<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1999
REGISTRATION STATEMENT NO. 333-58795
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
ALBANY MOLECULAR RESEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2833 14-1806984
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
----------------
21 CORPORATE CIRCLE, ALBANY, NEW YORK 12203
(518) 464-0279
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
----------------
THOMAS E. D'AMBRA, PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ALBANY MOLECULAR RESEARCH, INC.
21 CORPORATE CIRCLE
ALBANY, NEW YORK 12203-5154
(518) 464-0279
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
STUART M. CABLE, ESQ. ALEXANDER D. LYNCH, ESQ.
GOODWIN, PROCTER & HOAR LLP BABAK YAGHMAIE, ESQ.
EXCHANGE PLACE BROBECK, PHLEGER & HARRISON LLP
BOSTON, MASSACHUSETTS 02109-2881 1633 BROADWAY
(617) 570-1000 NEW YORK, NEW YORK 10019
(212) 581-1600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 5, 1999
PROSPECTUS
2,200,000 SHARES
[ALBANY MOLECULAR RESEARCH, INC. LOGO APPEARS HERE]
COMMON STOCK
All of the 2,200,000 shares of Common Stock offered hereby are being sold by
Albany Molecular Research, Inc. ("Albany Molecular Research" or the "Company").
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $17.00 and $19.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market upon completion of this offering under the symbol "AMRI."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
- --------------------------------------------------------------------------------
Total(3)...................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the Underwriters subject to receipt
and acceptance by them and to their right to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made
at the offices of ING Baring Furman Selz LLC, New York, New York, on or about
, 1999.
ING BARING FURMAN SELZ LLC HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1999
<PAGE>
[Three Photographs Regarding Medicinal Chemistry and Small-Scale Manufacturing]
ALBANY MOLECULAR RESEARCH, INC. IS AN INTEGRATED CHEMISTRY OUTSOURCING
COMPANY THAT OFFERS A BROAD RANGE OF CHEMISTRY RESEARCH AND DEVELOPMENT
SERVICES, INCLUDING MEDICINAL CHEMISTRY, CHEMICAL DEVELOPMENT, ANALYTICAL
CHEMISTRY SERVICES AND SMALL-SCALE MANUFACTURING. MEDICINAL CHEMISTRY AND
SMALL-SCALE MANUFACTURING ARE SHOWN IN THE PICTURES ABOVE.
----------------
THE COMPANY'S NAME WITH THE COMPANY'S LOGO AND THE COMPANY'S LOGO ARE
REGISTERED TRADEMARKS OF THE COMPANY. ALL OTHER TRADEMARKS AND TRADENAMES
REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK BY
CERTAIN METHODS INCLUDING ENTERING STABILIZING BIDS, IMPOSING PENALTY BIDS OR
EFFECTING SYNDICATE COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
risk factors contained in this Prospectus related to the purchase of Common
Stock of the Company. See "Risk Factors." Except for the historical information
contained herein, the discussion contained in this Prospectus contains
"forward-looking statements" that involve risk and uncertainties. The Company's
actual results could differ materially from those discussed in this Prospectus.
Important factors that could cause or contribute to such differences include
those discussed under the caption "Risk Factors," as well as those discussed
elsewhere herein.
THE COMPANY
Albany Molecular Research is an integrated chemistry outsourcing company that
offers a broad range of chemistry research and development services to
pharmaceutical and biotechnology companies involved in drug discovery and
development. The Company offers services traditionally provided by chemistry
divisions within pharmaceutical companies, including medicinal chemistry,
chemical development, analytical chemistry services and small-scale
manufacturing. The Company's services are designed to permit pharmaceutical and
biotechnology companies to reduce overall drug development time and cost and to
pursue simultaneously a greater number of drug discovery and development
opportunities. Since its inception in 1991, the Company has conducted over 400
projects for more than 100 customers. The Company achieved a 66% compound
annual growth rate in net contract revenue from 1993 to 1997. In addition to
its contract services, the Company conducts a limited amount of proprietary
research and development. The Company has developed and patented a
substantially pure form of, and a manufacturing process for, the active
ingredient in a new, non-sedating antihistamine marketed by Hoechst Marion
Roussel, Inc. ("HMRI") as Allegra in the Americas and as Telfast elsewhere.
Pursuant to a licensing agreement between the Company and HMRI, the Company has
earned $19.3 million in milestones and royalties from HMRI through September
30, 1998 and is entitled to receive ongoing royalties based upon a percentage
of sales of the product.
The pace of drug discovery has accelerated significantly in recent years.
Fueled by advances in disciplines such as molecular biology, genomics and high-
throughput screening, opportunities to develop therapeutics for previously
unmet or undermet medical needs are greater than ever before. In addition,
pharmaceutical and biotechnology companies are under increasing pressure to
quickly deliver new drugs to market. In order to take advantage of these
opportunities and to respond to these pressures, many pharmaceutical companies
have augmented their internal research and development capacity through
outsourcing. Similarly, many biotechnology companies, constrained by cost
pressures, have elected to outsource rather than develop certain research and
development functions in-house. While outsourcing has traditionally been
limited to the later stages of drug development, such as clinical trial
management and manufacturing, many pharmaceutical and biotechnology companies
are utilizing contract chemistry service providers to complement, or in some
cases, supplement internal chemistry expertise.
Chemistry and biology are at the center of the drug discovery and development
process, which includes lead discovery, lead optimization, preclinical testing,
clinical trials and product commercialization. During the critical discovery
phases of this process, chemists and biologists typically work together to
prepare and deliver new chemical substances, develop laboratory models of
disease, test compounds to identify agents which demonstrate desired activity
and finally, create a marketable drug. In recent years, pharmaceutical and
biotechnology companies have sought to outsource chemistry services related to
lead discovery and lead optimization. Currently, only a few companies provide
chemistry services for drug discovery and development. Those that do provide
such services have typically focused only on selected portions of the process.
Albany Molecular Research believes significant opportunities exist for a
company that provides a broad range of outsourced chemistry services.
3
<PAGE>
Albany Molecular Research is one of the first companies to offer a broad
range of outsourced chemistry services for drug discovery and development. The
Company's service offerings include medicinal chemistry, chemical development,
analytical chemistry services and small-scale manufacturing. Medicinal chemists
synthesize small quantities of new and potentially patentable compounds for
biological testing to assist customers in the lead development and optimization
stages of their drug discovery and development efforts. The Company's medicinal
chemists use tools such as computational and combinatorial chemistry in
conjunction with traditional medicinal chemistry techniques. Chemical
development scientists design novel or improved methods, processes and
purification techniques suitable for medium to large scale production of a drug
candidate. The Company's analytical chemistry services consist of identity and
purity testing, method development, validation, stability testing and
regulatory documentation and consulting. Albany Molecular Research also
provides chemical synthesis and manufacturing services for its customers under
cGMP guidelines and has the capacity to produce laboratory scale amounts of
compounds.
The Company's objective is to be the leading provider of comprehensive
outsourced chemistry research services to the pharmaceutical and biotechnology
industries. Key elements of the Company's business strategy include (i)
expanding its range of service offerings, (ii) increasing capacity in each of
its service offerings, (iii) expanding the number of service offerings used by
each of its customers, (iv) increasing its customer base, and (v) capitalizing
on proprietary technology, both by seeking opportunities to obtain contractual
terms with its customers which may entitle the Company to milestones and/or
royalties and by independently identifying and developing possible proprietary
compounds or processes.
----------------
The Company was incorporated under the laws of New York on June 20, 1991 and
will be reincorporated by merger under the laws of Delaware immediately prior
to the effectiveness of this offering. The Company's principal executive
offices are located at 21 Corporate Circle, Albany, New York 12203, and its
telephone number is (518) 464-0279.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,200,000 shares
Common Stock to be outstanding after the
offering(1).................................... 12,215,224 shares
Use of Proceeds................................. To repay a portion of indebtedness, for
additional capital expenditures and for
working capital and other general
corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... AMRI
</TABLE>
- ----------
(1) Excludes: (i) 1,866,006 shares of Common Stock issuable upon the exercise
of outstanding stock options at a weighted average exercise price of $2.47
per share as of November 30, 1998; and (ii) 1,379,771 and 300,000
additional shares of Common Stock reserved for issuance under the Company's
1998 Stock Option and Incentive Plan (the "1998 Stock Plan") and the
Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"),
respectively. Gives effect to 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"). See "Management--Executive Officers, Directors and Key
Employees," "--Employee Stock and Other Benefit Plans--1998 Stock Option
and Incentive Plan," "--1992 Stock Option Plan," "--1998 Employee Stock
Purchase Plan" and "Certain Transactions."
----------------
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option and has been adjusted to
reflect (i) a 2.25-for-1 stock split of the Common Stock to be effective
immediately prior to the effectiveness of this offering; (ii) the conversion of
all outstanding shares of the Company's Series A Convertible Preferred Stock,
par value $0.01 per share (the "Series A Preferred Stock"), into 45,000 shares
of Common Stock, immediately prior to completion of this offering; (iii) the
Company's reincorporation by merger in Delaware to be effective prior to the
effectiveness of this offering; and (iv) the amendment and restatement of the
Company's Certificate of Incorporation in connection with this offering. Unless
the context otherwise requires, all references to "Albany Molecular Research"
or the "Company" mean Albany Molecular Research, Inc., together with its
subsidiary.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net contract revenue............... $ 2,959 $ 5,261 $ 8,104 $ 5,819 $ 9,649
Cost of contract revenue........... 1,350 2,835 4,334 3,126 5,320
------- ------- ------- ------- -------
Gross profit from contract
revenue........................... 1,609 2,426 3,770 2,693 4,329
Licensing fees, milestones and roy-
alties, net....................... -- 900 2,278 2,251 14,212
Operating expenses:
Research and development.......... 37 245 627 443 535
Selling, general and
administrative................... 882 1,219 2,246 1,401 3,162
------- ------- ------- ------- -------
Total operating expenses......... 919 1,464 2,873 1,844 3,697
------- ------- ------- ------- -------
Income from operations............. 690 1,862 3,175 3,100 14,844
Other income (expense):
Interest income (expense), net.... 37 (11) (13) (24) 116
Other non-operating income
(expense), net................... 5 20 (26) (15) 4
------- ------- ------- ------- -------
Total other income (expense)..... 42 9 (39) (39) 120
------- ------- ------- ------- -------
Income before income taxes......... 732 1,871 3,136 3,061 14,964
Income tax expense................. 252 637 947 922 5,664
------- ------- ------- ------- -------
Net income......................... $ 480 $ 1,234 $ 2,189 $ 2,139 $ 9,300
======= ======= ======= ======= =======
Basic earnings per share........... $ 0.05 $ 0.12 $ 0.20 $ 0.20 $ 0.86
Diluted earnings per share......... $ 0.04 $ 0.10 $ 0.18 $ 0.18 $ 0.76
Weighted average common shares
outstanding, basic................ 10,263 10,706 10,761 10,759 10,842
Weighted average common shares
outstanding, diluted.............. 11,289 11,786 12,014 11,947 12,254
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 2,831 $25,723
Working capital.......................................... 8,712 31,604
Total assets............................................. 25,790 48,682
Long-term debt, less current maturities.................. 5,138 2,122
Total shareholders' equity............................... 16,316 42,224
</TABLE>
- ----------
(1) Adjusted to give effect (i) to the Share Repurchase and (ii) to the sale of
2,200,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $18.00 per share and the receipt and application
of the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and Note 15 of
Notes to Consolidated Financial Statements.
The results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
6
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the Common Stock
offered by this Prospectus. Except for the historical information contained
herein, the discussion contained in this Prospectus contains "forward-looking
statements" that involve risk and uncertainties. The Company's actual results
could differ materially from those discussed in this Prospectus. Important
factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere herein.
Competitive Market for Experienced Scientists. The Company's future success
will depend to a significant extent on its ability to attract, retain and
motivate highly skilled chemists and other scientists. The Company's ability
to maintain, expand or renew existing engagements with its customers, enter
into new engagements and provide additional services to its existing customers
depends, in large part, on its ability to hire and retain scientists with the
skills necessary to keep pace with continuing changes in drug discovery and
development technologies. The Company believes that there is a shortage of,
and significant competition for, scientists with the skills and experience in
chemistry necessary to perform the services offered by the Company. The
Company competes with the research departments of pharmaceutical companies,
biotechnology companies, combinatorial chemistry companies, contract research
companies and research and academic institutions for new personnel. The
inability to hire additional qualified personnel may materially adversely
affect the Company's future growth. In addition, the Company's inability to
hire additional qualified scientists may require an increase in the level of
responsibility for both existing and new personnel. There can be no assurance
that the Company will be successful in attracting, retaining or motivating its
scientific personnel. Failure to attract, retain or motivate such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Competition."
Dependence on Pharmaceutical and Biotechnology Industries and Clients; Risk
of Cost Overruns. The Company has benefitted to date from the increasing trend
of pharmaceutical and biotechnology companies to outsource chemical research
and development projects. A reversal or slowing of this trend could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's contract revenues are highly dependent on
research and development expenditures by the pharmaceutical and biotechnology
industries. The Company's operations could be materially adversely affected by
general economic downturns in its clients' industries, the impact of the
current trend toward consolidation in the pharmaceutical industry or any
decrease in research and development expenditures. In addition, historically,
a substantial portion of the Company's revenue has been derived from contracts
with a limited number of significant customers. For the year ended December
31, 1997, net contract revenue from the Company's three largest customers
represented approximately 29%, 11% and 9% of total net contract revenue,
respectively. For the nine months ended September 30, 1998, net contract
revenue from the Company's three largest customers represented approximately
18%, 17% and 15% 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. See "Business--Current Collaborations; Customers."
Risks Related to the Allegra/Telfast Royalty. 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
7
<PAGE>
marketed under the brand name Allegra in the Americas and under the brand name
Telfast elsewhere. For the year ended December 31, 1997, the Company's
milestones and royalties from fexofenadine HCl were $2.5 million, or 23.8% of
the Company's aggregate net contract revenue plus other operating revenue, and
for the nine months ended September 30, 1998, the Company's milestones and
royalties from fexofenadine HCl were $15.6 million, or 60.4% of the Company's
aggregate net contract revenue plus other operating revenue. The Company's
milestones and royalties from fexofenadine HCl for the nine months ended
September 30, 1998 include $3.0 million in non-recurring milestone payments
and $4.4 million in royalties related to prior periods and as a result such
milestone payments and royalties may not be indicative of future amounts
earned under the license agreement with 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. See "--Proprietary Technology; Unpredictability of Patent
Protection" and "Business--Allegra/Telfast Royalty and Licensing Agreement."
Proprietary Technology; Unpredictability of Patent Protection. The
Company's success will depend, in part, on its ability to obtain and enforce
patents, protect trade secrets, obtain licenses to technology owned by third
parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical, medical
products and biotechnology firms can be uncertain and involve complex legal
and factual questions. There can be no assurance that any patent applications
will result in the issuance of patents or, if any patents are issued, whether
they will provide significant proprietary protection or commercial advantage,
or will not be circumvented by others. In the event a third party has also
filed one or more patent applications for inventions which conflict with those
of the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office (the
"PTO") to determine priority of invention, which could result in the loss of
any opportunity to secure patent protection for the inventions and the loss of
any right to use the inventions. Even if the eventual outcome is favorable to
the Company, such proceedings could result in substantial cost to the Company.
The filing and prosecution of patent applications, litigation to establish the
validity and scope of patents, assertion of patent infringement claims against
others and the defense of patent infringement claims by others can be
expensive and time consuming. There can be no assurance that in the event that
any claims with respect to any of the Company's patents, if issued, are
challenged by one or more third parties, that any court or patent authority
ruling on such challenge will determine that such patent claims are valid and
enforceable. An adverse outcome in such litigation could cause the Company to
lose exclusivity afforded by the disputed rights. If a third party is found to
have rights covering products or processes used by the Company, the Company
could be forced to cease using the technologies covered by such rights, could
be subject to significant liability to such third party, and could be required
to license technologies from such third party. Furthermore, even if the
Company's patents are determined to be valid, enforceable, and broad in scope,
there can be no assurance that competitors will not be able to design around
such patents and compete with the Company and its licensees using the
resulting alternative technology. See "Business--Patents and Proprietary
Rights."
