------
the Executive from making passive investments in a Person in the Designated
Industry if the securities of such Person are publicly traded and such
investment constitutes less than one percent (1%) of the outstanding shares of
capital stock or comparable equity interests of such Person.
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
------
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing chemistry
-------------------
research and development services to pharmaceutical and biotechnology companies
involved in drug development and discovery and any and all activities related
thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Executive's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
---------------
otherwise, the Executive has had, and it is anticipated that the Executive will
from time to time have, access to confidential records, data, customer lists,
trade secrets, technology and similar confidential information owned or used in
the course of business by the Company and its subsidiaries and affiliates (the
"Confidential Information"). The Executive agrees (i) to hold the Confidential
Information in strict confidence, (ii) not to disclose the Confidential
Information to any Person (other than in the regular business of the Company),
and (iii) not to use, directly or indirectly, any of the Confidential
Information for any competitive or commercial purpose; provided, however, that
-------- -------
the limitations set forth above shall not apply to any Confidential Information
which (A) is then generally known to the public, (B) became or becomes generally
known to the public through no fault of the Executive, or (C) is disclosed in
accordance with an order of a court of competent jurisdiction or applicable law.
Upon termination of the Executive's employment with the Company, all data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Executive's
possession or control, shall be returned to the Company and remain in its
possession. This Section 8 shall survive the termination of this Agreement for
any reason.
9. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Executive is not performing any other duties for, and is not a party
to any similar agreement with, any Person competing with the Company or any of
its affiliates.
10. Severability. In case any of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this
8
<PAGE>
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had been limited or modified (consistent with its general intent) to
the extent necessary to make it valid, legal and enforceable, or if it shall not
be possible to so limit or modify such invalid, illegal or unenforceable
provision or part of a provision, this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained in this Agreement.
11. Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Executive was employed by the
Company. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Executive's
employment, the Executive also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Executive was employed by the Company.
The Company shall reimburse the Executive for any reasonable out-of-pocket
expenses incurred in connection with the Executive's performance of obligations
pursuant to this Section 11. This Section 11 shall survive the termination of
this Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or
-----------------------
in connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Executive's
employment for cause under Section 6(b) and the Executive contends that cause
did not exist, then the Company's only obligation shall be to submit such claim
to arbitration and the only issue before the arbitrator will be whether the
Executive was in fact terminated for cause. If the arbitrator determines that
the Executive was not terminated for cause by the Company, then the only
remedies that the arbitrator may award are (i) payment of amounts which would
have been payable if the Executive's employment had been terminated under
Section 6(e), (ii) the costs of arbitration, (iii) the Executive's attorneys'
fees, and (iv) all rights and benefits granted or in effect with respect to the
Executive under the Company's stock option plans and agreements with the
Executive pursuant thereto, with the vesting and exercise of any stock options
and the forfeitability of any stock-based grants held by the Executive to be
governed by the terms of such plans and the related agreements between the
Executive and the Company. If the arbitrator finds that the Executive's
employment was terminated for cause, the arbitrator will be without authority to
award the Executive anything, and the parties will each be responsible for their
own attorneys' fees, and they will divide the costs of arbitration equally.
Furthermore, should a dispute occur concerning the Executive's mental or
physical capacity as described in Section 6(c), a doctor selected by the
Executive and a doctor selected by the Company shall be entitled to examine the
Executive. If the opinion of the Company's doctor and the Executive's doctor
conflict, the Company's doctor and the Executive's doctor shall together agree
upon a third doctor, whose opinion shall be binding. This Section 12 shall
survive the termination of this Agreement for any reason.
9
<PAGE>
13. Specific Performance. Notwithstanding Section 12 hereof, it is
--------------------
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Executive is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Executive and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of proving actual
damages. To the extent that any court action is permitted consistent with or to
enforce Section 7 or 8 of this Agreement, the parties hereby consent to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Eastern District of New York. Accordingly, with respect
to any such court action, the Executive (i) submits to the personal jurisdiction
of such courts, (ii) consents to service of process, and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction or service of process.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Board of Directors
To the Executive:
Thomas E. D'Ambra, Ph.D.
------------------------
370 Riverview Road
------------------------
Rexford, NY 12148
------------------------
------------------------
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
-----------------
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
10
<PAGE>
16. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the assets of the Company, and may not be assigned by the
Executive.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
-------------
respects under the laws of the State of New York.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall be taken to be an original, but such
counterparts shall together constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
--------------------------------
James J. Grates
Director Human Resources
EXECUTIVE:
--------------------------------
Thomas E. D'Ambra, Ph.D.
12
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 3rd day of
November 1998, by and between Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), and Harold Meckler, Ph.D. (the "Employee").
WHEREAS, the Employee is a key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Employee's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company hereby
----------
employs the Employee and the Employee accepts such employment upon the terms and
conditions hereinafter set forth. In addition, the Company reaffirms any and
all prior agreements between the parties and such agreements continue to be
fully enforceable and binding to each party and it's successors.
2. Term of Employment. The term of the Employee's employment pursuant to
------------------
this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for
periods of one (1) year (each a "Renewal Term") commencing at the third
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless notice that this Agreement will not be extended is given by either the
Employee or the Company not less than sixty (60) days prior to the expiration of
the Term (as extended by any Renewal Term); provided that if the Company elects
--------
not to extend this Agreement for any reason, the Employee shall receive the
payments set forth in Section 6(e). The period during which the Employee serves
as an employee of the Company in accordance with and subject to the provisions
of this Agreement is referred to in this Agreement as the "Term of Employment."
3. Capacity.
--------
(a) Duties. During the Term of Employment, the Employee shall report
------
directly to the President and Chief Operating Officer and (i) shall serve as an
Employee of the Company with the title Vice President Chemical Development, (ii)
shall perform such duties and responsibilities as may be reasonably determined
by the Chairman and Chief Executive Officer consistent with the Employee's title
and position, duties and responsibilities as an Employee of the Company as of
the Effective Date; provided that such duties and responsibilities shall be
--------
within the general area of the Employee's experience and skills, and (iii) shall
render all services incident to the foregoing.
(b) Extent of Service. The Employee agrees to diligently serve the
-----------------
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the
1
<PAGE>
performance of his duties and responsibilities hereunder; provided that nothing
--------
in this Agreement shall be construed as preventing the Employee from (i)
investing the Employee's assets in any entity in a manner not prohibited by
Section 7 and in such form or manner as shall not require any material
activities on the Employee's part in connection with the operations or affairs
of the entities in which such investments are made, or (ii) engaging in
religious, charitable or other community or non-profit activities that do not
impair the Employee's ability to fulfill the Employee's duties and
responsibilities under this Agreement.
4. Compensation.
------------
(a) Salary. During the Term of Employment, the Company shall pay the
------
Employee a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
-------- -------
such rate per annum be less than $120,000.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior Employees, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
-----
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Employee during the prior year, and the Company may provide the Employee
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior Employees of the Company. Any such bonus
plan shall have such terms as may be established in the sole discretion of the
Board of Directors of the Company or the Compensation Committee of the Board of
Directors.
5. Benefits.
--------
(a) Regular Benefits. During the Term of Employment, the Employee
----------------
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior Employees of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the Effective Date.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
-------------------------
the Employee for all reasonable business expenses incurred by the Employee
during the Term of Employment in accordance with the Company's practices for
senior Employees of the Company, as in effect from time to time.
2
<PAGE>
(c) Vacation. During the Term of Employment, the Employee shall
--------
receive at least three (3) weeks paid vacation annually or such greater amount
as is in accordance with the Company's practices for senior Employees of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section
-------------------------
2, the Employee's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
-------------------
Employee's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Employee's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Employee's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Employee's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Employee's employment under this Agreement
--------------
may be terminated at any time by the mutual consent of the Employee and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Employee's employment
------------------------------------
under this Agreement may be terminated by the Company for "cause" at any time
upon written notice to the Employee without further liability on the part of the
Company. For purposes of this Agreement, a termination shall be for "cause" if:
(i) the Employee shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contendere to any felony or any crime
involving moral turpitude;
(ii) the Employee shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen (15) days after delivery to the Employee by the
Company of written notice thereof;
(iii) the Employee shall commit a material breach of any of the
covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which breach has not been remedied within thirty (30) days after
delivery to the Employee by the Company of written notice thereof; or
(iv) the Employee shall have disobeyed reasonable written instructions
from the President and Chief Operating Officer, or other appropriate person
which are consistent with the terms and conditions of this Agreement or shall
have deliberately, willfully, substantially and continuously failed to perform
the Employee's duties hereunder, after written notice and under circumstances
effectively constituting a voluntary resignation of the Employee's position with
the Company.
3
<PAGE>
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death; Disability. The Employee's employment under this Agreement
-----------------
may be terminated by the Company upon the earlier of death or permanent
disability (as defined below) of the Employee continuing for a period of one
hundred eighty (180) days. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
--------
payments as provided by Section 4(a) shall continue to be made to the Employee
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Employee or his estate under any applicable
disability or life insurance policy is less than the amount the Employee would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
Employee officers of the Company, pro-rated on the basis of the number of days
of the Employee's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Employee's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Employee, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Employee of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Employee. At any time during the
-------------------------------------
Term of Employment, the Employee may terminate his employment under this
Agreement upon sixty-(60) days' prior written notice to the Company. Upon
termination by the Employee as provided in this Section 6(d), all obligations of
the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
(e) Termination by the Company Without Cause. The Company may
----------------------------------------
terminate the Employee's employment under this Agreement at any time without
"cause" (as defined in Section 6(b)) by the Company upon sixty-(60) days' prior
written notice to the Employee. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to earned but
unpaid Base Salary and bonus under Section 4. In addition, subject to the
Employee signing a general release of claims in a form and manner satisfactory
to the Company, the Company shall continue to pay the Employee his Base Salary
at the rate then in effect pursuant to Section 4(a) for a period of one (1) year
from the Date of Termination and shall pay to the Employee in monthly
installments over such one year period, an amount equal to the Employee's cash
bonus, if any, received in respect of the immediately preceding year pursuant to
Section 4(b).