Management of Growth and Expansion. The Company's operations have grown
rapidly and substantially in recent years. Such growth has placed and will
continue to place a significant strain on the Company's operational, human and
financial resources. The Company's ability to compete effectively will depend,
in large part, upon its ability to hire, train and assimilate additional
management, professional, scientific and technical
8
<PAGE>
operating personnel and its ability to expand, improve and effectively utilize
its operating, management, marketing and financial systems to accommodate its
expanded operations. The physical expansion of the Company's facilities to
accommodate future growth may lead to significant costs and divert management
and business development resources. The failure by the Company's management to
effectively anticipate, implement and manage the changes required to sustain
the Company's growth may have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Key Personnel. The Company's performance is highly dependent
on the principal members of its senior management and scientific staff,
including, in particular, Dr. Thomas E. D'Ambra, the Company's Chairman and
Chief Executive Officer, Dr. Donald E. Kuhla, the Company's President and
Chief Operating Officer, Dr. Harold Meckler, the Company's Vice President,
Chemical Development, and Dr. Michael P. Trova, the Company's Vice President,
Medicinal Chemistry. Moreover, the responsibilities of the Company's senior
management and scientific staff have recently increased since the departure in
October 1998 of the Company's chief financial officer. The Company is actively
seeking to hire a permanent chief financial officer. 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, 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 or attract and retain a new
chief financial officer on a timely basis. 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, or the Company's inability to
hire a permanent chief financial officer on a timely basis, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Employees," "Management--Executive
Officers, Directors and Key Employees" and "Certain Transactions."
Competition. The Company faces competition based on a number of factors,
including size, relative expertise and sophistication, speed and costs of
identifying and optimizing potential lead compounds and of developing and
optimizing chemical processes. The Company competes with the research
departments of pharmaceutical companies, biotechnology companies,
combinatorial chemistry companies, contract research companies and research
and academic institutions. Many of these competitors have greater financial
and other resources and more experience in research and development than the
Company. Smaller companies may also prove to be significant competitors,
particularly through arrangements with large corporate collaborators.
Historically, pharmaceutical companies have maintained close control over
their research and development activities, including the synthesis, screening
and optimization of chemical compounds and the development of chemical
processes. Many of these companies, which represent a significant potential
market for the Company's products and services, are developing or already
possess in-house technologies and services offered by the Company. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which the Company provides services either
independently or through collaborative efforts.
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's services and expertise may be rendered obsolete or
uneconomical by technological advances or novel approaches developed by one or
more of the Company's competitors. The existing approaches of the Company's
competitors or new approaches or technologies developed by the Company's
competitors may be more effective than those developed by the Company. There
can be no assurance that the Company's competitors will not develop more
effective or more affordable technologies or services, thus rendering the
Company's technologies and/or services obsolete, uncompetitive or
uneconomical. There can be no assurance that the Company will be able to
compete successfully with existing or potential competitors or that
competitive factors will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business--
Competition."
Variation in Quarterly Operating Results; Seasonality. The Company's results
of operations historically have fluctuated on a quarterly basis and can be
expected to continue to be subject to quarterly fluctuations. Quarterly
operating results can fluctuate as a result of a number of factors, including
the commencement, delay, cancellation or completion of contracts; risks
associated with fixed price contracts; the mix of services provided; seasonal
slowdowns; the timing of start-up expenses for new services and facilities;
and the timing and
9
<PAGE>
integration of acquisitions. In particular, quarterly fluctuations in the
Company's royalty revenue relating to fexofenadine HCl, an anti-histamine
subject to seasonal demand, may produce stronger fluctuations in the Company's
results of operations than those which have occurred over prior periods. The
Company believes that quarterly comparison of its financial results are not
necessarily meaningful and should not be relied upon as an indication of
future performance. In addition, fluctuations in quarterly results could
affect the market price of the
Common Stock in a manner unrelated to the longer term operating performance of
the Company. See "--Absence of a Public Trading Market; Offering Price;
Possible Volatility of Future Stock Price" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results
of Operations."
Limited Marketing Experience; Expansion of Sales Activities. To date, the
Company has sold its services and products primarily through the efforts of
the Company's senior management. The Company anticipates that it will need to
retain additional sales and marketing personnel and expand its sales and
marketing activities in order to achieve significant long-term growth. There
can be no assurance that the Company will be able to build and maintain an
efficient and effective sales and marketing organization or that such an
organization will be successful in attracting new customers. The failure to
build a successful sales organization could have a material adverse effect on
the Company's business, financial condition and results of operations.
Potential Liability and Risks of Operations. The Company develops, tests
and, to a very limited extent, manufactures pharmaceutical products intended
for use in humans. Such activities could expose the Company to the risk of
liability for personal injury or death to persons using such products,
although the Company does not manufacture in bulk, market or sell such
products. No assurance can be given that the Company will not be required to
pay damages or incur defense costs in connection with any such claim. 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.
Risk of Interruption of Operations. The Company's results of operations are
dependent upon the continued use of its highly specialized laboratories and
equipment. The Company's operations are primarily concentrated in a single
facility in Albany, New York. Although the Company has contingency plans in
effect for certain natural disasters, as well as other unforeseen events which
could damage the Company's laboratories or equipment, no assurance can be
given that any such events will not materially interrupt the Company's
business. The Company maintains business interruption insurance to cover lost
revenues caused by such occurrences. However, such insurance would not
compensate the Company for the loss of opportunity and potential adverse
impact on relations with existing customers created by an inability to
complete its customer contracts in a timely manner.
Risks Associated with Acquisitions. The Company from time to time reviews
potential acquisition candidates in the ordinary course of its business. No
assurance can be given that acquisition candidates will be available or will
be available on terms and conditions acceptable to the Company. Acquisitions
involve numerous risks, including among others, difficulties and expenses
incurred in connection with the consummation of such acquisitions by the
Company and the subsequent assimilation of the operations, personnel and
services or products of the acquired companies, the difficulty of operating
new businesses, the diversion of management's
10
<PAGE>
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.
Broad Management Discretion in Use of Proceeds. The principal purposes of
the offering are to increase the Company's equity capital, to create a public
market for the Company's Common Stock, to increase the visibility of the
Company in the marketplace and to facilitate future access by the Company to
public equity markets. The Company expects to use the net proceeds from the
offering to repay a portion of its indebtedness, for additional capital
expenditures and for working capital and other general corporate purposes. The
Company has not, however, identified specific uses for a significant portion
of the net proceeds of the offering. Accordingly, the Company's management
will have significant flexibility in applying the net proceeds of the
offering. Although the Company has no plans, commitments or agreements with
respect to any material acquisitions as of the date of this Prospectus, the
Company may seek acquisitions of businesses, products or technologies that are
complementary to those of the Company, and a portion of the net proceeds may
be used for such acquisitions. See "Use of Proceeds."
Potential Adverse Impact of Pharmaceutical and Health Care Reform. The
Company expects that a substantial portion of its contract revenues in the
foreseeable future will be derived from services provided to the
pharmaceutical and biotechnology industries. Accordingly, the Company's future
success is directly dependent upon the success of the companies within those
industries and their continued demand for the Company's services. The levels
of revenues and profitability of pharmaceutical and biotechnology companies
may be affected by the continuing efforts of governmental and third party
payors to contain or reduce the costs of health care through various means and
the initiatives of third party payors with respect to the availability of
reimbursement. For example, in certain foreign markets pricing or
profitability of pharmaceuticals is subject to government control. In the
United States, there have been, and the Company expects that there will
continue to be, a number of federal and state proposals to implement similar
government control. It is uncertain what legislative proposals may be adopted
or what actions federal, state or private third party payors for health care
goods or services may take in response to any health care reform proposals or
legislation. To the extent that such proposals or reforms have a material
adverse effect on the businesses, financial condition, results of operations
and profitability of pharmaceutical and biotechnology companies that are
actual or prospective customers for the Company's services and products, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
Potential Liability Regarding Hazardous Materials. The research and
development processes of the Company involve the controlled use of hazardous
materials. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result, and any such liability could exceed the resources of the
Company. In addition, there can be no assurance that the Company will not be
required to incur significant costs to comply with environmental laws and
regulations related to the handling or disposal of such materials or waste
products in the future, which could have a material adverse effect on the
Company's business, financial condition or results of operations.
Effective Control by Principal Stockholders. After giving effect to the sale
of the shares of Common Stock offered hereby, Thomas E. D'Ambra, the Company's
Chairman and Chief Executive Officer, and Chester J. Opalka, the Company's
Vice President, Senior Research Chemist and a Director, will beneficially own
in the aggregate approximately 53.1% (51.7% assuming exercise of the
Underwriters' over-allotment option in full) of the outstanding Common Stock.
As a result, these stockholders will be able to exert significant influence
over the outcome of fundamental corporate transactions requiring stockholder
approval, including, but not limited to, mergers and sales of assets and the
election of the members of the Company's Board of Directors. This
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal Stockholders" and "Shares
Eligible for Future Sale."
11
<PAGE>
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after this offering could adversely affect the
market price of the Common Stock. In addition to the 2,200,000 shares of
Common Stock offered hereby, up to approximately 9,979,561 shares of Common
Stock owned by current stockholders of the Company will be eligible for sale
in the public market pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), at various times beginning 90 days after the
date of this Prospectus. All executive officers and directors and stockholders
of the Company, who in the aggregate will hold 9,953,199 shares of Common
Stock and options to purchase 1,787,976 shares of Common Stock, have agreed,
pursuant to certain Lock-up Agreements (the "Lock-up Agreements"), that until
180 days after the date of this Prospectus, they will not, directly or
indirectly, offer, sell, assign, transfer, encumber, contract to sell, grant
an option to purchase, make a distribution of, or otherwise dispose of, any
shares of Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock, otherwise than (i) as a bona fide gift or gifts,
provided that the donee or donees thereof agree in writing as a condition
precedent to such gift or gifts to be bound by the terms of the Lock-up
Agreements, or (ii) with the prior written consent of ING Baring Furman Selz
LLC. Sales of substantial amounts of Common Stock (including shares issued in
connection with future acquisitions which may be issued with registration
rights), or the availability of such shares for sale, may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability to obtain additional capital through an offering of its equity
securities. See "Shares Eligible for Future Sale."
Absence of a Public Trading Market; Offering Price; Possible Volatility of
Future Stock Price. Prior to this offering, there has been no public market
for the Common Stock, and there can be no assurance that an active market will
develop or be sustained following the consummation of this offering.
Consequently, the offering price of the Common Stock will be determined by
negotiation between the Company and the representatives of the several
Underwriters based on several factors and will not necessarily reflect the
market price of the Common Stock after this offering or the price at which the
Common Stock may be sold in the public market after this offering. See
"Underwriting" for a description of the factors to be considered in
determining the initial public offering price. Following the completion of
this offering, the trading price of the Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, changes in earnings estimates by analysts, material
announcements by the Company or its competitors, governmental regulatory
action, or other events or factors, many of which are beyond the Company's
control. The stock market has experienced extreme price and volume
fluctuations which have affected market prices of smaller capitalization
companies and which often have been unrelated to the operating performance of
such companies. In addition, the Company's operating results in future
quarters may be below the expectations of securities analysts and investors.
In such event, the price of the Common Stock would likely decline, perhaps
substantially. See "Underwriting."
Computer Systems and Year 2000 Issues. The "Year 2000" issue concerns the
potential exposures related to the automated generation of business and
financial misinformation resulting from the application of computer programs
which have been written using two digits, rather than four, to define the
application year of business transactions. The Company's independent
information technology consultant has conducted a comprehensive assessment of
the Company's computer systems to identify the systems that could be affected
by the Year 2000, and has determined that no material changes are required for
the Company's computer systems to be Year 2000 compliant. As such, the Company
believes that, based upon currently available information, it will incur no
material costs associated with becoming Year 2000 compliant. The Company is
seeking to confirm the Year 2000 readiness of its material customers (such as
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.
Dividend Policy. The Company has not declared cash dividends on its Common
Stock since its inception and the Company does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. Under Delaware law,
the Company is permitted to pay dividends only out of its surplus, or, if
there is no surplus, out of its net profits. Although the Company's current
credit facility permits the Company to pay cash dividends,
12
<PAGE>
the payment of cash dividends may be prohibited under agreements governing
debt which the Company may incur in the future. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Anti-takeover Provisions. Certain provisions of the Company's Restated
Certificate of Incorporation (the "Certificate") and Amended and Restated By-
laws (the "By-laws"), certain sections of the Delaware General Corporation
Law, and the ability of the Board of Directors to issue shares of preferred
stock and to establish the voting rights, preferences and other terms thereof,
may be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by the Board of Directors (including takeovers
which stockholders may deem to be in their best interests). Such provisions
include, among other things, a classified Board of Directors serving staggered
three-year terms, the elimination of stockholder voting by written consent,
the removal of directors only for cause, the vesting of exclusive authority in
the Board of Directors to determine the size of the Board of Directors and
(subject to certain limited exceptions) to fill vacancies thereon, the vesting
of exclusive authority in the Board of Directors (except as otherwise required
by law) to call special meetings of stockholders, and certain advance notice
requirements for stockholder proposals and nominations for election to the
Board of Directors. These provisions, and the ability of the Board of
Directors to issue preferred stock without further action by stockholders,
could delay or limit the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption of control would
be beneficial to stockholders, and also could discourage or make more
difficult a merger, tender offer or proxy contest, even if such events would
be beneficial, in the short term, to the interests of stockholders. The
Company will be subject to Section 203 of the Delaware General Corporation Law
which, in general, imposes restrictions upon certain acquirors (including
their affiliates and associates) of 15% or more of the Company's Common Stock.
See "Description of Capital Stock--Certain Provisions of Certificate of
Incorporation and By-laws" and "--Statutory Business Combination Provision."
Immediate and Substantial Dilution. Purchasers of the Common Stock in this
offering will incur immediate and substantial dilution in the pro forma net
tangible book value per share of Common Stock. At an assumed initial public
offering price of $18.00 per share, investors in this offering will incur
dilution of $14.83 per share. To the extent outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution to
investors participating in this offering. Moreover, there can be no assurance
that the Company will not require additional funds to support its working
capital requirements or for other purposes, in which case the Company may seek
to raise such additional funds through public or private equity financing or
from other sources. Any such financing may result in additional dilution to
the Company's stockholders. See "Dilution."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$18.00 per share, after deducting the underwriting discounts and estimated
offering expenses payable by the Company, are estimated to be $35.8 million
($41.4 million if the Underwriters' over-allotment option is exercised in
full). The Company expects to use the net proceeds as follows: (i)
approximately $7.9 million will be used to repay indebtedness incurred in
connection with the Share Repurchase; (ii) approximately $5.0 million will be
used to repay a portion of the Company's outstanding indebtedness under its
existing credit facility with Fleet Bank, N.A. (the "Credit Facility"),
including fees and accrued and unpaid interest; and (iii) the balance will be
used for additional capital expenditures and for working capital and other
general corporate purposes. The Company's outstanding indebtedness under the
Credit Facility, which will be partially repaid with a portion of the proceeds
of this offering, was incurred to finance the expansion of the Company's
facilities. The Company routinely evaluates potential acquisitions of
businesses and products that would complement or expand the Company's
business. The Company may use a portion of the net proceeds from this offering
for one or more acquisitions; however, it currently has no commitments or
agreements with respect to such transactions. Pending such use, the balance of
the net proceeds will be invested in short-term, investment grade, interest
bearing obligations.
The Credit Facility consists of a $15 million, three-year, revolving line of
credit, which thereafter converts into a five-year term loan. The Credit
Facility will expire in July 2006. As of November 30, 1998, the Company had an
aggregate outstanding principal balance of $7.0 million under the Credit
Facility. Amounts outstanding under the Credit Facility bear interest at
variable rates which are based upon, at the option of the Company, the
lender's prime rate or LIBOR. The interest rate on such indebtedness at
November 30, 1998 was approximately 5.78% per annum. The notes issued in the
Share Repurchase mature on October 28, 2003 and bear interest at the prime
rate, 7.75% at November 30, 1998. See "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Certain Transactions ."
DIVIDEND POLICY
The Company has not declared any cash dividends on its Common Stock since
its inception. The Company currently intends to retain its earnings for future
growth and, therefore, does not anticipate paying cash dividends in the
foreseeable future. Under Delaware law, the Company is permitted to pay
dividends only out of its surplus, or, if there is no surplus, out of its net
profits. Although the Company's current Credit Facility permits the Company to
pay cash dividends, the payment of cash dividends may be prohibited under
agreements governing debt which the Company may incur in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 (i) on an actual basis, (ii) on a pro forma basis to give
effect to the Share Repurchase, and (iii) on a pro forma as adjusted basis to
give effect to the Share Repurchase and the sale of the 2,200,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$18.00 per share and the receipt and application by the Company of the
estimated net proceeds therefrom as described in "Use of Proceeds." This table
should be read in conjunction with the Consolidated Financial Statements of
the Company and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------
PRO FORMA,
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current maturities of long-term debt(3)... $ 82 $ 1,669 $ 82
Long-term debt, net of current
maturities(3)............................ 5,138 13,471 2,122
Series A Convertible Preferred Stock,
par value $0.01 per share: 100,000
shares authorized, issued and
outstanding, actual and pro forma; no
shares authorized, issued or
outstanding, pro forma as adjusted..... 1 1 --
Preferred Stock, par value $0.01 per
share: 900,000 shares authorized, no
shares issued or outstanding, actual;
2,000,000 shares authorized, no shares
issued or outstanding, pro forma and
pro forma as adjusted.................. -- -- --
Common Stock, par value $0.01 per share:
10,000,000 shares authorized,
10,900,444 shares issued and
outstanding, actual; 9,969,099 shares
issued and outstanding and 1,131,903
shares issued but not outstanding, pro
forma; 50,000,000 shares authorized,
12,214,099 shares issued and
outstanding, pro forma as adjusted(4).. 109 111 122
Additional paid-in capital.............. 2,952 3,092 28,848
Accumulated other comprehensive income.. 70 70 70
Retained earnings....................... 13,184 13,184 13,184
Treasury stock, at cost................. -- (10,062) --
------ ------- -------
Total shareholders' equity.......... 16,316 6,396 42,224
------ ------- -------
Total capitalization...................... 21,536 21,536 44,428
====== ======= =======
</TABLE>
- ----------
(1) Represents the September 30, 1998 balances after giving effect to (i) the
Share Repurchase, (ii) the incurrence of $2.0 million of indebtedness
under the Company's Credit Facility to fund the initial payment for the
Share Repurchase, and (iii) the issuance of promissory notes in the
aggregate principal amount of $7.9 million to finance the remainder of the
Share Repurchase. See Note 15 of Notes to Consolidated Financial
Statements.
(2) The pro forma as adjusted column gives effect to (i) the Share Repurchase
and related transactions described in Note 1 above, (ii) the conversion of
the Series A Convertible Preferred Stock into Common Stock, and (iii) the
sale of the 2,200,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $18.00, net of underwriting discount and
estimated offering expenses, and the receipt and application by the
Company of the estimated net proceeds therefrom as described in "Use of
Proceeds."
(3) See Note 3 of Notes to Consolidated Financial Statements for information
concerning long-term debt obligations.
(4) Excludes: (i) 2,055,314 shares of Common Stock issuable upon exercise of
outstanding stock options as of the balance sheet date of which 200,558
have been issued upon exercise of stock options subsequent to the balance
sheet date; (ii) 1,379,771 additional shares of Common Stock available for
future grants under the 1998 Stock Plan; and (iii) 300,000 additional
shares of Common Stock available for future sales under the Purchase Plan.
See "Management--Employee Stock and Other Benefit Plans--1998 Stock Option
and Incentive Plan," "--1992 Stock Option Plan" and "--1998 Employee Stock
Purchase Plan." The numbers of issued and outstanding shares of Common
Stock have been adjusted to give effect to a 2.25-for-1 stock split to be
completed immediately prior to the effectiveness of this offering. At such
time, the number of authorized shares of Common Stock will be increased to
50,000,000.
15
<PAGE>
DILUTION
The net tangible book value of the Common Stock as of September 30, 1998 was
approximately $15.9 million or $1.45 per share. The adjusted pro forma net
tangible book value per share (i) represents the amount of total tangible
assets less total liabilities divided by the number of shares of Common Stock
outstanding, including all outstanding stock grants and the conversion of the
Series A Preferred Stock into Common Stock and excluding all outstanding stock
options, and (ii) gives effect to the Share Repurchase. After giving effect to
the sale of the 2,200,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $18.00 per share and the receipt and
application by the Company of the net proceeds therefrom, the adjusted pro
forma net tangible book value of the Common Stock as of September 30, 1998
would have been approximately $38.8 million or $3.17 per share. This
represents an immediate increase in pro forma net tangible book value of $1.72
per share to existing shareholders and an immediate dilution of $14.83 per
share to purchasers of Common Stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $18.00
Net tangible book value per share .......................... $1.45
Increase per share attributable to new investors............ $1.72
Adjusted pro forma net tangible book value per share after the
offering..................................................... $ 3.17
------
Dilution per share to new investors........................... $14.83
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1998 after giving effect to the conversion of all outstanding shares of Series
A Preferred Stock, the differences between existing stockholders and the new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share
paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 10,014,099 82.0% $ 3,007,639 7.1% $ 0.30
New investors........... 2,200,000 18.0 39,600,000 92.9 18.00
---------- ----- ----------- -----
Total................. 12,214,099 100.0% $42,607,639 100.0%
========== ===== =========== =====
</TABLE>
- ----------
(1) Excludes shares repurchased by the Company in connection with the Share
Repurchase.
The foregoing computations assume no exercise of any outstanding stock
options after September 30, 1998 (other than the exercise in connection with
the Share Repurchase of options to purchase 200,558 shares of Common Stock) or
the Underwriters' over-allotment option. See "Use of Proceeds." As of November
30, 1998, options to purchase 1,866,006 shares of Common Stock were
outstanding with a weighted average exercise price of $2.47 per share. To the
extent these options or the Underwriters' over-allotment option are exercised,
there will be further dilution to new investors. See "Underwriting" for
information concerning the Underwriters' over-allotment option.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for each of
the years ended December 31, 1995, 1996 and 1997 and selected consolidated
balance sheet data at December 31, 1996 and 1997 are derived from the
consolidated financial statements of the Company which have been audited by
KPMG Peat Marwick LLP, independent auditors, and are included elsewhere
herein. The selected statement of operations data for the years ended December
31, 1993 and 1994 are derived from audited financial statements not included
herein. The selected balance sheet data at December 31, 1993, 1994 and 1995,
are derived from audited financial statements not included herein. The
selected consolidated statement of operations data for the nine month periods
ended September 30, 1997 and 1998 and the selected consolidated balance sheet
data at September 30, 1998 are derived from unaudited consolidated financial
statements also included elsewhere in the Prospectus. The unaudited
consolidated financial statements for such nine month periods have been
prepared by the Company on a basis consistent with the Company's audited
consolidated financial statements and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the Company's consolidated financial position and
consolidated results of operations for these periods. The consolidated results
of operations for the nine months ended September 30, 1998 are not necessarily
indicative of results for the year ending December 31, 1998 or any future
period. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net contract revenue..... $1,071 $1,116 $2,959 $5,261 $8,104 $5,819 $9,649
Cost of contract
revenue................. 818 742 1,350 2,835 4,334 3,126 5,320
------ ------ ------ ------ ------ ------ ------
Gross profit from
contract revenue........ 253 374 1,609 2,426 3,770 2,693 4,329
Licensing fees,
milestones and
royalties, net.......... -- -- -- 900 2,278 2,251 14,212
Operating expenses:
Research and
development............ 54 152 37 245 627 443 535
Selling, general and
administrative ........ 225 253 882 1,219 2,246 1,401 3,162
------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 279 405 919 1,464 2,873 1,844 3,697
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations.............. (26) (31) 690 1,862 3,175 3,100 14,844
Other income (expense):
Interest income
(expense), net......... (13) (30) 37 (11) (13) (24) 116
Other non-operating
income (expense), net.. -- -- 5 20 (26) (15) 4
------ ------ ------ ------ ------ ------ ------
Total other income
(expense).............. (13) (30) 42 9 (39) (39) 120
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes............ (39) (61) 732 1,871 3,136 3,061 14,964
Income tax expense
(benefit)............... (4) (48) 252 637 947 922 5,664
------ ------ ------ ------ ------ ------ ------
Net income (loss)........ $ (35) $ (13) $ 480 $1,234 $2,189 $2,139 $9,300
====== ====== ====== ====== ====== ====== ======
Basic earnings (loss) per
share................... $ -- $ -- $ 0.05 $ 0.12 $ 0.20 $ 0.20 $ 0.86
Diluted earnings (loss)
per share............... $ -- $ -- $ 0.04 $ 0.10 $ 0.18 $ 0.18 $ 0.76
Weighted average common
shares outstanding,
basic................... 8,422 8,856 10,263 10,706 10,761 10,759 10,842
Weighted average common
shares outstanding,
diluted................. 8,687 9,234 11,289 11,786 12,014 11,947 12,254
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents... $ 179 $ 45 $ 35 $1,260 $ 1,262 $ 2,831
Working capital............. 284 87 2,171 3,011 4,407 8,712
Total assets................ 1,044 1,059 5,108 8,501 10,629 25,790
Long-term debt, less current
maturities................. 258 204 748 2,375 1,776 5,138
Total shareholders' equity.. 578 566 3,156 4,411 6,654 16,316
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere
in this Prospectus. This Prospectus contains forward-looking statements.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Business," as well as in this Prospectus
generally. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including, without limitation, the risk factors set forth under "Risk
Factors," the discussion set forth below and the matters set forth in this
Prospectus generally.
OVERVIEW
The Company was founded in 1991 and its mission has always been to provide a
broad range of chemistry services throughout the drug discovery and
development process. As the needs of the Company's customers have expanded and
chemistry research outsourcing has increased, the Company has expanded its
service offerings. In January 1994, the Company added its first cGMP
manufacturing facility and in May 1996, the Company added analytical chemistry
services. The Company has expanded its facility in Albany, New York, on
several occasions and currently is undertaking its largest expansion to date,
which it expects to be completed by January 1999.
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
18
<PAGE>
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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated statement of operations data as a percentage of net contract
revenue:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- --------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net contract revenue............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................. 45.6 53.9 53.5 53.7 55.1
------- ------- ------- ------ ------
Gross profit..................... 54.4 46.1 46.5 46.3 44.9
Licensing fees, milestones and
royalties, net.................. -- 17.1 28.1 38.7 147.2
Operating expenses:
Research and development........ 1.3 4.7 7.7 7.6 5.5
Selling, general and
administrative................. 29.8 23.2 27.7 24.1 32.8
------- ------- ------- ------ ------
Total operating expenses........ 31.1 27.9 35.4 31.7 38.3
------- ------- ------- ------ ------
Income from operations........... 23.3 35.4 39.2 53.3 153.8
Other income (expense):
Interest income (expense), net.. 1.3 (0.2) (0.2) (0.5) 1.2
Other non-operating income (ex-
pense), net.................... 0.2 0.4 (0.3) (0.2) 0.1
------- ------- ------- ------ ------
Total other income (expense).... 1.5 0.2 (0.5) (0.7) 1.3
------- ------- ------- ------ ------
Income before income taxes....... 24.8 35.5 38.7 52.6 155.1
Income tax expense............... 8.5 12.1 11.7 15.8 58.7
------- ------- ------- ------ ------
Net income....................... 16.3% 23.4% 27.0% 36.8% 96.4%
======= ======= ======= ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Net contract revenue. Net contract revenue increased 65.8% to $9.6 million
in the first nine months of 1998 from $5.8 million in the first nine months of
1997. The increase was due principally to the performance of a greater number
of projects under contract, primarily for medicinal and chemical development
services, which were enabled through an increase in the number of scientific
staff to 74 at September 30, 1998 from 51 at September 30, 1997.
Gross profit. Gross profit increased 60.7% to $4.3 million in the first nine
months of 1998 from $2.7 million in the first nine months of 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 to $14.2 million in the first nine months
of 1998 from $2.3 million in the first nine months of 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
19
<PAGE>
fexofenadine HCl in the United States from November 26, 1996, the date of
patent issuance, through
December 31, 1997. The Company recognized $9.6 million in royalties on all
sales of fexofenadine HCl in the United States for the first nine months of
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 the nine months
ended September 30, 1998 include $3.0 million in non-recurring milestone
payments and $4.4 million in royalties related to prior periods and, as a
result, such milestone payments and royalties may not be indicative of future
amounts earned under the license agreement with HMRI. In particular, no
further milestone payments are required under the agreement.
Research and development. Research and development expense increased to
$535,000 in the first nine months of 1998 from $444,000 in the first nine
months of 1997. The increase was due primarily to expenses related to
biological assay study agreements with third parties pertaining to the
Company's proprietary research programs which commenced in February 1997 and
July 1997, respectively.
Selling, general and administrative. Selling, general and administrative
expense increased 125.9% to $3.2 million for the first nine months of 1998
from $1.4 million in the first nine months of 1997 and represented 32.8% of
net contract revenue for the first nine months of 1998 compared to 24.1% for
the first nine months of 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 incurred in the first nine months of 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 $5.7 million in the
first nine months of 1998 from $922,000 in the first nine months of 1997. The
effective rate was 37.9% in the first nine months of 1998 and 30.1% in the
first nine months of 1997. The increase in income tax expense was primarily a
result of the increase in royalty and licensing fees. The change in the
effective income tax rate principally resulted from the utilization of New
York State investment tax credits in 1997, and an increase in the minimum
effective federal rate from 34.0% to 35.0% due to the fact that the Company's
taxable income was in excess of $10 million for the nine months ended
September 30, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net contract revenue. Net contract revenue increased 54.0% to $8.1 million
in 1997 from $5.3 million in 1996. The increase was due principally to the
performance of a greater number of contracts, primarily for medicinal and
chemical development services, which were enabled through an increase in the
number of scientific staff to 43 at December 31, 1997 from 31 at December 31,
1996.
Gross profit. Gross profit increased 55.4% to $3.8 million in 1997 from $2.4
million in 1996. Gross profit remained relatively constant as a percentage of
net contract revenue at 46.5% in 1997 compared to 46.1% in 1996, reflecting a
fairly consistent mix of the type of contracts during the two years.
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.
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.
20
<PAGE>
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 the utilization of New York State
investment tax credits in 1997, which were $161,858.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net contract revenue. Net contract revenue increased 77.8% to $5.3 million
in 1996 from $3.0 million in 1995. The increase was principally due to the
performance of a greater number of projects under contract, primarily for
medicinal chemistry and chemical development services, which were enabled
through an increase in the number of scientific staff to 31 at December 31,
1996 from 15 at December 31, 1995.
Gross profit. Gross profit increased 50.8% to $2.4 million in 1996 from $1.6
million in 1995. Gross profit decreased as a percentage of net contract
revenue to 46.1% in 1996 from 54.4% in 1995, reflecting an increase in the
Company's occupancy expenses in 1996 as a result of the 1996 construction of
chemical development and analytical laboratories and a cGMP manufacturing
facility, which resulted in higher charges for depreciation, utilities, and
rent. Additionally, the Company incurred higher payroll and related costs
because of the higher overall compensation required to attract and retain
scientific staff.
Licensing fees, milestones and royalties, net. Net licensing fees,
milestones and royalties were $900,000 in 1996. There were no net licensing
fees, milestones and royalties in 1995 as licensing fees, milestones and
royalties were offset by the technology incentive award. The $200,000
technology incentive award in 1995 was based on a $200,000 licensing fee
received from HMRI and the proceeds of a $2.0 million equity investment by
HMRI in the Company, net of costs incurred by the Company in connection with
the licensed technology. The increase in net licensing fees, milestones and
royalties was due to the achievement of the first prescribed milestone upon
issuance of the first non-U.S. patent to the Company with respect to
fexofenadine HCl in 1996. As a result of this patent issuance, the Company
became entitled to receive royalties on all sales of fexofenadine HCl in the
country in which the patent was issued.
Research and development. Research and development expense increased to
$245,000 in 1996 from $37,000 in 1995. The increase was primarily due to the
initiation of a research collaboration and the commencement of a related
biological assay study in February 1996.
Selling, general and administrative. Selling, general and administrative
expense increased 38.1% to $1.2 million in 1996 from $882,000 in 1995, and
represented 23.2% of net contract revenue in 1996 compared to 29.8% in 1995.
The increase was principally due to an increase in the number of
administrative staff due to the continued growth of the Company and increased
recruiting expenditures for scientific staff.
Income tax expense. Income tax expense increased to $637,000 in 1996 from
$253,000 in 1995. The effective tax rate was 34.1% in 1996 and 34.5% in 1995.