4
<PAGE>
(f) Termination by the Employee upon Company Breach. The Employee
-----------------------------------------------
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Employee that is adverse to the Employee or (ii) a breach by the Company
of any of its material obligations hereunder, in each case after the Employee
has given written notice to the Company specifying such default by the Company
and giving the Company a reasonable time, not less than thirty (30) days, to
conform its performance to its obligations hereunder. The failure of the
Employee to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Employee's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Employee's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Employee signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Employee his Base Salary at the rate then in effect pursuant
to Section 4(a) for a period of one (1) year from the Date of Termination and
shall pay to the Employee in monthly installments over such one-year period, an
amount equal to the Employee's cash bonus, if any, received in respect of the
immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a Change
-------------------------------------------
of Control, as defined below, during the Term of Employment, the provisions of
this Section 6(g) shall apply and shall continue to apply throughout the
remainder of the Term (as extended by any Renewal Term). If, within one (1)
year following a Change of Control, the Employee's employment is terminated by
the Company without cause (in accordance with Section 6(e) above) or by the
Employee for "Good Reason" (as defined in Section 6(g)(ii) below), the Company
shall pay to the Employee (or the Employee's estate, if applicable) a lump sum
amount equal to one (1) time the sum of (x) the Employee's Base Salary at the
rate then in effect pursuant to Section 4(a), plus (y) an amount equal to the
----
Employee's cash bonus, if any, received in respect of the immediately preceding
year pursuant to Section 4(b).
(i) "Change of Control" shall mean the occurrence of any one of
-----------------
the following events:
(A) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (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 twenty-five percent (25%) 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);
(B) persons who, as of the Effective Date, constitute the
5
<PAGE>
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
- --------
the Effective Date shall be considered an Incumbent Director if such person's
election was approved by or such person was nominated for election by either (1)
a vote of at least a majority of the Incumbent Directors or (2) 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
(C) the stockholders of the Company shall approve (1) 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 fifty percent (50%) of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (2) 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 (3) 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 (A) 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 twenty-five
percent (25%) 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 (A).
(ii) "Good Reason" shall mean the occurrence of any of the
-----------
following:
(A) a material adverse change or diminution in the nature or
scope of the powers, functions, titles, duties or responsibilities of the
Employee that is adverse to the Employee;
(B) a breach by the Company of any of its material
obligations hereunder;
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
6
<PAGE>
(D) the relocation of the offices at which the Employee is
principally employed as of the Change of Control to a location more than fifty
(50) miles from such offices, which relocation is not approved by the Employee.
(iii) The Employee shall provide the Company with reasonable notice
and an opportunity to cure any of the events listed in Section 6(g)(ii) and
shall not be entitled to compensation pursuant to this Section 6(g) unless the
Company fails to cure within a reasonable period of not less than thirty (30)
days; and
(iv) It is the intention of the Employee and of the Company that no
payments by the Company to or for the benefit of the Employee under this
Agreement or any other agreement or plan, if any, pursuant to which the Employee
is entitled to receive payments or benefits shall be nondeductible to the
Company by reason of the operation of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), relating to parachute payments or any like
statutory or regulatory provision. Accordingly, and notwithstanding any other
provision of this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G or any like statutory or regulatory provision,
any such payments exceed the amount which can be deducted by the Company, such
payments shall be reduced to the maximum amount which can be deducted by the
Company. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Employee, such excess payments shall
be refunded to the Company with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually, or at such
other rate as may be required in order that no such payments shall be
nondeductible to the Company by reason of the operation of said Section 280G or
any like statutory or regulatory provision. To the extent that there is more
than one method of reducing the payments to bring them within the limitations of
said Section 280G or any like statutory or regulatory provision, the Employee
shall determine which method shall be followed; provided that if the Employee
--------
fails to make such determination within forty-five (45) days after the Company
has given notice of the need for such reduction, the Company may determine the
method of such reduction in its sole discretion.
(h) No Mitigation. Without regard to the reason for the termination
-------------
of the Employee's employment hereunder, the Employee shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Employee is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
---------------
(a) Because the Employee's services to the Company are special and
because the Employee has access to the Company's confidential information,
during the Term of Employment, the Employee shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent or consultant, or in any
other capacity, any Person (as hereinafter defined) other than the Company and
its affiliates in the Designated Industry (as hereinafter defined); provided,
--------
however, that nothing herein shall be construed as preventing the Employee from
- -------
making passive investments in a Person in the Designated Industry if the
securities of such Person are publicly traded and such investment
7
<PAGE>
constitutes less than one percent (1%) of the outstanding shares of capital
stock or comparable equity interests of such Person.
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
------
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing chemistry
-------------------
research and development services to pharmaceutical and biotechnology companies
involved in drug development and discovery and any and all activities related
thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Employee's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
---------------
otherwise, the Employee has had, and it is anticipated that the Employee will
from time to time have, access to confidential records, data, customer lists,
trade secrets, technology and similar confidential information owned or used in
the course of business by the Company and its subsidiaries and affiliates (the
"Confidential Information"). The Employee agrees (i) to hold the Confidential
Information in strict confidence, (ii) not to disclose the Confidential
Information to any Person (other than in the regular business of the Company),
and (iii) not to use, directly or indirectly, any of the Confidential
Information for any competitive or commercial purpose; provided, however, that
-------- -------
the limitations set forth above shall not apply to any Confidential Information
which (A) is then generally known to the public, (B) became or becomes generally
known to the public through no fault of the Employee, or (C) is disclosed in
accordance with an order of a court of competent jurisdiction or applicable law.
Upon termination of the Employee's employment with the Company, all data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Employee's
possession or control, shall be returned to the Company and remain in its
possession. This Section 8 shall survive the termination of this Agreement for
any reason.
9. Conflicting Agreements. The Employee hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Employee is not performing any other duties for, and is not a party to
any similar agreement with, any Person competing with the Company or any of its
affiliates.
10. Severability. In case any of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent necessary
to make it valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained in this
Agreement.
8
<PAGE>
11. Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Employee's employment, the Employee shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Employee was employed by the
Company. The Employee's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Employee's
employment, the Employee also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Company. The
Company shall reimburse the Employee for any reasonable out-of-pocket expenses
incurred in connection with the Employee's performance of obligations pursuant
to this Section 11. This Section 11 shall survive the termination of this
Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or in
-----------------------
connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Employee's
employment for cause under Section 6(b) and the Employee contends that cause did
not exist, then the Company's only obligation shall be to submit such claim to
arbitration and the only issue before the arbitrator will be whether the
Employee was in fact terminated for cause. If the arbitrator determines that
the Employee was not terminated for cause by the Company, then the only remedies
that the arbitrator may award are (i) payment of amounts which would have been
payable if the Employee's employment had been terminated under Section 6(e),
(ii) the costs of arbitration, (iii) the Employee's attorneys' fees, and (iv)
all rights and benefits granted or in effect with respect to the Employee under
the Company's stock option plans and agreements with the Employee pursuant
thereto, with the vesting and exercise of any stock options and the
forfeitability of any stock-based grants held by the Employee to be governed by
the terms of such plans and the related agreements between the Employee and the
Company. If the arbitrator finds that the Employee's employment was terminated
for cause, the arbitrator will be without authority to award the Employee
anything, and the parties will each be responsible for their own attorneys'
fees, and they will divide the costs of arbitration equally. Furthermore,
should a dispute occur concerning the Employee's mental or physical capacity as
described in Section 6(c), a doctor selected by the Employee and a doctor
selected by the Company shall be entitled to examine the Employee. If the
opinion of the Company's doctor and the Employee's doctor conflict, the
Company's doctor and the Employee's doctor shall together agree upon a third
doctor, whose opinion shall be binding. This Section 12 shall survive the
termination of this Agreement for any reason.
13. Specific Performance. Notwithstanding Section 12 hereof, it is
--------------------
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Employee is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall
9
<PAGE>
be entitled to enforce the specific performance of this Agreement by the
Employee and to seek both temporary and permanent injunctive relief (to the
extent permitted by law), without the necessity of proving actual damages. To
the extent that any court action is permitted consistent with or to enforce
Section 7 or 8 of this Agreement, the parties hereby consent to the jurisdiction
of the courts of the State of New York and the United States District Court for
the Eastern District of New York. Accordingly, with respect to any such court
action, the Employee (i) submits to the personal jurisdiction of such courts,
(ii) consents to service of process, and (iii) waives any other requirement
(whether imposed by statute, rule of court or otherwise) with respect to
personal jurisdiction or service of process.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Chairman and Chief Executive Officer
To the Employee:
------------------------
------------------------
------------------------
------------------------
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
-----------------
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
16. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the assets of the Company, and may not be assigned by the
Employee.
10
<PAGE>
17. Entire Agreement. This Agreement constitutes the entire agreement between
----------------
the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
-------------
respects under the laws of the State of New York.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall be taken to be an original, but such
counterparts shall together constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
--------------------------------
Thomas E. D'Ambra
Chairman and CEO
EMPLOYEE:
--------------------------------
Harold Meckler, Ph.D.
12
<PAGE>
EXHIBIT 10.13
-------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 3rd day of
November 1998, by and between Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), and Michael P. Trova, Ph.D. (the "Employee").
WHEREAS, the Employee is a key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Employee's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company
----------
hereby employs the Employee and the Employee accepts such employment upon the
terms and conditions hereinafter set forth.