The increase in income tax expense was primarily a result of the increase in
royalty and licensing fees.
21
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly consolidated operating
results for each of the Company's last ten quarters. This information has been
prepared by the Company on a basis consistent with the Company's audited
consolidated financial statements and includes all adjustments, consisting
only of normal recurring adjustments, that management considers necessary for
a fair presentation of the data. These quarterly results are not necessarily
indicative of future results of operations. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto of
the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- -------- -------- =========
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net contract revenue.... $1,417 $1,373 $1,181 $1,509 $2,099 $2,211 $2,284 $2,873 $3,091 $3,685
Cost of revenue......... 609 748 1,055 928 1,025 1,173 1,208 1,508 1,744 2,068
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit from
contract revenue....... 808 625 126 581 1,074 1,038 1,076 1,365 1,347 1,617
Licensing fees,
milestones and
royalties, net......... -- -- 900 -- 450 1,801 27 7,289 3,959 2,964
Operating expenses:
Research and
development............ 87 25 128 100 181 162 183 209 132 194
Selling, general and
administrative......... 242 338 444 380 513 508 846 1,083 1,025 1,054
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating ex-
penses................. 329 363 572 480 694 670 1,029 1,292 1,157 1,248
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations.. 479 262 454 101 830 2,169 74 7,362 4,149 3,333
Other income (expense):
Interest income
(expense), net......... 10 (7) (21) (15) (1) (8) 11 26 71 19
Other non-operating
income (expense), net.. 5 1 12 4 -- (19) (11) 4 1 (1)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total other income
(expense).............. 15 (6) (9) (11) (1) (27) -- 30 72 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 494 256 445 90 829 2,142 74 7,392 4,221 3,351
Income tax expense
(benefit).............. 172 80 151 15 319 588 25 2,853 1,463 1,348
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net income.............. $ 322 $ 176 $ 294 $ 75 $ 510 $1,554 $ 49 $4,539 $2,758 $2,003
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. Quarterly operating results can fluctuate as a result of a
number of factors, including the commencement, delay, cancellation or
completion of contracts; risks associated with fixed price contracts; the mix
of services provided; seasonal slowdowns; the timing of start-up expenses for
new services and facilities; and the timing and integration of acquisitions.
In particular, quarterly fluctuations in the Company's royalty revenue
relating to fexofenadine HCl, an antihistamine subject to seasonal demand, may
produce stronger quarterly fluctuations in the Company's consolidated results
of operations than those which have occurred in prior periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its business through cash flows from operations,
proceeds from borrowings and proceeds from a $2.0 million equity investment by
HMRI in March 1995. During the nine months ended September 30, 1998 and the
years ended December 31, 1997, 1996, and 1995, the Company generated $8.0
million, $1.6 million, $2.1 million and $200,000, respectively, in cash flow
from operations and raised $5.0 million, $1.6 million and $1.0 million in
borrowings during the nine months ended September 30, 1998 and the years ended
December 31, 1996 and 1995, respectively. The Company had no borrowings during
1997. The increase in cash flow for the nine months ended September 30, 1998
was principally due to an increase in net licensing fees, milestones and
royalties.
During the nine months ended September 30, 1998 and the years ended December
31, 1997, 1996, and 1995, total capital expenditures were $9.5 million,
$870,000, $2.6 million and $1.2 million, respectively. Capital expenditures
were incurred predominantly in connection with the Company's expansion of
service offerings
22
<PAGE>
(computational chemistry and analytical services) in 1997, and in connection
with the Company's 1998, 1996 and 1995 facilities expansions. In December
1997, the Company began its most recent phase of expansion at its main
location in Albany, New York. The expansion has added 60,000 square feet to
its existing 30,000 square feet of laboratory and administrative space. The
expansion is estimated to cost $8.5 million for construction and an additional
$4.0 million for the purchase of laboratory instrumentation, software and
equipment upgrades. A total of $8.0 million for the expansion had been
incurred through September 30, 1998. The expansion is anticipated to be
completed by January 1999.
Working capital was $8.7 million at September 30, 1998, compared to $4.4
million at December 31, 1997, and $3.0 million at December 31, 1996. The
increase in working capital for the nine month period ended September 30, 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 $15.6 million in
milestones and royalties earned by the Company under the HMRI license
agreement during the nine months ended September 30, 1998, $3.0 million
constituted non-recurring milestone payments. 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 nine months ended September 30, 1998. In addition, future royalties
under the agreement are dependent upon future sales of fexofenadine HCl. The
Company does not participate in the manufacture, marketing or sale of
fexofenadine HCl by 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. The increase in working capital from
December 31, 1997 compared to December 31, 1996, was attributable primarily to
an increase in the number of scientific staff working on a greater number of
projects, resulting in a substantial increase in billings at December 31, 1997
compared to December 31, 1996.
The Company has available a Credit Facility to supplement its liquidity
needs. The Credit Facility consists of a $15 million, three-year, revolving
line of credit, which converts thereafter into a five-year term loan. The
Credit Facility expires in July 2006. As of September 30, 1998, the Company
had drawn an aggregate of $5.0 million under the Credit Facility. Amounts
outstanding under the Credit Facility bear interest at variable rates which
are based upon, at the option of the Company, the lender's prime rate or
LIBOR. The interest rate on such indebtedness at September 30, 1998 was 6.14%
per annum. The Credit Facility restricts or prohibits the Company from
incurring indebtedness, incurring liens, disposing of assets and requires the
Company to maintain certain financial ratios on an ongoing basis. The Credit
Facility is secured by a lien on substantially all of the assets of the
Company, other than its patents, and the assignment of the right to receive
royalty payments from HMRI under the license agreement.
The Company will use a portion of the net proceeds from this offering to
repay a portion of the outstanding indebtedness under the Credit Facility. The
Company believes that the remaining net proceeds from this offering, together
with cash generated from operations and borrowings under the Credit Facility,
will be sufficient to fund its anticipated working capital needs and capital
expenditures (other than financing necessary to complete future acquisitions,
if any) for at least the next 24 months. Future acquisitions, if any, could be
funded with cash from operations, the net proceeds of this offering,
borrowings under the Credit Facility and/or the issuance of debt or equity
securities. There can be no assurance that attractive acquisition
opportunities will be available to the Company or will be available at prices
and upon such other terms that are attractive to the Company. The Company
regularly evaluates potential acquisitions of other businesses, products and
product lines and may hold discussions regarding such potential acquisitions.
As a general rule, the Company will publicly announce such acquisitions only
after a definitive agreement has been signed. The Company currently has no
commitments or agreements with respect to any acquisition. In addition, in
order to meet its long-term liquidity needs or consummate future acquisitions,
the Company may incur additional indebtedness or issue additional equity and
23
<PAGE>
debt securities, subject to market and other conditions. There can be no
assurance that such additional financing will be available on terms acceptable
to the Company or at all. The failure to raise the funds necessary to finance
its future cash requirements or consummate future acquisitions could adversely
affect the Company's ability to pursue its strategy and could negatively
affect its operations in future periods. See "Risk Factors--Risks Associated
with Acquisitions."
On October 28, 1998, the Company paid $2.0 million in cash from borrowings
under the Credit Facility and issued $7.9 million in promissory notes in
connection with the Share Repurchase. The Company intends to repay the
outstanding principal balance under the notes out of the net proceeds of this
offering.
YEAR 2000 COMPLIANCE
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions. The
Company's 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. The Year 2000 Project is directed
by the Company's President with oversight provided by the Company's Board of
Directors. 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 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. They determined that no material changes are required
for the Company's hardware and software to be considered Year 2000 compliant.
The Task Force is in the process of identifying the mission critical software
systems that will require Year 2000 compliance determinations. 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 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 either are currently Year
2000 compliant or will become Year 2000 compliant in the next three months.
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.
24
<PAGE>
BUSINESS
OVERVIEW
Albany Molecular Research is an integrated chemistry outsourcing company
that offers a broad range of chemistry research and development services to
pharmaceutical and biotechnology companies involved in drug discovery and
development. The Company offers services traditionally provided by chemistry
divisions within pharmaceutical companies, including medicinal chemistry,
chemical development, analytical chemistry services and small-scale
manufacturing. The Company's services are designed to permit pharmaceutical
and biotechnology companies to reduce overall drug development time and cost
and to pursue simultaneously a greater number of drug discovery and
development opportunities. Since its inception in 1991, the Company has
conducted over 400 projects for more than 100 customers. The Company achieved
a 66% compound annual growth rate in net contract revenue from 1993 to 1997.
In addition to its contract services, the Company conducts a limited amount of
proprietary research and development. The Company has developed and patented a
substantially pure form of, and a manufacturing process for, the active
ingredient in a new, non-sedating antihistamine marketed by HMRI as Allegra in
the Americas and as Telfast elsewhere. Pursuant to a licensing agreement
between the Company and HMRI, the Company has earned $19.3 million in
milestones and royalties through September 30, 1998 and is entitled to receive
ongoing royalties from HMRI based upon a percentage of sales of the product.
INDUSTRY OVERVIEW
The pace of drug discovery has accelerated significantly in recent years.
Fueled by advances in disciplines such as molecular biology, genomics and
high-throughput synthesis and screening, opportunities to develop therapeutics
for previously unmet or undermet medical needs are greater than ever before.
In addition, pharmaceutical and biotechnology companies are under increasing
pressure to deliver new drugs to market and reduce the time required for drug
development. In order to take advantage of these opportunities and to respond
to these pressures, many pharmaceutical companies have augmented their
internal research and development capacity through outsourcing. Similarly,
many biotechnology companies, constrained by cost pressures, have elected to
outsource rather than develop certain research and development functions in-
house. As a result of these factors, many pharmaceutical and biotechnology
companies are utilizing contract research organizations ("CROs"). The CRO
industry has grown dramatically over the last several years to meet these
needs. Industry analysts estimate that outsourcing represents approximately
10%, or $3.5 billion, of the $35 billion of research and development
expenditures made by pharmaceutical and biotechnology companies in 1996. While
outsourcing has traditionally been limited to the later stages of drug
development, such as clinical trial management and manufacturing, many
pharmaceutical and biotechnology companies are utilizing contract chemistry
service providers to complement or, in some cases, supplement internal
chemistry expertise. Currently, only a few companies provide chemistry
services for drug discovery and development, and have typically focused only
on selected portions of the process. Albany Molecular Research believes that
significant opportunities exist for a company that provides a broad range of
outsourced chemistry services throughout the drug discovery and development
process.
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The Importance of Chemistry in the Drug Discovery and Development Process
Although many scientific disciplines are required for new drug discovery and
development, chemistry and biology are at the center of this process. Chemists
and biologists typically work together to prepare and deliver new chemical
substances, develop laboratory models of disease, test compounds to identify
agents that demonstrate the desired activity and finally create a marketable
drug. Chemistry is an integral part of the drug discovery and development
process, which includes: (i) lead discovery -- the identification of a compound
that may be developed into a new drug; (ii) lead optimization -- an iterative
process of modifying the structure of a lead compound to optimize its
therapeutic properties; (iii) preclinical testing -- the testing of the
compound in increasingly complex animal models; (iv) clinical trials -- the
multi-phase testing of the compound for safety and efficacy in humans; and (v)
product commercialization -- the manufacture, marketing and sale of commercial
quantities of the approved drug.
DRUG DISCOVERY AND DEVELOPMENT PROCESS
- ------------ -------------- ------------- ---------- -------------------
LEAD LEAD PRECLINICAL CLINICAL PRODUCT
DISCOVERY OPTIMIZATION TESTING TRIALS COMMERCIALIZATION
- ------------ -------------- ------------- ---------- -------------------
Lead Discovery. The first major hurdle in drug discovery is the
identification of one or more lead compounds that interact with a biological
target, such as an enzyme, receptor or other protein, that may be associated
with a disease. A biological test or assay based on the target is developed and
used to test or "screen" chemical compounds. Medicinal chemistry is used to
synthesize these compounds rapidly and study the interaction between the three
dimensional molecular structures of the compounds and biological targets (i.e.,
structure-activity relationships (SARs)). The objective of lead discovery is to
identify a lead compound for further research and development.
Lead Optimization. Once a lead compound has been discovered, medicinal
chemistry is used to optimize that lead by modifying and synthesizing analogs
of active lead candidates with improved potency, selectivity and/or
pharmacokinetics (improved absorption, solubility, half-life and metabolism) in
order to identify a more promising drug candidate. This iterative process
involves the synthesis of compounds for biological testing, the analysis of the
screening results and the further design and synthesis of additional compounds
based upon the analysis of structure-activity relationships.
During lead optimization, specialists in chemical development perform the
scale up synthesis of a lead compound as that compound is advanced through the
drug discovery and development process. These scientists are experts in the
preparation of chemicals on a larger scale and focus on the efficiency,
economics, simplicity and safety of the preparation of such chemicals. Chemical
development is also an iterative process which may require progressive
improvements in chemical synthesis as subsequent repeat batches are prepared.
In addition to providing repeat synthesis, significant process research may be
required to refine existing or develop new synthesis processes. Also during the
lead optimization stage, analytical chemistry services are required for
identity and purity testing and method development.
Preclinical Testing. Following the selection of a lead compound during the
lead optimization stage, advanced preclinical testing is conducted in order to
evaluate the efficacy and safety of the lead compound prior to initiating human
clinical trials. The lead compound must demonstrate a scientifically proven
benefit in controlled and well defined biological tests in animal models, and
must exhibit this benefit at doses much lower than those at which side effects
would occur. During the lead optimization and preclinical testing phases, the
synthesis of additional analogs of the lead compound using medicinal chemistry
continues. Often a second compound, referred to as a backup compound or second
generation analog, is synthesized and enters the drug development cycle. In
addition, continued synthesis is desirable in order to prepare compounds of
significant diversity to broaden potential patent coverage. As a result, the
advancement of a lead compound into preclinical
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testing is often a catalyst which increases, rather than reduces, the need for
additional medicinal chemical synthesis. During this phase, specialists in
chemical development continue to conduct significant process research to
optimize the production of a compound.
Clinical Trials. During clinical trials several phases of studies are
conducted to test the safety and efficacy of a drug candidate. As study
populations increase and trial durations lengthen, larger quantities of the
active ingredient are required. The bulk active ingredient, and the formulated
drug product, must be prepared under cGMP guidelines. Analytical chemistry
services are critical to cGMP manufacturing. Additional preparations provide
an opportunity to further refine the manufacturing process, with the ultimate
goal of maximizing the cost effectiveness and safety of the synthesis prior to
commercialization.
Trends Toward Outsourcing of Chemistry Services
Pharmaceutical and biotechnology companies have in recent years increasingly
turned to CROs to manage their drug development processes more efficiently.
Most CROs have traditionally provided services to assist in the later stages
of drug development ranging from animal testing through clinical trials,
manufacturing, marketing and sales. In recent years, pharmaceutical and
biotechnology companies have sought to outsource services at progressively
earlier stages of drug discovery and development, including early-stage
chemistry. The Company believes the following trends have led and will
continue to lead to an increase in chemistry services outsourcing in drug
discovery and development:
Technological innovation in drug development. New technologies, such as
genomics, combinatorial chemistry and high-throughput screening, have
resulted in the identification of a larger number of promising biological
targets and associated active compounds, which has increased the demand for
chemistry services for lead discovery and optimization. Pharmaceutical and
biotechnology companies are increasingly turning toward chemistry
outsourcing to pursue the opportunities made possible by the use of these
new technologies.
Time to market pressures. Pharmaceutical and biotechnology companies are
under increasing pressure to reduce the time to bring new drugs to market
in order to maximize patent life and capture the benefits of being first to
market. Chemistry outsourcing permits pharmaceutical and biotechnology
companies to run multiple projects, and multiple phases of a particular
project, simultaneously.
Reallocation of resources between variable and fixed costs. Over the last
several years, drug companies have centralized their research and
development efforts, streamlined their internal operations and outsourced
certain functions, thereby converting previously fixed costs to variable
costs. Outsourcing chemistry services allows pharmaceutical and
biotechnology companies to use variable resources to maximize productivity
during periods of rapid growth or in response to cost containment
pressures.
Increasing complexity and purity requirements of new drug candidates. Many
drug candidates are technically demanding to synthesize, particularly in
commercial quantities. In addition, increased regulatory pressures for high
purity molecules earlier in the development process have led to more
complex chemistry requirements. Pharmaceutical companies are moving towards
outsourcing to third-party service providers to gain early access to
scalable manufacturing processes.