2. Term of Employment. The term of the Employee's employment pursuant to
------------------
this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for
periods of one (1) year (each a "Renewal Term") commencing at the third
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless notice that this Agreement will not be extended is given by either the
Employee or the Company not less than sixty (60) days prior to the expiration of
the Term (as extended by any Renewal Term); provided that if the Company elects
--------
not to extend this Agreement for any reason, the Employee shall receive the
payments set forth in Section 6(e). The period during which the Employee serves
as an employee of the Company in accordance with and subject to the provisions
of this Agreement is referred to in this Agreement as the "Term of Employment."
3. Capacity.
--------
(a) Duties. During the Term of Employment, the Employee shall report
------
directly to the Chairman and Chief Executive Officer and (i) shall serve as an
Employee of the Company with the title Vice President Medicinal Chemistry, (ii)
shall perform such duties and responsibilities as may be reasonably determined
by the Chairman and Chief Executive Officer consistent with the Employee's title
and position, duties and responsibilities as an Employee of the Company as of
the Effective Date; provided that such duties and responsibilities shall be
--------
within the general area of the Employee's experience and skills, and (iii) shall
render all services incident to the foregoing.
(b) Extent of Service. The Employee agrees to diligently serve the
-----------------
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the performance of his duties and
responsibilities hereunder; provided that nothing in this Agreement
--------
1
<PAGE>
shall be construed as preventing the Employee from (i) investing the Employee's
assets in any entity in a manner not prohibited by Section 7 and in such form or
manner as shall not require any material activities on the Employee's part in
connection with the operations or affairs of the entities in which such
investments are made, or (ii) engaging in religious, charitable or other
community or non-profit activities that do not impair the Employee's ability to
fulfill the Employee's duties and responsibilities under this Agreement.
4. Compensation.
------------
(a) Salary. During the Term of Employment, the Company shall pay the
------
Employee a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
-------- -------
such rate per annum be less than $115,000.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior Employees, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
-----
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Employee during the prior year, and the Company may provide the Employee
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior Employees of the Company. Any such bonus
plan shall have such terms as may be established in the sole discretion of the
Board of Directors of the Company or the Compensation Committee of the Board of
Directors.
5. Benefits.
--------
(a) Regular Benefits. During the Term of Employment, the Employee
----------------
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior Employees of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the Effective Date.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
-------------------------
the Employee for all reasonable business expenses incurred by the Employee
during the Term of Employment in accordance with the Company's practices for
senior Employees of the Company, as in effect from time to time.
2
<PAGE>
(c) Vacation. During the Term of Employment, the Employee shall
--------
receive at least three (3) weeks paid vacation annually or such greater amount
as is in accordance with the Company's practices for senior Employees of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section
-------------------------
2, the Employee's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
-------------------
Employee's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Employee's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Employee's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Employee's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Employee's employment under this Agreement
--------------
may be terminated at any time by the mutual consent of the Employee and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Employee's employment
------------------------------------
under this Agreement may be terminated by the Company for "cause" at any time
upon written notice to the Employee without further liability on the part of the
Company. For purposes of this Agreement, a termination shall be for "cause" if:
(i) the Employee shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contendere to any felony or any crime
involving moral turpitude;
(ii) the Employee shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen (15) days after delivery to the Employee by the
Company of written notice thereof;
(iii) the Employee shall commit a material breach of any of the
covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which breach has not been remedied within thirty (30) days after
delivery to the Employee by the Company of written notice thereof; or
(iv) the Employee shall have disobeyed reasonable written
instructions from the Chairman and Chief Executive Officer, or other appropriate
person which are consistent with the terms and conditions of this Agreement or
shall have deliberately, willfully, substantially and continuously failed to
perform the Employee's duties hereunder, after written notice and under
circumstances effectively constituting a voluntary resignation of the Employee's
position with the Company.
3
<PAGE>
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death; Disability. The Employee's employment under this
-----------------
Agreement may be terminated by the Company upon the earlier of death or
permanent disability (as defined below) of the Employee continuing for a period
of one hundred eighty (180) days. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
--------
payments as provided by Section 4(a) shall continue to be made to the Employee
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Employee or his estate under any applicable
disability or life insurance policy is less than the amount the Employee would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
Employee officers of the Company, pro-rated on the basis of the number of days
of the Employee's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Employee's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Employee, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Employee of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Employee. At any time during the
-------------------------------------
Term of Employment, the Employee may terminate his employment under this
Agreement upon sixty-(60) days' prior written notice to the Company. Upon
termination by the Employee as provided in this Section 6(d), all obligations of
the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
(e) Termination by the Company Without Cause. The Company may
----------------------------------------
terminate the Employee's employment under this Agreement at any time without
"cause" (as defined in Section 6(b)) by the Company upon sixty-(60) days' prior
written notice to the Employee. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to earned but
unpaid Base Salary and bonus under Section 4. In addition, subject to the
Employee signing a general release of claims in a form and manner satisfactory
to the Company, the Company shall continue to pay the Employee his Base Salary
at the rate then in effect pursuant to Section 4(a) for a period of one (1) year
from the Date of Termination and shall pay to the Employee in monthly
installments over such one year period, an amount equal to the Employee's cash
bonus, if any, received in respect of the immediately preceding year pursuant to
Section 4(b).
4
<PAGE>
(f) Termination by the Employee upon Company Breach. The Employee
-----------------------------------------------
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Employee that is adverse to the Employee or (ii) a breach by the Company
of any of its material obligations hereunder, in each case after the Employee
has given written notice to the Company specifying such default by the Company
and giving the Company a reasonable time, not less than thirty (30) days, to
conform its performance to its obligations hereunder. The failure of the
Employee to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Employee's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Employee's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Employee signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Employee his Base Salary at the rate then in effect pursuant
to Section 4(a) for a period of one (1) year from the Date of Termination and
shall pay to the Employee in monthly installments over such one-year period, an
amount equal to the Employee's cash bonus, if any, received in respect of the
immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a
-------------------------------------------
Change of Control, as defined below, during the Term of Employment, the
provisions of this Section 6(g) shall apply and shall continue to apply
throughout the remainder of the Term (as extended by any Renewal Term). If,
within one (1) year following a Change of Control, the Employee's employment is
terminated by the Company without cause (in accordance with Section 6(e) above)
or by the Employee for "Good Reason" (as defined in Section 6(g)(ii) below), the
Company shall pay to the Employee (or the Employee's estate, if applicable) a
lump sum amount equal to one (1) time the sum of (x) the Employee's Base Salary
at the rate then in effect pursuant to Section 4(a), plus (y) an amount equal to
----
the Employee's cash bonus, if any, received in respect of the immediately
preceding year pursuant to Section 4(b).
(i) "Change of Control" shall mean the occurrence of any one
-----------------
of the following events:
(A) any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (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 twenty-five percent (25%) 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);
5
<PAGE>
(B) persons who, as of the Effective Date, 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 the
- --------
Effective Date shall be considered an Incumbent Director if such person's
election was approved by or such person was nominated for election by either (1)
a vote of at least a majority of the Incumbent Directors or (2) 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
(C) the stockholders of the Company shall approve (1) 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 fifty percent (50%) of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (2) 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 (3) 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 (A) 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 twenty-five
percent (25%) 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 (A).
(ii) "Good Reason" shall mean the occurrence of any of the
-----------
following:
(A) a material adverse change or diminution in the nature
or scope of the powers, functions, titles, duties or responsibilities of the
Employee that is adverse to the Employee;
(B) a breach by the Company of any of its material
obligations hereunder;
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
6
<PAGE>
(D) the relocation of the offices at which the Employee is
principally employed as of the Change of Control to a location more than fifty
(50) miles from such offices, which relocation is not approved by the Employee.
(iii) The Employee shall provide the Company with reasonable
notice and an opportunity to cure any of the events listed in Section 6(g)(ii)
and shall not be entitled to compensation pursuant to this Section 6(g) unless
the Company fails to cure within a reasonable period of not less than thirty
(30) days; and
(iv) It is the intention of the Employee and of the Company
that no payments by the Company to or for the benefit of the Employee under this
Agreement or any other agreement or plan, if any, pursuant to which the Employee
is entitled to receive payments or benefits shall be nondeductible to the
Company by reason of the operation of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), relating to parachute payments or any like
statutory or regulatory provision. Accordingly, and notwithstanding any other
provision of this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G or any like statutory or regulatory provision,
any such payments exceed the amount which can be deducted by the Company, such
payments shall be reduced to the maximum amount which can be deducted by the
Company. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Employee, such excess payments shall
be refunded to the Company with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually, or at such
other rate as may be required in order that no such payments shall be
nondeductible to the Company by reason of the operation of said Section 280G or
any like statutory or regulatory provision. To the extent that there is more
than one method of reducing the payments to bring them within the limitations of
said Section 280G or any like statutory or regulatory provision, the Employee
shall determine which method shall be followed; provided that if the Employee
--------
fails to make such determination within forty-five (45) days after the Company
has given notice of the need for such reduction, the Company may determine the
method of such reduction in its sole discretion.
(h) No Mitigation. Without regard to the reason for the termination
-------------
of the Employee's employment hereunder, the Employee shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Employee is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
---------------
(a) Because the Employee's services to the Company are special and
because the Employee has access to the Company's confidential information,
during the Term of Employment, the Employee shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent or consultant, or in any
other capacity, any Person (as hereinafter defined) other than the Company and
its affiliates in the Designated Industry (as hereinafter defined); provided,
--------
however, that nothing herein shall be construed as preventing the Employee from
- -------
making passive investments in a Person in the Designated Industry if the
securities of such Person are publicly traded and such investment constitutes
less than one percent (1%) of the outstanding shares of capital stock or
comparable equity interests of such Person.