Need for chemistry expertise in the biotechnology industry. Many
biotechnology and emerging pharmaceutical companies lack the broad range of
expertise needed for the chemistry components of drug discovery and
development. These companies have elected to outsource either all or a
portion of their needs to third party service providers rather than make
the investment required to perform these functions in-house.
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BUSINESS STRATEGY
The Company's objective is to be the leading provider of comprehensive
outsourced chemistry research and development services to the pharmaceutical
and biotechnology industries. Key elements of the Company's business strategy
include the following:
Expand Service Offerings. The Company, since its inception, has expanded
its service offerings across a number of phases of drug discovery and
development to keep pace with the needs of its customers. In 1995, the
Company began offering analytical chemistry services derived from its
medicinal chemistry and chemical development capabilities and has recently
begun to provide combinatorial chemistry services. The Company has also
recently entered into a collaboration with a manufacturer in order to offer
its customers access to use the manufacturer's large-scale cGMP
manufacturing services with minimal disruption and delay. The Company may
expand its service capabilities through strategic acquisitions of companies
or technologies that complement the Company's capabilities.
Increase Capacity. The Company will seek to support its future growth by
increasing capacity both in terms of the number of scientists and the size
of its facilities within each of its service offerings. The Company has
added 39 scientists since January 1, 1997 and continually seeks to recruit
and hire additional experienced scientists. The Company is expanding its
Albany facility to more than triple its current laboratory space and
intends to expand its facilities to increase capacity and accommodate
additional scientists as necessary.
Expand Customer Relationships. The Company seeks to expand the number of
service offerings used by each of its customers by providing chemistry-
related services across many phases of drug discovery and development prior
to bulk manufacturing. In 1997, four of the Company's five largest
customers utilized more than one of its service offerings. The Company
believes that its existing customer base also provides an excellent source
of referrals.
Increase Customer Base. The Company is seeking to increase its customer
base in both domestic and international markets. The Company believes there
are significant opportunities for growth in geographic areas in which the
Company has not conducted significant marketing efforts to date.
Accordingly, the Company has recently expanded its U.S. and international
marketing efforts and will consider adding a physical presence in
additional locations as appropriate. See "--Marketing."
Capitalize on Proprietary Technology. Chemistry technology, such as that
offered by the Company, lies at the core of the proprietary aspects of drug
development. In connection with its contract chemistry services, the
Company seeks opportunities to obtain contractual terms which may entitle
the Company to milestones and/or royalties with respect to compounds or
processes developed in conjunction with its customers. Independent of its
contract chemistry services, the Company seeks to identify and develop
possible proprietary compounds or processes. The Company currently is
investigating a number of compounds for their development potential.
SERVICE OFFERINGS
The Company is an integrated chemistry outsourcing company that offers a
broad range of chemistry research and development services to pharmaceutical
and biotechnology companies involved in drug discovery and development. The
Company's service offerings include medicinal chemistry, chemical development,
analytical chemistry services and cGMP manufacturing. The significant
experience and expertise of the Company's scientists enable the Company to
provide high-quality, sophisticated chemistry services tailored to its
customers' specific needs. The Company's services are designed to permit
pharmaceutical and biotechnology companies to reduce overall drug development
time and costs and to pursue simultaneously a greater number of drug discovery
and development opportunities.
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The chart below sets forth the types of chemistry services which typically
are employed in the different phases of drug discovery and development and
those which are offered by the Company.
[CHART WITH FIVE STAGES OF DRUG DISCOVERY AND DEVELOPMENT ON THE
HORIZONTAL AXIS AND THE COMPANY'S FOUR SERVICE OFFERINGS ON THE VERTICAL
AXIS, WITH BARS INDICATING (I) THE CURRENT SERVICES OFFERED BY THE
COMPANY, (II) SERVICES PROVIDED BY COLLABORATIONS, AND (III) SERVICES
NOT PROVIDED BY THE COMPANY]
Medicinal Chemistry
The chemistry functions associated with the identification and optimization
of a lead compound are handled by chemists specializing in medicinal
chemistry. The role of the medicinal chemist is to synthesize small quantities
of new and potentially patentable compounds for biological testing. The
Company's medicinal chemistry group assists its customers in the pursuit of
new drug leads as well as in lead development and optimization using modern
structure-based drug design. The Company's medicinal chemistry group uses
tools such as computational and combinatorial chemistry in conjunction with
the traditional techniques of medicinal drug development.
Medicinal chemistry services provided by the Company include:
. Design and synthesis of potential lead compounds;
. Design, modification and synthesis of lead compounds with improved
potency, selectivity and pharmacokinetics;
. Development and synthesis of analogs of lead compounds to broaden patent
protection; and
. Resynthesis and expansion of customers' chemistry libraries by employing
combinatorial and computational chemistry.
The following is an example of services provided by the Company's medicinal
chemistry group:
A customer recently engaged the Company's medicinal chemistry group to
pursue a novel therapeutic compound for cardiovascular disease. Scientists at
the Company designed and synthesized over 400 compounds which were
subsequently screened by the customer. After a lead compound was identified
from that series, the customer engaged the Company's chemical development
group to perform scale up and process development for the lead compound. The
Company then synthesized a batch of the compound for use in clinical trials,
which are
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ongoing. During the course of this project, the Company's analytical chemistry
staff performed analytical method development, validation and release testing,
as well as provided regulatory support for the synthesis of the cGMP batch.
The customer has filed a patent application in which two of the three named
inventors were Albany Molecular Research scientists.
As of November 30, 1998, the Company had 48 employees, including 29 Ph.D.
scientists, working in its medicinal chemistry department. The four most
senior scientists in the medicinal chemistry department together have 62 years
of experience in chemistry research and development. As of November 30, 1998,
the Company was working on 15 active medicinal chemistry projects for eight
customers, including Astra AB, Pfizer Inc. and Sphinx Pharmaceuticals, a
division of Eli Lilly and Company ("Sphinx").
Chemical Development
Chemical development involves the scale up synthesis of a lead compound.
Processes developed for small scale production of a compound may not be
suitable for larger scale production because they may be uneconomic,
environmentally unacceptable or present safety concerns. The Company's
chemical development scientists design novel or improved methods and processes
suitable for medium to large scale production. The Company's chemical
development scientists possess expertise in a broad range of structural
classes of molecules and are able to address a wide variety of chemical
synthesis and production problems.
Chemical development services provided by the Company include:
. Process research, consisting of the improvement or modification of
existing processes;
. Discovery and development of new product methodologies to prepare
products;
. Process development and production of single-isomer molecules; and
. Development of practical purification techniques.
The following is an example of the services provided by the Company's
chemical development group:
A customer recently engaged the Company's chemical development group for a
project in which the Company's scientists reduced the time and improved the
safety and overall yield of a customer's manufacturing process. The original
process involved 15 steps and several dangerous high-temperature, high-
pressure reactions, noxious reagents and difficult crystallizations. The
Company's scientists shortened the process to ten steps, eliminated the
undesirable reactions, reagents and crystallizations and doubled the overall
yield. The Company prepared a total of 11 kilograms of final product,
including three kilograms produced under cGMP guidelines for use in clinical
trials.
As of November 30, 1998, the Company had 32 employees, including 21 Ph.D.
scientists, working in its chemical development department. The four most
senior scientists in the chemical development department together have 72
years of experience in chemistry research and development. As of November 30,
1998, the Company was working on 16 active chemical development projects for
eleven customers, including Pfizer Inc., Cambrex Corporation, Triangle
Pharmaceuticals, Inc. and the National Institute on Drug Abuse.
Analytical Chemistry Services
The Company's analytical chemistry services include identity and purity
testing, method development and validation, and stability testing. The Company
also provides regulatory consulting services, including the preparation of
regulatory filings, chemistry manufacturing and control documentation and
testing, and scientific and technical writing. The cGMP guidelines mandated by
the FDA necessitate employing analytical support for drugs under development,
as well as drugs already on the market. The Company's analytical services are
designed to support its customers' compliance with these guidelines. The
Company typically provides these services at several stages throughout drug
discovery and development starting with lead optimization.
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Analytical services provided by the Company include:
. Test method development and validation;
. Quality control 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.
As of November 30, 1998, the Company had 12 employees, including two Ph.D.
scientists, working in its analytical chemistry department. The four most
senior scientists in the Company's analytical services department together
have 59 years of experience in analytical chemistry and regulatory affairs.
cGMP Manufacturing Services
The Company provides chemical synthesis and manufacturing services for its
customers under cGMP guidelines. All facilities and manufacturing techniques
used in the manufacture of products for clinical use or for sale in the United
States must be operated in conformity with cGMP guidelines as established by
the FDA. The Company's Albany facility has production facilities, and
quarantine and restricted access storage necessary for cGMP manufacturing. The
Company currently has the capacity to produce laboratory scale amounts (1 to
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. In 1992,
Seldane was the leading antihistamine on the market with annual sales
approaching $800 million. Seldane, a pro-drug, was rapidly converted by the
liver into its active form, a metabolite 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 of $200,000 and, through
September 30, 1998, the Company has earned $6.7 million in milestone payments
and $12.6 million in 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. Sales of fexofenadine HCl in the U.S.
were approximately $212 million for the year ended December 31, 1997 and
approximately $339 million for the nine months ended September 30, 1998. See
"Risk Factors--Risks Related to the Allegra/Telfast Royalty" and "--
Proprietary Technology; Unpredictability of Patent Protection."
CURRENT COLLABORATIONS; CUSTOMERS
The Company has entered into a number of collaborations with biotechnology
and pharmaceutical companies that provide services or possess technology
complementary to those provided or possessed by the Company. These
collaborations are focused on particular aspects of the drug discovery or
development process.
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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 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.
Since its inception, the Company has conducted over 400 projects for more
than 100 customers. The Company's customers include pharmaceutical companies,
biotechnology companies, agricultural companies, fine chemical companies and
contract chemical manufacturers. Contract revenue from Astra AB accounted for
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 nine months ended September 30, 1998, net contract
revenue from the Company's three largest customers represented approximately
18%, 17% and 15% 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.
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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.
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
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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 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
34
<PAGE>
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 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.
35
<PAGE>
EMPLOYEES
As of November 30, 1998, the Company had 134 employees, 57 of whom have
obtained a Ph.D. degree in chemistry. Of such employees, 48 were engaged
primarily in medicinal chemistry services (including 29 Ph.D.s), 32 were
engaged primarily in chemical development services (including 21 Ph.D.s), 12
were engaged primarily in analytical services (including two Ph.D.s), six were
engaged primarily in cGMP manufacturing services and 36 were engaged in
management and administration. None of the Company's employees are covered by
a collective bargaining agreement. The Company considers its relations with
its employees to be good.
PROPERTIES
The Company has two operating locations. The Company leases a two-story
facility in Albany, New York, of which it currently occupies 90,000 square
feet. The lease for this facility has a 10 year term, which expires on
November 30, 2007, and provides the Company an option to purchase the building
within the next five years for $3.5 million. 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's recent expansion is estimated to cost $12.5
million and is expected to be completed by January 1999. 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 1997, the Company
had total operating lease costs of $240,000.
LEGAL PROCEEDINGS
The Company, from time to time, may be involved in various claims and legal
proceedings arising in the ordinary course of its business. The Company is not
currently a party to any such claims or proceedings which, if decided
adversely to the Company, would either individually or in the aggregate have a
material adverse effect on the Company's business, financial condition or
results of operations.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company, and
their ages as of November 30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas E. D'Ambra, Ph.D. ...... 42 Chairman of the Board of Directors and
Chief Executive Officer
Donald E. Kuhla, Ph.D. ........ 56 President, Chief Operating Officer and
Director
Chester J. Opalka.............. 50 Vice President, Senior Research Chemist and
Director
Vice President, Commercial Operations and
Lawrence D. Jones, Ph.D. ...... 47 Quality
Michael P. Trova, Ph.D. ....... 37 Vice President, Medicinal Chemistry
Harold Meckler, Ph.D. ......... 42 Vice President, Chemical Development
James J. Grates................ 37 Director of Human Resources
Controller and acting Chief Financial
Rodney A. Tillinghast(1)....... 32 Officer
Anthony P. Tartaglia,
M.D.(2)(3).................... 66 Director
Frank W. Haydu(2)(3)........... 51 Director
</TABLE>
- ----------
(1) Mr. Tillinghast, the Company's Controller, has been serving as the
Company's acting Chief Financial Officer since the departure on October
28, 1998 of the Company's former chief financial officer. The Company is
actively searching for a new chief financial officer and expects to fill
this position by the end of the first quarter of 1999.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Thomas E. D'Ambra, Ph.D. co-founded the Company in 1991 and currently serves
as the Company's Chairman of the Board and Chief Executive Officer. Prior to
co-founding the Company, Dr. D'Ambra served as the Vice President, Chemistry
and co-founder of Coromed, Inc., a traditional development CRO, from 1989 to
1991 and Group Leader and Senior Research Chemist with Sterling Winthrop,
Inc., a pharmaceutical company, from 1982 to 1989. Dr. D'Ambra holds a B.A.
degree in chemistry from the College of the Holy Cross and a Ph.D. in organic
chemistry from the Massachusetts Institute of Technology.
Donald E. Kuhla, Ph.D. has served as the Company's President and Chief
Operating Officer since July 1998 and as a Director of the Company since
October 1995. Prior to joining the Company as an employee, Dr. Kuhla served as
the Vice President and Chief Technical Officer of Plexus Ventures, Inc., a
biotechnology investment and consulting company, from February 1994 to June
1998, the Chief Operating Officer of Hybridon, Inc., a pharmaceutical company,
and Enzymatics, Inc., a medical diagnostics company, from November 1990 to
February 1994, in various positions with Rorer Group, Inc., a pharmaceutical
company, from 1981 to 1990 and in various positions with Pfizer Inc., a
pharmaceutical company, from 1968 to 1981. Dr. Kuhla has a B.A. degree in
chemistry from New York University and a Ph.D. in organic chemistry from Ohio
State University.
Chester J. Opalka co-founded the Company in 1991, currently serves as a Vice
President and Senior Research Chemist of the Company and has served as a
Director of the Company since its inception. Prior to co-founding the Company,
Mr. Opalka served as a Senior Research Chemist with Coromed, Inc. from January
1991 to September 1991 and in various positions with Sterling Winthrop, Inc.
from 1970 to 1991. Mr. Opalka holds a B.S. degree in chemistry from Niagara
University.
Lawrence D. Jones, Ph.D. has served as the Company's Vice President,
Commercial Operations and Quality since June 1998 and served as the Company's
Vice President, Operations from March 1998 to June 1998. Prior to joining the
Company, Dr. Jones served as the Executive Vice President and co-founder of
Inhalon Pharmaceuticals, Inc., a manufacturer and distributor of generic
inhalation anesthetics, from August 1991 to February 1998, the Director of
Marketing and Development for Kaneka America Corporation, a manufacturer and
distributor of chemical intermediates, from 1988 to 1991, and a Sales and
Marketing Manager with Johnson Matthey, Inc., a pharmaceutical manufacturer,
from 1980 to 1998. Dr. Jones holds a B.A. degree in chemistry from Cornell
University and a Ph.D. in organic chemistry from Duke University.
37
<PAGE>
Michael P. Trova, Ph.D. has served as the Company's Vice President,
Medicinal Chemistry since March 1998 and served as the Company's Director of
Medicinal Chemistry from August 1996 to March 1998 and as the Company's
Assistant Director of Medicinal Chemistry from August 1995 to August 1996.
Prior to joining the Company, Dr. Trova was a staff scientist with American
Cyanamid, Lederle Laboratories, a pharmaceutical company, from 1989 to August
1995 and a post-doctoral researcher at the Massachusetts Institute of
Technology from 1987 to 1989. Dr. Trova holds a B.S. degree in chemistry from
Rensselaer Polytechnic Institute and a Ph.D. in organic chemistry from Ohio
State University.
Harold Meckler, Ph.D. has served as the Company's Vice President, Chemical
Development since May 1997 and served as the Company's Director of Chemical
Development from August 1995 to May 1997. Prior to joining the Company, Dr.
Meckler served as Manager, Organic Chemistry of Telor Ophthalmic
Pharmaceuticals, Inc., a biopharmaceutical company, from March 1994 to August
1995, in various capacities with Ciba-Geigy Corporation, a pharmaceutical
company, from 1984 to March 1994, and Senior Research Chemist, Chemical
Development with Sterling Winthrop, Inc. from 1982 to 1984. Dr. Meckler holds
a B.S. degree in chemistry from the University of Maryland, College Park and a
Ph.D. in organic chemistry from the State University of New York, Buffalo.
James J. Grates has served as the Company's Director of Human Resources
since December 1996. Prior to joining the Company, Mr. Grates was Executive
Vice President, Corporate Services with Corporate Health Dimensions, a health
care service provider company, from April 1995 to December 1996 and Manager of
Human Resources with Norton Performance Plastics, Inc., a plastic
manufacturer, from 1990 to September 1995. Mr. Grates holds a B.S. degree in
business administration from Syracuse University and an A.A.S. degree in
marketing from Herkimer County Community College.
Rodney A. Tillinghast, CPA has served as the Company's controller since
September 1995 and as acting Chief Financial Officer since October 1998. Prior
to joining the Company, Mr. Tillinghast served as an accountant in various
positions, including senior auditor, with KPMG Peat Marwick LLP from September
1992 to September 1995 and as a cost accountant with AL Tech Specialty Steel
Corporation, a stainless and tool steel manufacturer, from 1988 to 1992. Mr.
Tillinghast holds a B.S. degree in accounting from the State University of New
York, College at Fredonia, and a M.S. in accounting from the State University
of New York, Albany.
Anthony P. Tartaglia, M.D. has served as a Director of the Company since
October 1995. Dr. Tartaglia served as a physician with Albany Medical Center
from 1984 until his retirement in June 1998 and also served as Dean of Albany
Medical College from 1990 to June 1995. Dr. Tartaglia previously served as
Executive Director of the Albany Medical Center Hospital from 1987 to 1990,
Senior Vice President for Patient Care of the Albany Medical Center from 1984
to 1987 and as Chief of Medicine at St. Peter's Hospital in Albany from 1975
to 1984. Dr. Tartaglia is also a director of Albank Financial Corporation, a
bank holding company. Dr. Tartaglia holds a B.S. degree in biology from Union
College and a M.D. from the University of Rochester Medical School.
Frank W. Haydu III has served as a Director of the Company since October
1998. Mr. Haydu has served as the Chairman of Haydu & Lind, LLC, a senior
living development company, since co-founding it in June 1996. Mr. Haydu also
recently served as the interim Commissioner of Education of Massachusetts from
February 1998 to July 1998. Prior to co-founding Haydu & Lind, LLC, Mr. Haydu
served as the interim President and Chief Executive Officer of the New England
Medical Center Hospitals, Inc. from October 1995 to May 1996, a Senior Advisor
to Smith Barney, Inc., an investment bank, from August 1994 to August 1995,
and as a Managing Director of Kidder, Peabody & Company, Inc., an investment
bank, from 1990 to August 1994. Mr. Haydu also serves as a director of several
private companies. Mr. Haydu holds a B.A. degree in economics from Muhlenberg
College.
38
<PAGE>
BOARD OF DIRECTORS
The Company currently has five directors. The Company's Board of Directors
is divided into three classes, with the members of each class of directors
serving for staggered three-year terms. The Board consists of two Class I
Directors (Messrs. Opalka and Haydu), one Class II Director (Dr. Kuhla) and
two Class III Directors (Drs. D'Ambra and Tartaglia), whose terms will expire
at the 1999, 2000 and 2001 annual meetings of stockholders, respectively.
Within 90 days after the completion of this offering, the Company intends to
expand the Board of Directors and elect one additional Class II Director, who
will not be an officer or employee of the Company.
The Board of Directors has established an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends the independent accounting firm to be appointed to
audit the Company's financial statements and to perform services related to
such audit, reviews the scope and results of such audit with the independent
accountants, reviews the Company's year-end operating results with management
and the independent accountants, considers the adequacy of the internal
accounting procedures and considers the effect of such procedures on the
accountants' independence. The Audit Committee currently consists of Mr. Haydu
and Dr. Tartaglia, neither of whom is an officer or an employee of the
Company. The Compensation Committee reviews and recommends the compensation
arrangements for officers and other senior level employees, reviews general
compensation levels for other employees as a group, determines the options or
stock to be granted to eligible persons under the 1998 Stock Plan and takes
such other action as may be required in connection with the Company's
compensation and incentive plans. The Compensation Committee currently
consists of Mr. Haydu and Dr. Tartaglia. See "--Compensation Committee
Interlocks and Insider Participation."
Directors receive such compensation for their services as the Board of
Directors may from time to time determine. Further, each director is
reimbursed for reasonable travel and other expenses incurred in attending
meetings. Prior to joining the Company in July 1998, Dr. Kuhla also received a
consulting fee of $2,500 per quarter for miscellaneous projects and business
development activities.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth information concerning
compensation for services rendered in all capacities awarded to, earned by or
paid to the Chief Executive Officer and the four other most highly compensated
executive officers of the Company for the year ended December 31, 1998
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1998 ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------------
NUMBER OF SHARES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION SALARY($) BONUS($) OPTIONS GRANTED(#) COMPENSATION($)
- ------------------ --------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Thomas E. D'Ambra, 197,403 (1) -- 1,434,631(2)
Ph.D. ..................
Chairman and Chief
Executive Officer
Donald E. Kuhla, 84,135 (1) 112,500 75,487(4)
Ph.D.(3) ...............
President and Chief
Operating Officer
Harold Meckler, Ph.D. ... 118,615 (1) -- 10,000(5)
Vice President, Chemical
Development
Michael P. Trova, 111,738 (1) -- 10,000(5)
Ph.D. ..................
Vice President,
Medicinal Chemistry
Harold M. Armstrong, 123,462 -- -- 377,430(7)
Jr.(6) .................
Former Chief Financial
Officer
</TABLE>
- ----------
(1) Bonus amounts earned in the 1998 fiscal year are not calculable as of the
date of this Prospectus.
(2) Constitutes amounts earned by Dr. D'Ambra under the Company's Technology
Development Incentive Plan through September 30, 1998. The total amount
earned in the 1998 fiscal year is not calculable as of the date of this
Prospectus.
(3) Joined the Company as an officer in July 1998.
(4) Consists of $12,400 in director fees and $5,000 in consulting fees paid to
Dr. Kuhla prior to his employment by the Company and $58,087 as
reimbursement for relocation expenses incurrred when Dr. Kuhla joined the
Company.
(5) Constitutes debt forgiveness under notes payable to the Company.
(6) Departed from the Company in October 1998. See "Certain Transactions."
(7) Constitutes a severance payment made upon Mr. Armstrong's departure from
the Company.
39
<PAGE>
Option Grants, Exercises and Holdings. The following table sets forth
information regarding stock options granted during the year ended December 31,
1998 to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN OR BASE PRICE EXPIRATION -------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
- ---- ---------- ---------------- ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Kuhla,
Ph.D. ................. 112,500 58.1% $8.89 6/25/08 $628,973 $1,593,942
</TABLE>
- ----------
(1) Vesting of options is subject to the continuation of such employee's
service relationship with the Company. The options terminate ten years
after the grant date, subject to earlier termination in accordance with
the 1992 Stock Option Plan and the applicable option agreement.
(2) The exercise price equals the fair market value of the stock as of the
grant date as determined by the Board of Directors after consideration of
a number of factors, including, but not limited to, the Company's
financial performance, the Company's status as a private company at the
time of grants, the minority interests represented by the option shares
and the price of shares of equity securities sold to or purchased by
outside investors.
(3) The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 5% and 10% appreciation rates established in regulations of the
Securities and Exchange Commission, compounded annually. The following
table sets forth the potential realizable value of the options held by the
Named Executive Officers using the assumed initial public offering price
of $18.00 per share at the 5% and 10% appreciation rates:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES STOCK PRICE APPRECIATION
UNDERLYING FOR OPTION TERM
OPTIONS ------------------------------
GRANTED 5% 10%
---------- -------------- ---------------
<S> <C> <C> <C>
Donald E. Kuhla, Ph.D. .......... 112,500 $2,298,387 $4,252,203
</TABLE>
The potential realizable value is not intended to predict future
appreciation of the price of the Common Stock. The values shown do not
consider non-transferability, vesting or termination of the options upon
termination of such employee's employment with the Company.
Option Exercises and Year-End Holdings. The following table sets forth
information concerning the number and value of unexercised options to purchase
Common Stock held by the Named Executive Officers. None of the Named Executive
Officers exercised any stock options during the year ended December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
END AT FISCAL YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas E. D'Ambra, Ph.D. .. -- 45,859 $ -- $ 675,647
Donald E. Kuhla, Ph.D. .... 28,125 118,125 450,750 1,110,188
Harold Meckler, Ph.D. ..... 54,000 47,047 911,520 694,881
Michael P. Trova, Ph.D. ... 54,000 23,309 911,520 343,306
</TABLE>
- ----------
(1) There was no public trading market for the Common Stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $18.00 per share, less the
applicable exercise price.
40
<PAGE>
EMPLOYEE STOCK AND OTHER BENEFIT PLANS
1998 Stock Option and Incentive Plan. The 1998 Stock Plan was adopted by the
Board of Directors on August 7, 1998 and was approved by the Company's
stockholders on August 26, 1998. The following discussion gives effect to such
adoption and approval. The 1998 Stock Plan permits (i) the grant of Incentive
Options, (ii) the grant of Non-Qualified Options, (iii) the issuance or sale
of Common Stock with or without vesting or other restrictions ("Restricted
Stock") or without restrictions ("Unrestricted Stock" collectively with
Restricted Stock, "Stock Grants"), (iv) the grant of Common Stock upon the
attainment of specified performance goals ("Performance Share Awards"), (v)
the grant of the right to receive cash dividends with the holders of the
Common Stock as if the recipient held a specified number of shares of the
Common Stock ("Dividend Equivalent Rights") and (vi) the grant of the right to
receive the value of the excess of the fair market value of the Common Stock
over the exercise price of the Common Stock ("Stock Appreciation Rights" or
"SARs"). These grants may be made to officers and other employees, directors,
advisors, consultants and other key persons of the Company and its
subsidiaries. The 1998 Stock Plan currently provides for the issuance of
1,379,771 shares of Common Stock plus an additional number of shares of Common
Stock equal to fifteen percent (15%) of the shares of stock issued by the
Company in the previous six months (measured as of June 30 and December 31 of
each year). Of the shares reserved for issuance under the 1998 Stock Plan, no
shares were subject to outstanding options or grants as of August 1, 1998. On
and after the date the 1998 Stock Plan becomes subject to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), options with
respect to no more than 200,000 shares of Common Stock may be granted to any
one individual in any calendar year.
The 1998 Stock Plan is administered by the Compensation Committee. Subject
to the provisions of the 1998 Stock Plan, the Compensation Committee has full
power to determine from among the persons eligible for grants under the 1998
Stock Plan the individuals to whom grants will be granted, the combination of
grants to participants and the specific terms of each grant, including
vesting. Incentive Options may be granted only to officers or other full-time
employees of the Company or its subsidiaries, including members of the Board
of Directors who are also full-time employees of the Company or its
subsidiaries. The Compensation Committee may delegate the power to grant
options to non-executive employees to the Company's Chief Executive Officer.
The exercise price of options granted under the 1998 Stock Plan is
determined by the Compensation Committee. In the case of Incentive Options,
the exercise price may not be less than 100% of the fair market value of the
underlying shares on the date of grant. If any employee of the Company or any
subsidiary owns (or is deemed to own) at the date of grant shares of stock
representing in excess of 10% of the combined voting power of all classes of
stock of the Company or any parent or subsidiary, the option exercise price
for Incentive Options granted to such employee may not be less than 110% of
the fair market value of the underlying shares on that date. Non-Qualified
Options may be granted at prices which are less than the fair market value of
the underlying shares on the date granted. Options typically are subject to
vesting schedules, terminate 10 years from the date of grant and may be
exercised for specified periods subsequent to the termination of the
optionee's employment or other service relationship with the Company. At the
discretion of the Compensation Committee, any option may include a "reload"
feature pursuant to which an optionee exercising an option receives in
addition to the number of shares of Common Stock due on the exercise of such
an option an additional option with an exercise price equal to the fair market
value of the Common Stock on the date such additional option is granted. Upon
the exercise of options, the option exercise price must be paid in full either
in cash or by certified or bank check or other instrument acceptable to the
Compensation Committee or, in the sole discretion of the Compensation
Committee, by delivery of shares of Common Stock already owned by the
optionee. The exercise price may also be delivered to the Company by a broker
pursuant to irrevocable instructions to the broker selling the underlying
shares from the optionee.
The 1998 Stock Plan also permits Stock Grants, Performance Share Awards,
grants of Dividend Equivalent Rights and SARs. Stock Grants may be made to
persons eligible under the 1998 Stock Plan, subject to such conditions and
restrictions as the Compensation Committee may determine. Prior to the vesting
of shares, recipients of Stock Grants generally will have all the rights of a
stockholder with respect to the shares, including voting and dividend rights,
subject only to the conditions and restrictions set forth in the 1998 Stock
Plan or in
41
<PAGE>
any agreement. The Compensation Committee may also make Stock Grants to
persons eligible under the 1998 Stock Plan in recognition of past services or
other valid consideration, or in lieu of cash compensation. In the case of
Performance Share Awards, the issuance of shares of Common Stock will occur
only after the conditions and restrictions set forth in the grant agreement
are satisfied. SARs may be granted in tandem with, or independently of,
Incentive Options or Non-Qualified Options. The Compensation Committee may
also grant Dividend Equivalent Rights in conjunction with any other grant made
pursuant to the 1998 Stock Plan or as a free standing grant. Dividend
Equivalent Rights may be paid currently or deemed to be reinvested in
additional shares of Common Stock, which may thereafter accrue further
dividends.
The Compensation Committee may, in its sole discretion, accelerate or extend
the date or dates on which all or any particular award or awards granted under
the 1998 Stock Plan may be exercised or vest. Generally, upon a dissolution,
liquidation or sale of a majority of the outstanding voting stock or
substantially all of the assets of the Company, all unvested options, SARs and
other awards shall become vested as of the effective date of such transaction,
except as the Compensation Committee may otherwise specify with respect to
particular awards. Options generally provide for acceleration of vesting in
the event the optionee's employment with the Company is terminated by the
Company without cause or by the optionee for good reason within 18 months
following a change-in-control transaction. To the extent not fully vested and
exercised, options granted under the 1998 Stock Plan terminate upon the
dissolution, liquidation or sale of a majority of the outstanding voting stock
or substantially all of the assets of the Company, except as the parties to
any such transaction may otherwise agree in their discretion.
1992 Stock Option Plan. The Company's 1992 Stock Option Plan (the "1992
Stock Option Plan") was initially approved by the Board of Directors in August
1992 and was subsequently approved by the Company's stockholders. The 1992
Stock Option Plan provides for the issuance of 2,250,000 shares of Common
Stock. The 1992 Stock Option Plan permits the grant of stock options intended
to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, ("Incentive Stock Options") and options not
intended to so qualify ("Non-qualified Stock Options"). As of November 30,
1998, options to purchase 1,866,006 shares of Common Stock were outstanding
under the 1992 Stock Option Plan at a weighted average exercise price of $2.47
per share. Options granted under the 1992 Stock Option Plan (i) generally vest
60% on the third anniversary of the date of grant and an additional 20% on
each of the next two anniversaries and (ii) terminate on the tenth anniversary
of the date of grant. In connection with this offering, the number of shares
of Common Stock reserved for issuance under the 1992 Stock Option Plan will be
reduced to 1,866,006. The Company does not intend to make grants under the
1992 Stock Option Plan after the effective date of this offering.
The 1992 Stock Option Plan is administered by a committee of the Board of
Directors (the "Option Committee"). The Option Committee has the power to
amend outstanding stock options so long as such amendment does not adversely
affect the holder of the option. The Option Committee may, in its sole
discretion, accelerate the vesting of any outstanding stock option, including
in the event of a merger, liquidation or sale of substantially all of the
assets of the Company.
1998 Employee Stock Purchase Plan. The Purchase Plan was adopted by the
Board of Directors and subsequently approved by the Company's stockholders in
August 1998. Up to 300,000 shares of Common Stock may be issued under the
Purchase Plan. The Purchase Plan is administered by the Compensation
Committee.