7
<PAGE>
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
------
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing chemistry
-------------------
research and development services to pharmaceutical and biotechnology companies
involved in drug development and discovery and any and all activities related
thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Employee's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
---------------
otherwise, the Employee has had, and it is anticipated that the Employee will
from time to time have, access to confidential records, data, customer lists,
trade secrets, technology and similar confidential information owned or used in
the course of business by the Company and its subsidiaries and affiliates (the
"Confidential Information"). The Employee agrees (i) to hold the Confidential
Information in strict confidence, (ii) not to disclose the Confidential
Information to any Person (other than in the regular business of the Company),
and (iii) not to use, directly or indirectly, any of the Confidential
Information for any competitive or commercial purpose; provided, however, that
-------- -------
the limitations set forth above shall not apply to any Confidential Information
which (A) is then generally known to the public, (B) became or becomes generally
known to the public through no fault of the Employee, or (C) is disclosed in
accordance with an order of a court of competent jurisdiction or applicable law.
Upon termination of the Employee's employment with the Company, all data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Employee's
possession or control, shall be returned to the Company and remain in its
possession. This Section 8 shall survive the termination of this Agreement for
any reason.
9. Conflicting Agreements. The Employee hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Employee is not performing any other duties for, and is not a party to
any similar agreement with, any Person competing with the Company or any of its
affiliates.
10. Severability. In case any of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent necessary
to make it valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained in this
Agreement.
8
<PAGE>
11. Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Employee's employment, the Employee shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Employee was employed by the
Company. The Employee's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Employee's
employment, the Employee also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Company. The
Company shall reimburse the Employee for any reasonable out-of-pocket expenses
incurred in connection with the Employee's performance of obligations pursuant
to this Section 11. This Section 11 shall survive the termination of this
Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or
-----------------------
in connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Employee's
employment for cause under Section 6(b) and the Employee contends that cause did
not exist, then the Company's only obligation shall be to submit such claim to
arbitration and the only issue before the arbitrator will be whether the
Employee was in fact terminated for cause. If the arbitrator determines that
the Employee was not terminated for cause by the Company, then the only remedies
that the arbitrator may award are (i) payment of amounts which would have been
payable if the Employee's employment had been terminated under Section 6(e),
(ii) the costs of arbitration, (iii) the Employee's attorneys' fees, and (iv)
all rights and benefits granted or in effect with respect to the Employee under
the Company's stock option plans and agreements with the Employee pursuant
thereto, with the vesting and exercise of any stock options and the
forfeitability of any stock-based grants held by the Employee to be governed by
the terms of such plans and the related agreements between the Employee and the
Company. If the arbitrator finds that the Employee's employment was terminated
for cause, the arbitrator will be without authority to award the Employee
anything, and the parties will each be responsible for their own attorneys'
fees, and they will divide the costs of arbitration equally. Furthermore,
should a dispute occur concerning the Employee's mental or physical capacity as
described in Section 6(c), a doctor selected by the Employee and a doctor
selected by the Company shall be entitled to examine the Employee. If the
opinion of the Company's doctor and the Employee's doctor conflict, the
Company's doctor and the Employee's doctor shall together agree upon a third
doctor, whose opinion shall be binding. This Section 12 shall survive the
termination of this Agreement for any reason.
13. Specific Performance. Notwithstanding Section 12 hereof, it is
--------------------
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Employee is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
9
<PAGE>
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Employee and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of proving actual
damages. To the extent that any court action is permitted consistent with or to
enforce Section 7 or 8 of this Agreement, the parties hereby consent to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Eastern District of New York. Accordingly, with respect
to any such court action, the Employee (i) submits to the personal jurisdiction
of such courts, (ii) consents to service of process, and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction or service of process.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Chairman and Chief Executive Officer
To the Employee:
------------------------
------------------------
------------------------
------------------------
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
-----------------
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
16. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the assets of the Company, and may not be assigned by the
Employee.
10
<PAGE>
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
-------------
respects under the laws of the State of New York.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall be taken to be an original, but such
counterparts shall together constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
--------------------------------
Thomas E. D'Ambra
Chairman and CEO
EMPLOYEE:
--------------------------------
Michael P. Trova, Ph.D.
12
<PAGE>
EXHIBIT 10.16
-------------
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 3/rd/ day of
November 1998, by and between Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), and Donald E. Kuhla, Ph.D. (the "Executive").
WHEREAS, the Executive is an officer and key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Executive's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company
----------
hereby employs the Executive and the Executive accepts such employment upon the
terms and conditions hereinafter set forth.
2. Term of Employment. The term of the Executive's employment pursuant
------------------
to this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for
periods of one (1) year (each a "Renewal Term") commencing at the third
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless notice that this Agreement will not be extended is given by either the
Executive or the Company not less than sixty (60) days prior to the expiration
of the Term (as extended by any Renewal Term); provided that if the Company
--------
elects not to extend this Agreement for any reason, the Executive shall receive
the payments set forth in Section 6(e). The period during which the Executive
serves as an employee of the Company in accordance with and subject to the
provisions of this Agreement is referred to in this Agreement as the "Term of
Employment."
3. Capacity.
--------
(a) Duties. During the Term of Employment, the Executive shall report
------
directly to the Chairman and Chief Executive Officer and (i) shall serve as an
executive officer of the Company with the title President and Chief Operating
Officer (ii) shall perform such duties and responsibilities as may be reasonably
determined by the Chairman and Chief Executive Officer of the Company consistent
with the Executive's title and position, duties and responsibilities as an
executive officer of the Company as of the Effective Date; provided that such
--------
duties and responsibilities shall be within the general area of the Executive's
experience and skills, (iii) upon the request of the Chairman and Chief
Executive Officer and the Board of Directors of the Company, shall serve as an
officer and/or director of the Company and any of its subsidiaries or affiliates
(provided that the Company shall indemnify the Executive for liabilities
--------
incurred as such in accordance with its current practices to the fullest extent
permitted by applicable law); and (iv) shall render all services incident to the
foregoing.
1
<PAGE>
(b) Extent of Service. The Executive agrees to diligently serve the
-----------------
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the performance of his duties and
responsibilities hereunder; provided that nothing in this Agreement shall be
--------
construed as preventing the Executive from (i) investing the Executive's assets
in any entity in a manner not prohibited by Section 7 and in such form or manner
as shall not require any material activities on the Executive's part in
connection with the operations or affairs of the entities in which such
investments are made, or (ii) engaging in religious, charitable or other
community or non-profit activities that do not impair the Executive's ability to
fulfill the Executive's duties and responsibilities under this Agreement.
4. Compensation.
------------
(a) Salary. During the Term of Employment, the Company shall pay the
------
Executive a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
-------- -------
such rate per annum be less than $175,000.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior executives, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
-----
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Executive during the prior year, and the Company may provide the Executive
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior executives of the Company. Any such
bonus plan shall have such terms as may be established in the sole discretion of
the Board of Directors of the Company or the Compensation Committee of the Board
of Directors.
5. Benefits.
--------
(a) Regular Benefits. During the Term of Employment, the Executive
----------------
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior executives of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the Effective Date.
2
<PAGE>
(b) Reimbursement of Expenses. The Company shall promptly reimburse
-------------------------
the Executive for all reasonable business expenses incurred by the Executive
during the Term of Employment in accordance with the Company's practices for
senior executives of the Company, as in effect from time to time.
(c) Vacation. During the Term of Employment, the Executive shall
--------
receive at least three (3) weeks paid vacation annually or such greater amount
as is in accordance with the Company's practices for senior executives of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section
-------------------------
2, the Executive's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Executive's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Executive's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Executive's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Executive's employment under this Agreement
--------------
may be terminated at any time by the mutual consent of the Executive and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Executive's
------------------------------------
employment under this Agreement may be terminated by the Company for "cause" at
any time upon written notice to the Executive without further liability on the
part of the Company. For purposes of this Agreement, a termination shall be for
"cause" if:
(i) the Executive shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contendere to any felony or any crime
involving moral turpitude;
(ii) the Executive shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen (15) days after delivery to the Executive by the
Company of written notice thereof;
(iii) the Executive shall commit a material breach of any of the
covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which breach has not been remedied within thirty (30) days after
delivery to the Executive by the Company of written notice thereof; or
(iv) the Executive shall have disobeyed reasonable written
instructions from the Chairman and Chief Executive Officer, or other appropriate
person which are consistent with the terms and conditions of this Agreement or
shall have deliberately, willfully,
3
<PAGE>
substantially and continuously failed to perform the Executive's duties
hereunder, after written notice and under circumstances effectively constituting
a voluntary resignation of the Executive's position with the Company.
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death; Disability. The Executive's employment under this
-----------------
Agreement may be terminated by the Company upon the earlier of death or
permanent disability (as defined below) of the Executive continuing for a period
of one hundred eighty (180) days. Upon any such termination of the Executive's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
--------
payments as provided by Section 4(a) shall continue to be made to the Executive
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Executive or his estate under any applicable
disability or life insurance policy is less than the amount the Executive would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
executive officers of the Company, pro-rated on the basis of the number of days
of the Executive's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Executive's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Executive, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Executive of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Executive. At any time during the
--------------------------------------
Term of Employment, the Executive may terminate his employment under this
Agreement upon sixty (60) days' prior written notice to the Company. Upon
termination by the Executive as provided in this Section 6(d), all obligations
of the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
(e) Termination by the Company Without Cause. The Executive's
----------------------------------------
employment under this Agreement may be terminated by the Company at any time
without "cause" (as defined in Section 6(b)) by the Company upon sixty (60)
days' prior written notice to the Executive. Upon any such termination of the
Executive's employment, all obligations of the Company under this Agreement
shall thereupon immediately terminate other than any obligations with respect to
earned but unpaid Base Salary and bonus under Section 4. In addition, subject
to the Executive signing a general release of claims in a form and manner
satisfactory to the Company, the Company shall continue to pay the Executive his
Base Salary at the rate then in effect pursuant to Section 4(a) for a period of
one (1) year from the Date of
4
<PAGE>
Termination and shall pay to the Executive in monthly installments over such one
year period, an amount equal to the Executive's cash bonus, if any, received in
respect of the immediately preceding year pursuant to Section 4(b).
(f) Termination by the Executive upon Company Breach. The Executive
------------------------------------------------
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Executive that is adverse to the Executive or (ii) a breach by the
Company of any of its material obligations hereunder, in each case after the
Executive has given written notice to the Company specifying such default by the
Company and giving the Company a reasonable time, not less than thirty (30)
days, to conform its performance to its obligations hereunder. The failure of
the Executive to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Executive's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Executive's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Executive signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Executive his Base Salary at the rate then in effect
pursuant to Section 4(a) for a period of one (1) year from the Date of
Termination and shall pay to the Executive in monthly installments over such
one-year period, an amount equal to the Executive's cash bonus, if any, received
in respect of the immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a
-------------------------------------------
Change of Control, as defined below, during the Term of Employment, the
provisions of this Section 6(g) shall apply and shall continue to apply
throughout the remainder of the Term (as extended by any Renewal Term). If,
within one (1) year following a Change of Control, the Executive's employment is
terminated by the Company without cause (in accordance with Section 6(e) above)
or by the Executive for "Good Reason" (as defined in Section 6(g)(ii) below),
the Company shall pay to the Executive (or the Executive's estate, if
applicable) a lump sum amount equal to two (2) times the sum of (x) the
Executive's Base Salary at the rate then in effect pursuant to Section 4(a),
plus (y) an amount equal to the Executive's cash bonus, if any, received in
- ----
respect of the immediately preceding year pursuant to Section 4(b).
(i) "Change of Control" shall mean the occurrence of any one
-----------------
of the following events:
(A) any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (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 twenty-five percent (25%) 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
5
<PAGE>
Board of Directors ("Voting Securities") (in such case other than as a result of
an acquisition of securities directly from the Company);
(B) persons who, as of the Effective Date, 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 the
- --------
Effective Date shall be considered an Incumbent Director if such person's
election was approved by or such person was nominated for election by either (1)
a vote of at least a majority of the Incumbent Directors or (2) 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
(C) the stockholders of the Company shall approve (1) 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 fifty percent (50%) of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (2) 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 (3) 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 (A) 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 twenty-five
percent (25%) 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 (A).
(ii) "Good Reason" shall mean the occurrence of any of the
-----------
following:
(A) a material adverse change or diminution in the nature
or scope of the powers, functions, titles, duties or responsibilities of the
Executive that is adverse to the Executive;
(B) a breach by the Company of any of its material
obligations hereunder;
6
<PAGE>
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
(D) the relocation of the offices at which the Executive is
principally employed as of the Change of Control to a location more than fifty
(50) miles from such offices, which relocation is not approved by the Executive.
(iii) The Executive shall provide the Company with reasonable
notice and an opportunity to cure any of the events listed in Section 6(g)(ii)
and shall not be entitled to compensation pursuant to this Section 6(g) unless
the Company fails to cure within a reasonable period of not less than thirty
(30) days; and
(iv) It is the intention of the Executive and of the Company
that no payments by the Company to or for the benefit of the Executive under
this Agreement or any other agreement or plan, if any, pursuant to which the
Executive is entitled to receive payments or benefits shall be nondeductible to
the Company by reason of the operation of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to parachute payments or any
like statutory or regulatory provision. Accordingly, and notwithstanding any
other provision of this Agreement or any such agreement or plan, if by reason of
the operation of said Section 280G or any like statutory or regulatory
provision, any such payments exceed the amount which can be deducted by the
Company, such payments shall be reduced to the maximum amount which can be
deducted by the Company. To the extent that payments exceeding such maximum
deductible amount have been made to or for the benefit of the Executive, such
excess payments shall be refunded to the Company with interest thereon at the
applicable Federal rate determined under Section 1274(d) of the Code, compounded
annually, or at such other rate as may be required in order that no such
payments shall be nondeductible to the Company by reason of the operation of
said Section 280G or any like statutory or regulatory provision. To the extent
that there is more than one method of reducing the payments to bring them within
the limitations of said Section 280G or any like statutory or regulatory
provision, the Executive shall determine which method shall be followed;
provided that if the Executive fails to make such determination within forty-
- --------
five (45) days after the Company has given notice of the need for such
reduction, the Company may determine the method of such reduction in its sole
discretion.
(h) No Mitigation. Without regard to the reason for the termination
-------------
of the Executive's employment hereunder, the Executive shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Executive is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
---------------
(a) Because the Executive's services to the Company are special and
because the Executive has access to the Company's confidential information,
during the Term of Employment, the Executive shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner,
7
<PAGE>
part-owner, shareholder, partner, director, officer, trustee, employee, agent or
consultant, or in any other capacity, any Person (as hereinafter defined) other
than the Company and its affiliates in the Designated Industry (as hereinafter
defined); provided, however, that nothing herein shall be construed as
-------- -------
preventing the Executive from making passive investments in a Person in the
Designated Industry if the securities of such Person are publicly traded and
such investment constitutes less than one percent (1%) of the outstanding shares
of capital stock or comparable equity interests of such Person.
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
------
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing chemistry
-------------------
research and development services to pharmaceutical and biotechnology companies
involved in drug development and discovery and any and all activities related
thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Executive's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
---------------
otherwise, the Executive has had, and it is anticipated that the Executive will
from time to time have, access to confidential records, data, customer lists,
trade secrets, technology and similar confidential information owned or used in
the course of business by the Company and its subsidiaries and affiliates (the
"Confidential Information"). The Executive agrees (i) to hold the Confidential
Information in strict confidence, (ii) not to disclose the Confidential
Information to any Person (other than in the regular business of the Company),
and (iii) not to use, directly or indirectly, any of the Confidential
Information for any competitive or commercial purpose; provided, however, that
-------- -------
the limitations set forth above shall not apply to any Confidential Information
which (A) is then generally known to the public, (B) became or becomes generally
known to the public through no fault of the Executive, or (C) is disclosed in
accordance with an order of a court of competent jurisdiction or applicable law.
Upon termination of the Executive's employment with the Company, all data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Executive's
possession or control, shall be returned to the Company and remain in its
possession. This Section 8 shall survive the termination of this Agreement for
any reason.
9. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Executive is not performing any other duties for, and is not a party
to any similar agreement with, any Person competing with the Company or any of
its affiliates.
8
<PAGE>
10. Severability. In case any of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent necessary
to make it valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained in this
Agreement.
11. Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Executive's employment, the Executive shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Executive was employed by the
Company. The Executive's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Executive's
employment, the Executive also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Executive was employed by the Company.
The Company shall reimburse the Executive for any reasonable out-of-pocket
expenses incurred in connection with the Executive's performance of obligations
pursuant to this Section 11. This Section 11 shall survive the termination of
this Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or
-----------------------
in connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Executive's
employment for cause under Section 6(b) and the Executive contends that cause
did not exist, then the Company's only obligation shall be to submit such claim
to arbitration and the only issue before the arbitrator will be whether the
Executive was in fact terminated for cause. If the arbitrator determines that
the Executive was not terminated for cause by the Company, then the only
remedies that the arbitrator may award are (i) payment of amounts which would
have been payable if the Executive's employment had been terminated under
Section 6(e), (ii) the costs of arbitration, (iii) the Executive's attorneys'
fees, and (iv) all rights and benefits granted or in effect with respect to the
Executive under the Company's stock option plans and agreements with the
Executive pursuant thereto, with the vesting and exercise of any stock options
and the forfeitability of any stock-based grants held by the Executive to be
governed by the terms of such plans and the related agreements between the
Executive and the Company. If the arbitrator finds that the Executive's
employment was terminated for cause, the arbitrator will be without authority to
award the Executive anything, and the parties will each be responsible for their
own attorneys' fees, and they will divide the costs of arbitration equally.
Furthermore, should a dispute occur concerning the Executive's mental or
physical capacity as described in Section 6(c), a doctor selected by the
Executive and a doctor selected by the Company shall be entitled to examine the
Executive. If the opinion of the Company's doctor and the Executive's doctor
conflict, the Company's doctor and the Executive's doctor shall together agree
upon a third doctor, whose opinion shall be binding. This Section 12 shall
survive the termination of this Agreement for any reason.
9
<PAGE>
13. Specific Performance. Notwithstanding Section 12 hereof, it is
--------------------
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Executive is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Executive and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of proving actual
damages. To the extent that any court action is permitted consistent with or to
enforce Section 7 or 8 of this Agreement, the parties hereby consent to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Eastern District of New York. Accordingly, with respect
to any such court action, the Executive (i) submits to the personal jurisdiction
of such courts, (ii) consents to service of process, and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction or service of process.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Chairman and Chief Executive Officer
To the Executive:
------------------------
------------------------
------------------------
------------------------
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
-----------------
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
10
<PAGE>
16. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the assets of the Company, and may not be assigned by the
Executive.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
-------------
respects under the laws of the State of New York.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall be taken to be an original, but such
counterparts shall together constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
-------------------------------
Thomas E. D'Ambra, Ph.D.
Chairman and CEO
EXECUTIVE:
-------------------------------
Donald E. Kuhla, Ph.D.
12
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 3rd day of
November 1998, by and between Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), and Lawrence D. Jones, Ph.D. (the "Employee").
WHEREAS, the Employee is a key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Employee's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company hereby
----------
employs the Employee and the Employee accepts such employment upon the terms and
conditions hereinafter set forth.
2. Term of Employment. The term of the Employee's employment pursuant to
------------------
this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for
periods of one (1) year (each a "Renewal Term") commencing at the third
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless notice that this Agreement will not be extended is given by either the
Employee or the Company not less than sixty (60) days prior to the expiration of
the Term (as extended by any Renewal Term); provided that if the Company elects
--------
not to extend this Agreement for any reason, the Employee shall receive the
payments set forth in Section 6(e). The period during which the Employee serves
as an employee of the Company in accordance with and subject to the provisions
of this Agreement is referred to in this Agreement as the "Term of Employment."