The first offering under the Purchase Plan will begin on July 1, 1999 and
end on December 31, 1999. Subsequent offerings will commence on each January 1
and July 1 thereafter and will have a duration of six months. Generally, all
employees who are customarily employed for more than 20 hours per week as of
the first day of the applicable offering period are eligible to participate in
the Purchase Plan. An employee who owns or is deemed to own shares of stock
representing in excess of 5% of the combined voting power of all classes of
stock of the Company may not participate in the Purchase Plan.
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<PAGE>
During each offering, an employee may purchase shares under the Purchase
Plan by authorizing payroll deductions of up to 10% of his cash compensation
during the offering period. The maximum number of shares which may be
purchased by any participating employee during any offering period is limited
to 1,000 shares (as adjusted by the Compensation Committee from time to time).
Unless the employee has previously withdrawn from the offering, his
accumulated payroll deductions will be used to purchase Common Stock on the
last business day of the period at a price equal to 85% of the fair market
value of the Common Stock on the first or last day of the offering period,
whichever is lower. Under applicable tax rules, an employee may purchase no
more than $25,000 worth of Common Stock in any calendar year. No Common Stock
has been issued to date under the Purchase Plan.
Technology Development Incentive Plan. The Company maintains a Technology
Development Incentive Plan, the purpose of which is to stimulate and encourage
novel innovative technology development, which allows eligible participants to
share in awards based on ten percent (10%) of the net revenue (as defined
therein) earned by the Company relating to patented technology with respect to
which the eligible participant is named as an inventor.
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
The Company has entered into employment agreements with each of the Named
Executive Officers (other than Mr. Armstrong, who departed the Company in
October 1998). The terms of the agreements are substantially similar, except
with respect to minimum annual base salary ($200,000, $175,000, $120,000 and
$115,000 for Dr. D'Ambra, Dr. Kuhla, Dr. Meckler and Dr. Trova, respectively)
and as set forth below with respect to the termination of employment upon a
"change of control." In addition to their annual base salary, the Named
Executive Officers will be eligible to receive bonus compensation to be
determined at the discretion of the Board of Directors. The agreements have
initial employment terms of three years and automatically renew for one year
periods thereafter. If the Company elects not to extend an agreement for any
reason or if the executive's employment is terminated by the Company without
"cause" (as defined) or by the executive upon a material breach of the
agreement by the Company, the Company will continue to pay the executive his
base salary for one year and will pay to the Executive in monthly installments
over such one year period an amount equal to the executive's cash bonus
received in respect of the immediately preceding year.
Upon termination by the Company of the executive's employment without
"cause" or upon a resignation by the executive for "good reason" (as defined)
or if an employment agreement is not renewed by the Company within twelve
months following a "change of control" (as defined), such executive will be
entitled to receive a severance amount equal to the sum of (i) a multiple of
the executive's annual base salary, plus (ii) the executive's cash bonus
received in respect of the immediately preceding year. The multiples of base
salary to be paid by the Company to Dr. D'Ambra, Dr. Kuhla, Dr. Meckler and
Dr. Trova upon the termination of their employment following a "change of
control" are three, two, one and one times, respectively.
On October 28, 1998, the Company's former chief financial officer, Harold M.
Armstrong, departed from the Company. In connection with Mr. Armstrong's
departure, the Company and Mr. Armstrong entered into a letter agreement
pursuant to which the Company paid Mr. Armstrong a severance payment equal to
his annualized base salary for the 1998 fiscal year and bonus for the 1997
fiscal year. The Company also repurchased a total of 1,131,903 shares of
Common Stock from Mr. Armstrong and a trust for the benefit of his family for
an aggregate purchase price of approximately $9.9 million, of which $2.0
million was paid in cash and $7.9 million was paid in promissory notes. Upon
consummation of this offering, the remaining amounts due under these notes
will be repaid from the net proceeds of this offering. The Company is actively
searching for a new chief financial officer and expects to fill this position
by the end of the first quarter of 1999.
The Company has also entered into Employment Innovation, Proprietary
Information and Post-Employment Activity Agreements with its Named Executive
Officers. Each agreement provides that, during the six month period
immediately following the termination of his employment with the Company, the
Named Executive Officer will not engage, directly or indirectly, in the sale
or performance of any services for a customer for whom he performed services
at any time during the twelve month period immediately preceding the
termination of his employment.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Haydu and Dr. Tartaglia are the members of the Compensation Committee.
Neither Mr. Haydu nor Dr. Tartaglia are executive officers of the Company.
Prior to joining the Company in June 1998, Dr. Kuhla served as a member of the
Compensation Committee. While serving as a member of the Compensation
Committee, Dr. Kuhla received a consulting fee of $2,500 per quarter unrelated
to such service.
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<PAGE>
CERTAIN TRANSACTIONS
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
1993 TAM U.S. patent application. Pursuant to the license agreement, HMRI paid
the Company $15.6 million, $2.5 million, $1.0 million and $200,000 in
milestones and royalties in the nine months ended September 30, 1998, and the
years ended December 31, 1997, 1996 and 1995, respectively. HMRI is also
obligated to pay ongoing royalties to the Company based upon sales of
fexofenadine HCl. In connection with the transactions contemplated by the
license agreement, HMRI purchased 1,084,821 shares of Common Stock for a total
purchase price of $2.0 million. The Company granted HMRI demand registration
rights with respect to such shares whereby HMRI has the right (i) on any one
occasion beginning six months after completion of this offering to require the
Company to register its shares under the Securities Act for resale to the
public (provided that the aggregate offering price of such shares must be at
least $3.0 million), (ii) to require the Company to register its shares on a
"shelf" registration statement in the event the Company registers shares held
by Dr. D'Ambra and or Mr. Opalka under certain specified circumstances and
(iii) to require the Company to include shares held by HMRI on registration
statements independently filed by the Company, subject to certain
restrictions. In addition, the Company has agreed to indemnify HMRI, its
subsequent transferees, and any underwriters and each of their controlling
persons, against claims and liabilities, including claims and liabilities
arising under the securities laws.
Dr. D'Ambra is entitled to payments under the Company's Technology
Development Incentive Plan for amounts paid to the Company under the license
agreement with HMRI. Under this plan, Dr. D'Ambra has received or is entitled
to receive $1.4 million, $253,000, $100,000 and $200,000 in the nine months
ended September 30, 1998, and the years ended December 31, 1997, 1996 and
1995, respectively. Pursuant to the Company's Technology Development Incentive
Plan, Dr. D'Ambra is entitled to receive 10% of all royalties paid to the
Company under the HMRI license agreement.
On October 28, 1998, the Company's former chief financial officer, Harold M.
Armstrong, departed from the Company. In connection with Mr. Armstrong's
departure, the Company and Mr. Armstrong entered into a letter agreement
pursuant to which the Company paid Mr. Armstrong a severance payment equal to
his annualized base salary and bonus for the 1998 fiscal year. The Company
also repurchased a total of 1,131,903 shares of Common Stock from Mr.
Armstrong and a trust for the benefit of his family for an aggregate purchase
price of approximately $9.9 million, of which $2.0 million was paid in cash
and $7.9 million was paid in promissory notes. Upon consummation of this
offering, the remaining amounts due under these notes will be repaid from the
net proceeds of this offering. The Company is actively searching for a new
chief financial officer and expects to fill this position by the end of the
first quarter of 1999.
The Company is a party to an agreement with Stiefel Laboratories, Inc.
("Stiefel"), the beneficial owner of 11.8% of the outstanding shares of Common
Stock prior to giving effect to this offering, whereby the Company granted
Stiefel participation rights with respect to certain future issuances of
securities by the Company. This agreement will terminate upon completion of
this offering. The Company received $65,000 from Stiefel for services rendered
in the ordinary course of business during 1996.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i)
be approved by a majority of the members of the Company's Board of Directors
and by a majority of the disinterested members of the Company's Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1998 and as
adjusted to reflect the sale of the shares of Common Stock offered hereby of
(i) each person known by the Company to own beneficially five percent or more
of the outstanding shares of Common Stock, (ii) each director and the Named
Executive Officers of the Company and (iii) all directors and executive
officers of the Company as a group. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY OWNED(1)
NUMBER OF SHARES ---------------------------------
NAME OF BENEFICIAL OWNER(2) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING(3)
- --------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Thomas E. D'Ambra,
Ph.D.(4)................. 4,335,378 43.3% 35.5%
Chester J. Opalka(5)...... 2,147,728 21.4 17.6
Hoechst
Aktiengesellschaft(6).... 1,627,231 16.2 13.3
Charles W. Stiefel(7)..... 1,260,000 11.8 9.8
Harold Meckler, Ph.D.(8).. 54,000 * *
Michael P. Trova,
Ph.D.(9)................. 54,000 * *
Anthony P. Tartaglia,
M.D.(10)................. 31,128 * *
Donald E. Kuhla,
Ph.D.(11)................ 30,341 * *
Frank W. Haydu(12)........ 1,125 * *
All executive officers and
directors as a group (10
persons)(13)............. 6,653,700 65.5 54.5
</TABLE>
- ----------
* Less than 1%.
(1) All percentages have been determined as of November 30, 1998 in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). For purposes of this table, a person or
group of persons is deemed to have "beneficial ownership" of any shares
of Common Stock which such person has the right to acquire within 60 days
after the date of this Prospectus. For purposes of computing the
percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or persons
has or have the right to acquire within 60 days after the date of this
Prospectus is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. As of November 30, 1998, a total of 10,015,224 shares of
Common Stock were issued and outstanding and 1,258,972 options to acquire
Common Stock were exercisable within 60 days of November 30, 1998.
(2) The address of all listed stockholders other than Hoechst
Aktiengesellschaft and Charles W. Stiefel is c/o Albany Molecular
Research, Inc., 21 Corporate Circle, Albany, New York 12203. The address
of Hoechst Aktiengesellschaft is c/o Hoechst Marion Roussel, Inc., 10236
Marion Park Drive, Kansas City, Missouri 64137. The address of Charles W.
Stiefel is c/o Stiefel Laboratories, Inc., 255 Alhambra Circle, Suite
1000, Coral Gables, Florida 33134.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Includes 1,719,164 shares held by the Thomas E. D'Ambra GRAT I trust of
which Dr. D'Ambra serves as the trustee. By virtue of his position as
trustee, Dr. D'Ambra may be deemed to be the beneficial owner of all
shares held by such trust. Excludes 45,859 shares subject to options not
exercisable within 60 days.
(5) Includes 409,995 shares held by the Chester J. Opalka 1997 Retained
Annuity Trust of which Mr. Opalka serves as a co-trustee. By virtue of
his position as a co-trustee, Mr. Opalka may be deemed to be the
beneficial owner of all shares held by such trust. Excludes 15,704 shares
subject to options not exercisable within 60 days.
(6) Hoechst Aktiengesellschaft is a publicly-held company and the parent of
Hoechst Marion Roussel Aktiengesellschaft, a German corporation ("HMRA").
HMRA, in turn, is the parent of both HMR Pharma, Inc., a Delaware
corporation, and Hoechst Marion Roussel, S.A., a French corporation,
which together own all of the outstanding shares of Hoechst Marion
Roussel, Inc., the holder of record of these shares.
(7) Includes 630,000 shares subject to options exercisable within 60 days.
Charles W. Stiefel may be deemed to be the beneficial owner of all of the
shares beneficially held by Stiefel Laboratories, Inc., the holder of
record of these shares.
(8) Includes 54,000 shares subject to options exercisable within 60 days.
Excludes 47,047 shares subject to options not exercisable within 60 days.
(9) Includes 36,000 shares subject to options exercisable within 60 days.
Excludes 23,309 shares subject to options not exercisable within 60 days.
(10) Includes 28,125 shares subject to options exercisable within 60 days.
Excludes 11,250 shares subject to options not exercisable within 60 days.
(11) Includes 28,125 shares subject to options exercisable within 60 days.
Excludes 118,125 shares subject to options not exercisable within 60
days.
(12) Excludes 5,625 shares subject to options not exercisable within 60 days.
(13) Includes 146,250 shares subject to options exercisable within 60 days.
Excludes 334,756 shares subject to options not exercisable within 60
days.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, of which 12,215,224
shares will be issued and outstanding, and 2,000,000 shares of undesignated
preferred stock issuable in one or more series by the Board of Directors
("Preferred Stock"), of which no shares will be issued and outstanding.
Common Stock. The holders of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. Any issuance of Preferred
Stock with a dividend preference over Common Stock could adversely affect the
dividend rights of holders of Common Stock. Holders of Common Stock are not
entitled to cumulative voting rights. Therefore, the holders of a majority of
the shares voted in the election of directors can elect all of the directors
then standing for election, subject to any voting rights of the holders of any
then outstanding Preferred Stock. The holders of Common Stock have no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All
outstanding shares of Common Stock, including the shares offered hereby, are,
or will be upon completion of the offering, fully paid and non-assessable.
The Company's Restated Certificate of Incorporation (the "Certificate") and
Amended and Restated By-laws (the "By-laws"), which will be effective upon
completion of this offering, provide that the number of directors shall be
fixed by the Board of Directors, subject to the rights of the holders of any
Preferred Stock then outstanding. The directors, other than those who may be
elected by the holders of any Preferred Stock, are divided into three classes,
as nearly equal in number as possible, with each class serving for a three-
year term. Subject to any rights of the holders of any Preferred Stock to
elect directors, and to remove any director whom the holders of any Preferred
Stock had the right to elect, any director of the Company may be removed from
office only with cause and by the affirmative vote of at least two-thirds of
the total votes which would be eligible to be cast by stockholders in the
election of such director.
Undesignated Preferred Stock. The Board of Directors of the Company is
authorized, without further action of the stockholders, to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereon as set forth in the Company's
Certificate. Any such Preferred Stock issued by the Company may rank prior to
the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of
Common Stock.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or seeking to acquire, a significant portion of the outstanding
Common Stock.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-LAWS
A number of provisions of the Certificate and By-laws which will be
effective upon completion of this offering concern matters of corporate
governance and the rights of stockholders. Certain of these provisions, as
well as the ability of the Board of Directors to issue shares of Preferred
Stock and to set the voting rights, preferences and other terms thereof, may
be deemed to have an anti-takeover effect and may discourage takeover attempts
not first approved by the Board of Directors, including takeovers which
stockholders may deem to be in their best interests. To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may
be inhibited. These provisions, together with the classified Board of
Directors and the ability of the Board to issue Preferred Stock without
further stockholder action, also could delay or frustrate the removal of
incumbent directors or the assumption of control by stockholders, even if such
removal or assumption would be beneficial to stockholders of the Company.
These provisions also could discourage or make more difficult a merger, tender
offer or proxy
47
<PAGE>
contest, even if favorable to the interests of stockholders, and could depress
the market price of the Common Stock. The Board of Directors believes that
these provisions are appropriate to protect the interests of the Company and
all of its stockholders. The Board of Directors has no present plans to adopt
any other measures or devices which may be deemed to have an "anti-takeover
effect."
Meetings of Stockholders. The By-laws provide that a special meeting of
stockholders may be called only by the Chairman or a majority of Board of
Directors unless otherwise required by law. The By-laws provide that only
those matters set forth in the notice of the special meeting may be considered
or acted upon at that special meeting unless otherwise provided by law. In
addition, the By-laws set forth certain advance notice and informational
requirements and time limitations on any director nomination or any new
proposal which a stockholder wishes to make at an annual meeting of
stockholders.
No Stockholder Action by Written Consent. The Certificate provides that any
action required or permitted to be taken by the stockholders of the Company at
an annual or special meeting of stockholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of stockholders
in lieu thereof.
Indemnification and Limitation of Liability. The By-laws provide that
directors and officers of the Company shall be, and in the discretion of the
Board of Directors non-officer employees may be, indemnified by the Company to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence
or gross negligence in business combinations, unless the director has breached
his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. The Company also entered into indemnification
agreements with each of its directors reflecting the foregoing and requiring
the advancement of expenses in proceedings involving the directors in most
circumstances.
Amendment of the Certificate. The Certificate provides that an amendment
thereof must first be approved by a majority of the Board of Directors and
(with certain exceptions) thereafter approved by a majority (or 80% in the
case of any proposed amendment to the provisions of the Certificate relating
to the composition of the Board or amendments of the Certificate) of the total
votes eligible to be cast by holders of voting stock with respect to such
amendment.