3. Capacity.
--------
(a) Duties. During the Term of Employment, the Employee shall report
------
directly to the President and Chief Operating Officer and (i) shall serve as an
Employee of the Company with the title Vice President Commercial Operations and
Quality, (ii) shall perform such duties and responsibilities as may be
reasonably determined by the Chairman and Chief Executive Officer consistent
with the Employee's title and position, duties and responsibilities as an
Employee of the Company as of the Effective Date; provided that such duties and
--------
responsibilities shall be within the general area of the Employee's experience
and skills, and (iii) shall render all services incident to the foregoing.
(b) Extent of Service. The Employee agrees to diligently serve the
-----------------
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the performance of his duties and
responsibilities hereunder; provided that nothing in this Agreement
--------
1
<PAGE>
shall be construed as preventing the Employee from (i) investing the Employee's
assets in any entity in a manner not prohibited by Section 7 and in such form or
manner as shall not require any material activities on the Employee's part in
connection with the operations or affairs of the entities in which such
investments are made, or (ii) engaging in religious, charitable or other
community or non-profit activities that do not impair the Employee's ability to
fulfill the Employee's duties and responsibilities under this Agreement.
4. Compensation.
------------
(a) Salary. During the Term of Employment, the Company shall pay the
------
Employee a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
-------- -------
such rate per annum be less than $138,000.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior Employees, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
-----
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Employee during the prior year, and the Company may provide the Employee
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior Employees of the Company. Any such bonus
plan shall have such terms as may be established in the sole discretion of the
Board of Directors of the Company or the Compensation Committee of the Board of
Directors.
5. Benefits.
--------
(a) Regular Benefits. During the Term of Employment, the Employee
----------------
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior Employees of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the Effective Date.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
-------------------------
the Employee for all reasonable business expenses incurred by the Employee
during the Term of Employment in accordance with the Company's practices for
senior Employees of the Company, as in effect from time to time.
2
<PAGE>
(c) Vacation. During the Term of Employment, the Employee shall
--------
receive at least two (2) weeks paid vacation annually or such greater amount as
is in accordance with the Company's practices for senior Employees of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section
-------------------------
2, the Employee's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
-------------------
Employee's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Employee's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Employee's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Employee's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Employee's employment under this Agreement
--------------
may be terminated at any time by the mutual consent of the Employee and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Employee's employment
------------------------------------
under this Agreement may be terminated by the Company for "cause" at any time
upon written notice to the Employee without further liability on the part of the
Company. For purposes of this Agreement, a termination shall be for "cause" if:
(i) the Employee shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contendere to any felony or any crime
involving moral turpitude;
(ii) the Employee shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen (15) days after delivery to the Employee by the
Company of written notice thereof;
(iii) the Employee shall commit a material breach of any of the
covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which breach has not been remedied within thirty (30) days after
delivery to the Employee by the Company of written notice thereof; or
(iv) the Employee shall have disobeyed reasonable written instructions
from the President and Chief Operating Officer, or other appropriate person
which are consistent with the terms and conditions of this Agreement or shall
have deliberately, willfully, substantially and continuously failed to perform
the Employee's duties hereunder, after written notice and under circumstances
effectively constituting a voluntary resignation of the Employee's position with
the Company.
3
<PAGE>
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death; Disability. The Employee's employment under this Agreement
-----------------
may be terminated by the Company upon the earlier of death or permanent
disability (as defined below) of the Employee continuing for a period of one
hundred eighty (180) days. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
--------
payments as provided by Section 4(a) shall continue to be made to the Employee
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Employee or his estate under any applicable
disability or life insurance policy is less than the amount the Employee would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
Employee officers of the Company, pro-rated on the basis of the number of days
of the Employee's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Employee's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Employee, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Employee of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Employee. At any time during the
-------------------------------------
Term of Employment, the Employee may terminate his employment under this
Agreement upon sixty-(60) days' prior written notice to the Company. Upon
termination by the Employee as provided in this Section 6(d), all obligations of
the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
(e) Termination by the Company Without Cause. The Company may
----------------------------------------
terminate the Employee's employment under this Agreement at any time without
"cause" (as defined in Section 6(b)) by the Company upon sixty-(60) days' prior
written notice to the Employee. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to earned but
unpaid Base Salary and bonus under Section 4. In addition, subject to the
Employee signing a general release of claims in a form and manner satisfactory
to the Company, the Company shall continue to pay the Employee his Base Salary
at the rate then in effect pursuant to Section 4(a) for a period of one (1) year
from the Date of Termination and shall pay to the Employee in monthly
installments over such one year period, an amount equal to the Employee's cash
bonus, if any, received in respect of the immediately preceding year pursuant to
Section 4(b).
4
<PAGE>
(f) Termination by the Employee upon Company Breach. The Employee
-----------------------------------------------
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Employee that is adverse to the Employee or (ii) a breach by the Company
of any of its material obligations hereunder, in each case after the Employee
has given written notice to the Company specifying such default by the Company
and giving the Company a reasonable time, not less than thirty (30) days, to
conform its performance to its obligations hereunder. The failure of the
Employee to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Employee's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Employee's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Employee signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Employee his Base Salary at the rate then in effect pursuant
to Section 4(a) for a period of one (1) year from the Date of Termination and
shall pay to the Employee in monthly installments over such one-year period, an
amount equal to the Employee's cash bonus, if any, received in respect of the
immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a Change
-------------------------------------------
of Control, as defined below, during the Term of Employment, the provisions of
this Section 6(g) shall apply and shall continue to apply throughout the
remainder of the Term (as extended by any Renewal Term). If, within one (1)
year following a Change of Control, the Employee's employment is terminated by
the Company without cause (in accordance with Section 6(e) above) or by the
Employee for "Good Reason" (as defined in Section 6(g)(ii) below), the Company
shall pay to the Employee (or the Employee's estate, if applicable) a lump sum
amount equal to one (1) time the sum of (x) the Employee's Base Salary at the
rate then in effect pursuant to Section 4(a), plus (y) an amount equal to the
----
Employee's cash bonus, if any, received in respect of the immediately preceding
year pursuant to Section 4(b).
(i) "Change of Control" shall mean the occurrence of any one of
-----------------
the following events:
(A) any "person" as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (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 twenty-five percent (25%) 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);
(B) persons who, as of the Effective Date, constitute the
5
<PAGE>
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
- --------
the Effective Date shall be considered an Incumbent Director if such person's
election was approved by or such person was nominated for election by either (1)
a vote of at least a majority of the Incumbent Directors or (2) 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
(C) the stockholders of the Company shall approve (1) 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 fifty percent (50%) of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (2) 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 (3) 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 (A) 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 twenty-five
percent (25%) 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 (A).
(ii) "Good Reason" shall mean the occurrence of any of the
-----------
following:
(A) a material adverse change or diminution in the nature or
scope of the powers, functions, titles, duties or responsibilities of the
Employee that is adverse to the Employee;
(B) a breach by the Company of any of its material
obligations hereunder;
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
6
<PAGE>
(D) the relocation of the offices at which the Employee is
principally employed as of the Change of Control to a location more than fifty
(50) miles from such offices, which relocation is not approved by the Employee.
(iii) The Employee shall provide the Company with reasonable notice
and an opportunity to cure any of the events listed in Section 6(g)(ii) and
shall not be entitled to compensation pursuant to this Section 6(g) unless the
Company fails to cure within a reasonable period of not less than thirty (30)
days; and
(iv) It is the intention of the Employee and of the Company that no
payments by the Company to or for the benefit of the Employee under this
Agreement or any other agreement or plan, if any, pursuant to which the Employee
is entitled to receive payments or benefits shall be nondeductible to the
Company by reason of the operation of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), relating to parachute payments or any like
statutory or regulatory provision. Accordingly, and notwithstanding any other
provision of this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G or any like statutory or regulatory provision,
any such payments exceed the amount which can be deducted by the Company, such
payments shall be reduced to the maximum amount which can be deducted by the
Company. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Employee, such excess payments shall
be refunded to the Company with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually, or at such
other rate as may be required in order that no such payments shall be
nondeductible to the Company by reason of the operation of said Section 280G or
any like statutory or regulatory provision. To the extent that there is more
than one method of reducing the payments to bring them within the limitations of
said Section 280G or any like statutory or regulatory provision, the Employee
shall determine which method shall be followed; provided that if the Employee
--------
fails to make such determination within forty-five (45) days after the Company
has given notice of the need for such reduction, the Company may determine the
method of such reduction in its sole discretion.
(h) No Mitigation. Without regard to the reason for the termination
-------------
of the Employee's employment hereunder, the Employee shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Employee is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
---------------
(a) Because the Employee's services to the Company are special and
because the Employee has access to the Company's confidential information,
during the Term of Employment, the Employee shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent or consultant, or in any
other capacity, any Person (as hereinafter defined) other than the Company and
its affiliates in the Designated Industry (as hereinafter defined); provided,
--------
however, that nothing herein shall be construed as preventing the Employee from
- -------
making passive investments in a Person in the Designated Industry if the
securities of such Person are publicly traded and such investment
7
<PAGE>
constitutes less than one percent (1%) of the outstanding shares of capital
stock or comparable equity interests of such Person.
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
------
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing chemistry
-------------------
research and development services to pharmaceutical and biotechnology companies
involved in drug development and discovery and any and all activities related
thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Employee's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
---------------
otherwise, the Employee has had, and it is anticipated that the Employee will
from time to time have, access to confidential records, data, customer lists,
trade secrets, technology and similar confidential information owned or used in
the course of business by the Company and its subsidiaries and affiliates (the
"Confidential Information"). The Employee agrees (i) to hold the Confidential
Information in strict confidence, (ii) not to disclose the Confidential
Information to any Person (other than in the regular business of the Company),
and (iii) not to use, directly or indirectly, any of the Confidential
Information for any competitive or commercial purpose; provided, however, that
-------- -------
the limitations set forth above shall not apply to any Confidential Information
which (A) is then generally known to the public, (B) became or becomes generally
known to the public through no fault of the Employee, or (C) is disclosed in
accordance with an order of a court of competent jurisdiction or applicable law.
Upon termination of the Employee's employment with the Company, all data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Employee's
possession or control, shall be returned to the Company and remain in its
possession. This Section 8 shall survive the termination of this Agreement for
any reason.
9. Conflicting Agreements. The Employee hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Employee is not performing any other duties for, and is not a party to
any similar agreement with, any Person competing with the Company or any of its
affiliates.
10. Severability. In case any of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent necessary
to make it valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such
8
<PAGE>
invalid, illegal or unenforceable provision or part of a provision had never
been contained in this Agreement.
11. Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Employee's employment, the Employee shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Employee was employed by the
Company. The Employee's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Employee's
employment, the Employee also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Company. The
Company shall reimburse the Employee for any reasonable out-of-pocket expenses
incurred in connection with the Employee's performance of obligations pursuant
to this Section 11. This Section 11 shall survive the termination of this
Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or
-----------------------
in connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Employee's
employment for cause under Section 6(b) and the Employee contends that cause did
not exist, then the Company's only obligation shall be to submit such claim to
arbitration and the only issue before the arbitrator will be whether the
Employee was in fact terminated for cause. If the arbitrator determines that
the Employee was not terminated for cause by the Company, then the only remedies
that the arbitrator may award are (i) payment of amounts which would have been
payable if the Employee's employment had been terminated under Section 6(e),
(ii) the costs of arbitration, (iii) the Employee's attorneys' fees, and (iv)
all rights and benefits granted or in effect with respect to the Employee under
the Company's stock option plans and agreements with the Employee pursuant
thereto, with the vesting and exercise of any stock options and the
forfeitability of any stock-based grants held by the Employee to be governed by
the terms of such plans and the related agreements between the Employee and the
Company. If the arbitrator finds that the Employee's employment was terminated
for cause, the arbitrator will be without authority to award the Employee
anything, and the parties will each be responsible for their own attorneys'
fees, and they will divide the costs of arbitration equally. Furthermore,
should a dispute occur concerning the Employee's mental or physical capacity as
described in Section 6(c), a doctor selected by the Employee and a doctor
selected by the Company shall be entitled to examine the Employee. If the
opinion of the Company's doctor and the Employee's doctor conflict, the
Company's doctor and the Employee's doctor shall together agree upon a third
doctor, whose opinion shall be binding. This Section 12 shall survive the
termination of this Agreement for any reason.
13. Specific Performance. Notwithstanding Section 12 hereof, it is
--------------------
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Employee is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
9
<PAGE>
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Employee and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of proving actual
damages. To the extent that any court action is permitted consistent with or to
enforce Section 7 or 8 of this Agreement, the parties hereby consent to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Eastern District of New York. Accordingly, with respect
to any such court action, the Employee (i) submits to the personal jurisdiction
of such courts, (ii) consents to service of process, and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction or service of process.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Chairman and Chief Executive Officer
To the Employee:
------------------------
------------------------
------------------------
------------------------
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
-----------------
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
16. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the
10
<PAGE>
assets of the Company, and may not be assigned by the Employee.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
-------------
respects under the laws of the State of New York.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall be taken to be an original, but such
counterparts shall together constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
--------------------------------
Thomas E. D'Ambra
Chairman and CEO
EMPLOYEE:
--------------------------------
Lawrence D. Jones, Ph.D.
12
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st of March
1999, by and between Albany Molecular Research, Inc., a Delaware corporation
(the "Company"), and David P. Waldek (the "Employee").
WHEREAS, the Employee is a key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Employee's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company hereby
----------
employs the Employee and the Employee accepts such employment upon the terms and
conditions hereinafter set forth.
2. Term of Employment. The term of the Employee's employment pursuant to
------------------
this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for
periods of one (1) year (each a "Renewal Term") commencing at the third
anniversary of the Effective Date and on each subsequent anniversary thereafter,
unless notice that this Agreement will not be extended is given by either the
Employee or the Company not less than sixty (60) days prior to the expiration of
the Term (as extended by any Renewal Term); provided that if the Company elects
--------
not to extend this Agreement for any reason, the Employee shall receive the
payments set forth in Section 6(e). The period during which the Employee serves
as an employee of the Company in accordance with and subject to the provisions
of this Agreement is referred to in this Agreement as the "Term of Employment."
3. Capacity.
--------
(a) Duties. During the Term of Employment, the Employee shall report
------
directly to the Chairman and Chief Executive Officer and (i) shall serve as an
Employee of the Company with the title Chief Financial Officer, (ii) shall
perform such duties and responsibilities as may be reasonably determined by the
Chairman and Chief Executive Officer consistent with the Employee's title and
position, duties and responsibilities as an Employee of the Company as of the
Effective Date; provided that such duties and responsibilities shall be within
the general area of the Employee's experience and skills, and (iii) shall render
all services incident to the foregoing.
(b) Extent of Service. The Employee agrees to diligently serve the
-----------------
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the performance of his duties and
responsibilities hereunder; provided that nothing in this Agreement
--------
1
<PAGE>
shall be construed as preventing the Employee from (i) investing the Employee's
assets in any entity in a manner not prohibited by Section 7 and in such form or
manner as shall not require any material activities on the Employee's part in
connection with the operations or affairs of the entities in which such
investments are made, or (ii) engaging in religious, charitable or other
community or non-profit activities that do not impair the Employee's ability to
fulfill the Employee's duties and responsibilities under this Agreement.
4. Compensation.
------------
(a) Salary. During the Term of Employment, the Company shall pay the
------
Employee a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
such rate per annum be less than $150,000.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior Employees, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
-----
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Employee during the prior year, and the Company may provide the Employee
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior Employees of the Company. Any such bonus
plan shall have such terms as may be established in the sole discretion of the
Board of Directors of the Company or the Compensation Committee of the Board of
Directors.
5. Benefits.
--------
(a) Regular Benefits. During the Term of Employment, the Employee
----------------
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior Employees of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the creation and
maintenance of any particular benefit or other plan or arrangement at any time
after the Effective Date.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
-------------------------
the Employee for all reasonable business expenses incurred by the Employee
during the Term of Employment in accordance with the Company's practices for
senior Employees of the Company, as in effect from time to time.
2
<PAGE>
(c) Vacation. During the Term of Employment, the Employee shall
--------
receive at least two (2) weeks paid vacation annually or such greater amount as
is in accordance with the Company's practices for senior Employees of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section
-------------------------
2, the Employee's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
-------------------
Employee's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Employee's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Employee's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Employee's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Employee's employment under this Agreement
--------------
may be terminated at any time by the mutual consent of the Employee and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Employee's employment
------------------------------------
under this Agreement may be terminated by the Company for "cause" at any time
upon written notice to the Employee without further liability on the part of the
Company. For purposes of this Agreement, a termination shall be for "cause" if:
(i) the Employee shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contendere to any felony or any crime
involving moral turpitude;
(ii) the Employee shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen (15) days after delivery to the Employee by the
Company of written notice thereof;
(iii) the Employee shall commit a material breach of any of the
covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which breach has not been remedied within thirty (30) days after
delivery to the Employee by the Company of written notice thereof; or
(iv) the Employee shall have disobeyed reasonable written instructions
from the Chairman and Chief Executive Officer, or other appropriate person which
are consistent with the terms and conditions of this Agreement or shall have
deliberately, willfully, substantially and continuously failed to perform the
Employee's duties hereunder, after written notice and under circumstances
effectively constituting a voluntary resignation of the Employee's position with
the Company.
3
<PAGE>
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death; Disability. The Employee's employment under this Agreement
-----------------
may be terminated by the Company upon the earlier of death or permanent
disability (as defined below) of the Employee continuing for a period of one
hundred eighty (180) days. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
--------
payments as provided by Section 4(a) shall continue to be made to the Employee
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Employee or his estate under any applicable
disability or life insurance policy is less than the amount the Employee would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
Employee officers of the Company, pro-rated on the basis of the number of days
of the Employee's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Employee's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Employee, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Employee of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Employee. At any time during the
-------------------------------------
Term of Employment, the Employee may terminate his employment under this
Agreement upon sixty-(60) days' prior written notice to the Company. Upon
termination by the Employee as provided in this Section 6(d), all obligations of
the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
(e) Termination by the Company Without Cause. The Company may
----------------------------------------
terminate the Employee's employment under this Agreement at any time without
"cause" (as defined in Section 6(b)) by the Company upon sixty-(60) days' prior
written notice to the Employee. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to earned but
unpaid Base Salary and bonus under Section 4. In addition, subject to the
Employee signing a general release of claims in a form and manner satisfactory
to the Company, the Company shall continue to pay the Employee his Base Salary
at the rate then in effect pursuant to Section 4(a) for a period of one (1) year
from the Date of Termination and shall pay to the Employee in monthly
installments over such one year period, an amount equal to the Employee's cash
bonus, if any, received in respect of the immediately preceding year pursuant to
Section 4(b).
4
<PAGE>
(f) Termination by the Employee upon Company Breach. The Employee
-----------------------------------------------
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Employee that is adverse to the Employee or (ii) a breach by the Company
of any of its material obligations hereunder, in each case after the Employee
has given written notice to the Company specifying such default by the Company
and giving the Company a reasonable time, not less than thirty (30) days, to
conform its performance to its obligations hereunder. The failure of the
Employee to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Employee's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Employee's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Employee signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Employee his Base Salary at the rate then in effect pursuant
to Section 4(a) for a period of one (1) year from the Date of Termination and
shall pay to the Employee in monthly installments over such one-year period, an
amount equal to the Employee's cash bonus, if any, received in respect of the
immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a Change
-------------------------------------------
of Control, as defined below, during the Term of Employment, the provisions of
this Section 6(g) shall apply and shall continue to apply throughout the
remainder of the Term (as extended by any Renewal Term). If, within one (1)
year following a Change of Control, the Employee's employment is terminated by
the Company without cause (in accordance with Section 6(e) above) or by the
Employee for "Good Reason" (as defined in Section 6(g)(ii) below), the Company
shall pay to the Employee (or the Employee's estate, if applicable) a lump sum
amount equal to one (1) time the sum of (x) the Employee's Base Salary at the
rate then in effect pursuant to Section 4(a), plus (y) an amount equal to the
----
Employee's cash bonus, if any, received in respect of the immediately preceding
year pursuant to Section 4(b).
(i) "Change of Control" shall mean the occurrence of any one of
-----------------
the following events:
(A) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (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 twenty-five percent (25%) 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);
5
<PAGE>
(B) persons who, as of the Effective Date, 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
- --------
the Effective Date shall be considered an Incumbent Director if such person's
election was approved by or such person was nominated for election by either (1)
a vote of at least a majority of the Incumbent Directors or (2) 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
(C) the stockholders of the Company shall approve (1) 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 fifty percent (50%) of the voting shares of the corporation
issuing cash or securities in the consolidation or merger (or of its ultimate
parent corporation, if any), (2) 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 (3) 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 (A) 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 twenty-five
percent (25%) 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 (A).
(ii) "Good Reason" shall mean the occurrence of any of the
-----------
following:
(A) a material adverse change or diminution in the nature or
scope of the powers, functions, titles, duties or responsibilities of the
Employee that is adverse to the Employee;
(B) a breach by the Company of any of its material
obligations hereunder;
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
6
<PAGE>
(D) the relocation of the offices at which the Employee is
principally employed as of the Change of Control to a location more than fifty
(50) miles from such offices, which relocation is not approved by the Employee.
(iii) The Employee shall provide the Company with reasonable notice
and an opportunity to cure any of the events listed in Section 6(g)(ii) and
shall not be entitled to compensation pursuant to this Section 6(g) unless the
Company fails to cure within a reasonable period of not less than thirty (30)
days; and
(iv) It is the intention of the Employee and of the Company that no
payments by the Company to or for the benefit of the Employee under this
Agreement or any other agreement or plan, if any, pursuant to which the Employee
is entitled to receive payments or benefits shall be nondeductible to the
Company by reason of the operation of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), relating to parachute payments or any like
statutory or regulatory provision. Accordingly, and notwithstanding any other
provision of this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G or any like statutory or regulatory provision,
any such payments exceed the amount which can be deducted by the Company, such
payments shall be reduced to the maximum amount which can be deducted by the
Company. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Employee, such excess payments shall
be refunded to the Company with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually, or at such
other rate as may be required in order that no such payments shall be
nondeductible to the Company by reason of the operation of said Section 280G or
any like statutory or regulatory provision. To the extent that there is more
than one method of reducing the payments to bring them within the limitations of
said Section 280G or any like statutory or regulatory provision, the Employee
shall determine which method shall be followed; provided that if the Employee
--------
fails to make such determination within forty-five (45) days after the Company
has given notice of the need for such reduction, the Company may determine the
method of such reduction in its sole discretion.
(h) No Mitigation. Without regard to the reason for the termination
-------------
of the Employee's employment hereunder, the Employee shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Employee is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
---------------
(a) Because the Employee's services to the Company are special and
because the Employee has access to the Company's confidential information,
during the Term of Employment, the Employee shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent or consultant, or in any
other capacity, any Person (as hereinafter defined) other than the Company and
its affiliates in the Designated Industry (as hereinafter defined); provided,
--------
however, that nothing herein shall be construed as preventing the Employee from
- -------
making passive investments in a Person in the Designated Industry if the
securities of such Person are publicly traded and such investment
7
<PAGE>
constitutes less than one percent (1%) of the outstanding shares of capital
stock or comparable equity interests of such Person.
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
------
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing chemistry
-------------------
research and development services to pharmaceutical and biotechnology companies
involved in drug development and discovery and any and all activities related
thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Employee's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
---------------
otherwise, the Employee has had, and it is anticipated that the Employee will
from time to time have, access to confidential records, data, customer lists,
trade secrets, technology and similar confidential information owned or used in
the course of business by the Company and its subsidiaries and affiliates (the
"Confidential Information"). The Employee agrees (i) to hold the Confidential
Information in strict confidence, (ii) not to disclose the Confidential
Information to any Person (other than in the regular business of the Company),
and (iii) not to use, directly or indirectly, any of the Confidential
Information for any competitive or commercial purpose; provided, however, that
-------- -------
the limitations set forth above shall not apply to any Confidential Information
which (A) is then generally known to the public, (B) became or becomes generally
known to the public through no fault of the Employee, or (C) is disclosed in
accordance with an order of a court of competent jurisdiction or applicable law.
Upon termination of the Employee's employment with the Company, all data,
memoranda, customer lists, notes, programs and other papers and items, and
reproductions thereof relating to the foregoing matters in the Employee's
possession or control, shall be returned to the Company and remain in its
possession. This Section 8 shall survive the termination of this Agreement for
any reason.
9. Conflicting Agreements. The Employee hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Employee is not performing any other duties for, and is not a party to
any similar agreement with, any Person competing with the Company or any of its
affiliates.
10. Severability. In case any of the provisions contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent necessary
to make it valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such
8
<PAGE>
invalid, illegal or unenforceable provision or part of a provision had never
been contained in this Agreement.
11. Litigation and Regulatory Cooperation. During and after the
-------------------------------------
Employee's employment, the Employee shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Employee was employed by the
Company. The Employee's full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Employee's
employment, the Employee also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Employee was employed by the Company. The
Company shall reimburse the Employee for any reasonable out-of-pocket expenses
incurred in connection with the Employee's performance of obligations pursuant
to this Section 11. This Section 11 shall survive the termination of this
Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or
-----------------------
in connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Employee's
employment for cause under Section 6(b) and the Employee contends that cause did
not exist, then the Company's only obligation shall be to submit such claim to
arbitration and the only issue before the arbitrator will be whether the
Employee was in fact terminated for cause. If the arbitrator determines that
the Employee was not terminated for cause by the Company, then the only remedies
that the arbitrator may award are (i) payment of amounts which would have been
payable if the Employee's employment had been terminated under Section 6(e),
(ii) the costs of arbitration, (iii) the Employee's attorneys' fees, and (iv)
all rights and benefits granted or in effect with respect to the Employee under
the Company's stock option plans and agreements with the Employee pursuant
thereto, with the vesting and exercise of any stock options and the
forfeitability of any stock-based grants held by the Employee to be governed by
the terms of such plans and the related agreements between the Employee and the
Company. If the arbitrator finds that the Employee's employment was terminated
for cause, the arbitrator will be without authority to award the Employee
anything, and the parties will each be responsible for their own attorneys'
fees, and they will divide the costs of arbitration equally. Furthermore,
should a dispute occur concerning the Employee's mental or physical capacity as
described in Section 6(c), a doctor selected by the Employee and a doctor
selected by the Company shall be entitled to examine the Employee. If the
opinion of the Company's doctor and the Employee's doctor conflict, the
Company's doctor and the Employee's doctor shall together agree upon a third
doctor, whose opinion shall be binding. This Section 12 shall survive the
termination of this Agreement for any reason.
13. Specific Performance. Notwithstanding Section 12 hereof, it is
--------------------
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Employee is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
9
<PAGE>
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Employee and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of proving actual
damages. To the extent that any court action is permitted consistent with or to
enforce Section 7 or 8 of this Agreement, the parties hereby consent to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Eastern District of New York. Accordingly, with respect
to any such court action, the Employee (i) submits to the personal jurisdiction
of such courts, (ii) consents to service of process, and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction or service of process.
14. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Chairman and Chief Executive Officer
To the Employee:
------------------------
------------------------
------------------------
------------------------
or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
-----------------
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
16. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the
10
<PAGE>
assets of the Company, and may not be assigned by the Employee.
17. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
-------------
respects under the laws of the State of New York.
19. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when so executed and delivered shall be taken to be an original, but such
counterparts shall together constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
--------------------------------
Thomas E. D'Ambra
Chairman and CEO
EMPLOYEE:
--------------------------------
David P. Waldek
12
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<ARTICLE> 5
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<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 1,261,518 3,957,091
<SECURITIES> 1,949,546 2,026,620
<RECEIVABLES> 1,976,637 2,798,742
<ALLOWANCES> 0 0
<INVENTORY> 317,789 575,525
<CURRENT-ASSETS> 6,168,448 14,113,928
<PP&E> 5,240,182 16,551,380
<DEPRECIATION> 1,265,255 2,233,163
<TOTAL-ASSETS> 10,629,334 28,908,175
<CURRENT-LIABILITIES> 1,761,818 5,770,147
<BONDS> 2,224,964 14,935,840
0 0
1,000 1,000
<COMMON> 107,707 111,021
<OTHER-SE> 6,545,475 9,167,523
<TOTAL-LIABILITY-AND-EQUITY> 10,629,334 28,908,175
<SALES> 8,104,032 13,397,621
<TOTAL-REVENUES> 10,634,903 33,042,473
<CGS> 4,334,245 7,503,785
<TOTAL-COSTS> 4,587,338 9,325,413
<OTHER-EXPENSES> 2,872,862 5,212,800
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 175,969 381,821
<INCOME-PRETAX> 3,136,156 18,423,974
<INCOME-TAX> 946,941 6,979,338
<INCOME-CONTINUING> 2,189,215 11,444,636
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<NET-INCOME> 2,189,215 11,444,636
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