Amendment of By-laws. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority
of the directors then in office. Such action by the stockholders requires the
affirmative vote of at least two-thirds of the total votes eligible to be cast
by holders of voting stock with respect to such amendment or repeal at an
annual meeting of stockholders or a special meeting called for such purpose
unless the Board of Directors recommends that the stockholders approve such
amendment or repeal at such meeting, in which case such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting shares with respect to such amendment
or repeal.
Ability to Adopt Shareholder Rights Plan. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares to implement a shareholder rights plan. A shareholder rights plan
typically creates voting or other impediments which are intended to discourage
persons seeking to gain control of the Company by means of a merger, tender
offer, proxy contest or otherwise if such change in control is not in the best
interest of the Company and its stockholders. The Board of Directors has no
present intention of adopting a shareholder rights plan and is not aware of
any attempt to obtain control of the Company.
48
<PAGE>
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person or affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved
by the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction
that makes it an interested stockholder (excluding shares owned by persons who
are both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested
stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage, provided that such by-law
or charter amendment shall not become effective until 12 months after the date
it is adopted. Neither the Certificate nor the By-laws contains any such
exclusion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be ChaseMellon
Shareholder Services, L.L.C.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of
12,215,224 shares of Common Stock outstanding. Of these shares, the 2,200,000
shares of Common Stock offered hereby will be freely tradable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined in the Securities Act, who would be
required to sell such shares under Rule 144 under the Securities Act. The
remaining 10,015,224 shares of Common Stock outstanding will be "restricted
securities" as that term is defined by Rule 144 (the "Restricted Shares"). The
Restricted Shares were issued and sold by the Company in private transactions
in reliance upon exemptions from registration under the Securities Act.
Of the Restricted Shares, 9,979,561 shares of Common Stock will be eligible
for sale in the public market pursuant to Rule 144 under the Securities Act
beginning 90 days after the date of this Prospectus, and 35,663 shares of
Common Stock will become eligible for sale in the public market pursuant to
Rule 144 at various times thereafter.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year (including the holding period of any prior owner except
an affiliate), including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 122,152 shares upon completion
of the offering) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at the time during 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years (including the holding period of any prior owner except an affiliate),
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. Rule 144 also provides that affiliates who are
selling shares that are not Restricted Shares must nonetheless comply with the
same restrictions applicable to Restricted Shares with the exception of the
holding period requirement.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to the exercise of options outstanding prior to this
offering or the grant of Common Stock prior to this offering pursuant to
written compensation plans or contracts may be resold by persons other than
affiliates beginning 90 days after the date of this Prospectus, subject only
to the manner of sale provisions of Rule 144, and by affiliates, beginning 90
days after the date of this Prospectus, subject to all provisions of Rule 144
except its one-year minimum holding period requirement.
The Company's executive officers and directors and stockholders, who in the
aggregate hold 9,953,199 shares of Common Stock and options to purchase
1,787,976 shares of Common Stock, have agreed, pursuant to certain Lock-up
Agreements, that until 180 days after the date of this Prospectus, they will
not, directly or indirectly, offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase, make a distribution of, or otherwise
dispose of, any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, otherwise than (i) as a bona fide
gift or gifts, provided that the donee or donees thereof agree in writing as a
condition precedent to such gift or gifts to be bound by the terms of the
Lock-up Agreements, or (ii) with the prior written consent of ING Baring
Furman Selz LLC. In addition, the Company has agreed that, without the prior
written consent of ING Baring Furman Selz LLC on behalf of the Underwriters,
the Company will not, directly or indirectly, sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase
or otherwise transfer or dispose of any shares of Common Stock or any
securities, convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock, or enter into any swap or other agreement
that transfers, in whole or in part any of the economic consequences or
ownership of Common Stock, during the 180-day period following the date of
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its current stock option and purchase
plans and may
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<PAGE>
issue shares of Common Stock in connection with certain acquisition
transactions, provided such shares are subject to the 180-day Lock-up
Agreement.
As of November 30, 1998, 1,379,771 shares of Common Stock were reserved for
issuance under the 1998 Stock Plan, of which no shares were issuable upon the
exercise of outstanding stock options, 2,250,000 shares of Common Stock were
reserved for issuance under the 1992 Stock Option Plan, of which 1,174,443
shares were issuable upon the exercise of outstanding stock options, 300,000
shares of Common Stock were reserved for issuance under the Purchase Plan and
691,563 shares were issuable upon the exercise of outstanding stock options
granted pursuant to stand alone option agreements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management--Employee Stock and Other Benefit Plans--1998 Stock Option and
Incentive Plan," "--1992 Stock Option Plan" and "--1998 Employee Stock
Purchase Plan." The Company intends to file a registration statement on Form
S-8 under the Securities Act to register all shares of Common Stock issuable
pursuant to the 1998 Stock Plan or the Purchase Plan. The Company expects to
file this registration statement within approximately 90 days following the
date of this Prospectus, and such registration statement will become effective
upon filing. Shares covered by this registration statement will thereupon be
eligible for sale in the public markets, subject to Rule 144 limitations
applicable to affiliates and the Lock-up Agreements described above.
Prior to this offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could materially and adversely affect the market price of the Common
Stock and could impair the Company's future ability to raise capital through
an offering of its equity securities.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom ING Baring Furman Selz LLC and Hambrecht &
Quist LLC are acting as representatives (the "Representatives") has severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
---- ------------
<S> <C>
ING Baring Furman Selz LLC. .................................
Hambrecht & Quist LLC. ......................................
---------
Total...................................................... 2,200,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Common Stock are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 330,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common Stock
offered hereby. The Underwriters may exercise such option only to cover over-
allotments, if any, in connection with the sale of the 2,200,000 shares of
Common Stock offered hereby.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of ING Baring Furman Selz
LLC, except for the shares of Common Stock offered hereby and except that the
Company may issue securities pursuant to the Company's stock plans and upon
exercise of outstanding options and warrants and may issue shares of Common
Stock in connection with certain acquisition transactions, provided such
shares are subject to the 180-day Lock-up Agreement. In addition, the
Company's executive officers and directors and stockholders, who in the
aggregate hold 9,953,199 shares of Common Stock and options to purchase
1,787,976 shares of Common Stock, have agreed, pursuant to certain Lock-up
Agreements, that until 180 days after the date of this Prospectus, they will
not, directly or indirectly, offer, sell, assign, transfer, encumber, contract
to sell, grant an option to purchase, make a distribution of, or otherwise
dispose of, any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, otherwise than (i) as a bona fide
gift or gifts, provided that the donee or donees thereof agree in writing as a
condition precedent to such gift or gifts to be bound by the terms of the
Lock-up Agreements, or (ii) with the prior written consent of ING Baring
Furman Selz LLC.
The Representatives of the Underwriters have informed the Company that they
do not intend to confirm sales to any account over which they exercise
discretionary authority.
In connection with this offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover
52
<PAGE>
syndicate short positions created in connection with this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the Common
Stock. Syndicate short positions involve the sale by the Underwriters of a
greater number of shares of Common Stock than they are required to purchase
from the Company in this offering. The Underwriters also may impose a penalty
bid, whereby the syndicate may reclaim selling concessions allowed to
syndicate members or other broker-dealers in respect of the Common Stock sold
in this offering for their account if the syndicate repurchases the shares in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market. These
transactions may be affected on Nasdaq, in the over-the-counter market or
otherwise, and may, if commenced, be discontinued at any time.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the Representatives. Among the factors to be considered in determining the
initial public offering price of the Common Stock, in addition to prevailing
market conditions, are the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The Common Stock has been approved for quotation and trading on the Nasdaq
National Market upon completion of this offering under the symbol "AMRI."
The Company has agreed to indemnify the several Underwriters against or
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
Certain legal matters related to this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.
EXPERTS
The consolidated financial statements of Albany Molecular Research, Inc. as
of December 31, 1996 and 1997, and for each of the years in the three-year
period ended December 31, 1997 have been audited by KPMG Peat Marwick LLP and
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors--
Proprietary Technology; Unpredictability of Patent Protection" and "Business--
Allegra/Telfast Royalty and Licensing Arrangement" and "--Patents and
Proprietary Rights" have been reviewed and approved by Ostrolenk, Faber, Gerb
& Soffen, LLP, patent counsel to the Company, as experts on such matters, and
are included herein in reliance upon that review and approval.
53
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed with the Commission a Registration
Statement (which term shall include any amendments thereto) on Form S-1 under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each statement
being qualified in all respects by such reference. For further information
with respect to the Company and the Common Stock, reference is made to the
Registration Statement, including the exhibits and schedules thereto, copies
of which may be examined without charge at the Commission's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its public reference facilities in New York, New
York, and Chicago, Illinois, at prescribed rates. The Commission also
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants (which, after this
offering, will include the Company) that file electronically with the
Commission (at http://www.sec.gov).
Immediately following this offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
As long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements
audited by an independent certified public accounting firm.
54
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ALBANY MOLECULAR RESEARCH, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Public Accountants........... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and September
30, 1998 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Nine Months Ended September 30, 1997 and 1998
(unaudited).............................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and for the Nine Months Ended September
30, 1998 (unaudited)..................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Nine Months Ended September 30, 1997 and 1998
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Albany Molecular Research, Inc.:
We have audited the accompanying consolidated balance sheets of Albany
Molecular Research, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Albany Molecular Research, Inc. at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Albany, New York
April 2, 1998, except for note 15
which is as of November 30, 1998
F-2
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998
---------- ----------- -------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $1,259,555 $ 1,261,518 $ 2,831,019
Certificate of deposit................. 52,551 -- --
Accounts receivable, (net of allowance
of for doubtful accounts of $0 and
$114,000 at December 31, 1996 and
1997, respectively, and $0 at
September 30, 1998)................... 851,959 1,976,637 2,830,357
Current installment of notes
receivable (Note 14).................. -- -- 104,832
Royalty income receivable.............. -- -- 3,241,317
Investment securities, available-for-
sale (Note 5)......................... 1,734,899 1,949,546 2,030,326
Interest receivable.................... 25,156 25,961 30,571
Inventory.............................. 266,208 317,789 569,346
Unbilled services...................... 202,122 192,822 202,683
Refundable income taxes................ -- 312,377 --
Prepaid expenses....................... 38,132 131,798 672,368
---------- ----------- -----------
Total current assets................. 4,430,582 6,168,448 12,512,819
Property and equipment:
Laboratory equipment and fixtures...... 2,981,155 3,323,232 7,820,403
Office equipment....................... 453,823 840,256 1,634,785
Leasehold improvements................. 983,264 1,000,120 2,710,919
Construction-in-progress............... -- 76,574 2,534,959
---------- ----------- -----------
4,418,242 5,240,182 14,701,066
Accumulated depreciation and
amortization......................... (591,698) (1,265,255) (1,982,935)
---------- ----------- -----------
Net property and equipment........... 3,826,544 3,974,927 12,718,131
Other assets:
Patents and patent application costs... 127,145 212,291 335,214
Licensing rights....................... 26,513 23,567 21,358
Customer list.......................... -- -- 98,333
Notes receivable, excluding current
installment (Note 14)................. -- -- 80,000
Deposits............................... 16,810 16,810 16,810
Deferred income tax benefit (Note 6)... 68,142 230,000 --
Other assets........................... 4,909 3,291 6,877
---------- ----------- -----------
Total other assets................... 243,519 485,959 558,592
---------- ----------- -----------
Total assets......................... $8,500,645 $10,629,334 $25,789,542
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.............................. $ 322,754 $ 898,256 $ 2,298,407
Income taxes payable (Note 6).......... 338,684 -- 386,852
Unearned income........................ 135,377 212,008 851,394
Customer deposits...................... 165,000 202,293 182,293
Current installments of obligation
under capital lease................... 3,550 1,256 --
Current installments of long-term debt
(Note 3).............................. 454,683 448,005 81,979
---------- ----------- -----------
Total current liabilities............ 1,420,048 1,761,818 3,800,925
Long-term liabilities:
Obligation under capital lease,
excluding current installments........ 1,256 -- --
Long-term debt, excluding current
installments (Note 3)................. 2,373,708 1,775,703 5,137,577
Deferred income taxes (Note 6)......... 295,119 437,631 534,824
---------- ----------- -----------
Total liabilities.................... 4,090,131 3,975,152 9,473,326
Commitments (Notes 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 1,000
Common stock, $0.01 par value,
authorized 10,000,000 shares; issued
and outstanding 10,755,327 at
December 31, 1996, 10,770,767 shares
at December 31, 1997 and 10,900,444
shares at September 30, 1998.......... 107,553 107,707 109,004
Additional paid-in capital............. 2,584,152 2,607,593 2,952,293
Retained earnings...................... 1,694,164 3,883,379 13,183,538
Accumulated other comprehensive
income................................ 23,645 54,503 70,381
---------- ----------- -----------
Total stockholders' equity........... 4,410,514 6,654,182 16,316,216
---------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $8,500,645 $10,629,334 $25,789,542
========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract revenue........ $3,315,930 $6,177,371 $8,805,066 $6,322,843 $10,165,244
Reimbursed expenses..... (356,664) (916,027) (701,034) (503,416) (515,900)
---------- ---------- ---------- ---------- -----------
Net contract revenue.... 2,959,266 5,261,344 8,104,032 5,819,427 9,649,344
Cost of contract
revenue................ 1,350,158 2,834,760 4,334,245 3,126,705 5,319,992
---------- ---------- ---------- ---------- -----------
Gross profit from
contract revenue....... 1,609,108 2,426,584 3,769,787 2,692,722 4,329,352
---------- ---------- ---------- ---------- -----------
Other operating revenue:
Non-recurring
licensing fees,
milestones and
royalties (Note 9)... 200,000 1,000,000 2,500,000 2,500,000 7,368,921
Recurring royalties
(Note 9)............. -- -- 30,871 639 8,278,161
Technology incentive
award (Note 11)...... (200,000) (100,000) (253,093) (250,069) (1,434,631)
---------- ---------- ---------- ---------- -----------
Other operating
revenue, net....... -- 900,000 2,277,778 2,250,570 14,212,451
---------- ---------- ---------- ---------- -----------
Operating expenses:
Research and
development.......... 36,628 244,812 626,471 443,009 535,069
Selling, general and
administrative....... 882,570 1,219,144 2,246,391 1,400,711 3,162,339
---------- ---------- ---------- ---------- -----------
Total operating
expenses........... 919,198 1,463,956 2,872,862 1,843,720 3,697,408
---------- ---------- ---------- ---------- -----------
Income from operations.. 689,910 1,862,628 3,174,703 3,099,572 14,844,395
---------- ---------- ---------- ---------- -----------
Other income (expense):
Interest expense...... (53,882) (137,967) (175,969) (133,987) (176,865)
Interest income....... 91,532 126,474 163,051 110,290 292,956
Realized gain on sale
of investment
securities........... 6,053 3,895 -- -- --
Other non-operating
income (expense)..... (1,262) 16,235 (25,629) (14,182) 4,011
---------- ---------- ---------- ---------- -----------
Total other income
(expense).......... 42,441 8,637 (38,547) (37,879) 120,102
---------- ---------- ---------- ---------- -----------
Income before income tax
expense................ 732,351 1,871,265 3,136,156 3,061,693 14,964,497
Income tax expense (Note
6)..................... 252,805 637,476 946,941 922,374 5,664,338
---------- ---------- ---------- ---------- -----------
Net income.............. $ 479,546 $1,233,789 $2,189,215 $2,139,319 $ 9,300,159
========== ========== ========== ========== ===========
Basic earnings per
share.................. $ 0.05 $ 0.12 $ 0.20 $ 0.20 $ 0.86
Diluted earnings per
share.................. $ 0.04 $ 0.10 $ 0.18 $ 0.18 $ 0.76
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- ------------------------------
ACCUMULATED
NUMBER $0.01 NUMBER $0.01 ADDITIONAL OTHER RETAINED
COMPREHENSIVE OF PAR OF PAR PAID-IN COMPREHENSIVE EARNINGS
INCOME SHARES VALUE SHARES VALUE CAPITAL INCOME (DEFICIENCY) TOTAL
------------- -------- ------- ---------- -------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994
(Note 15)........ $ -- 100,000 $ 1,000 8,856,059 $ 88,561 $ 495,157 $ -- $ (19,171) $ 565,547
Issuance of
common stock... -- -- -- 1,736,030 17,360 2,058,213 -- -- 2,075,573
Net unrealized
gain on
securities
available-for-
sale, net of
tax............ 30,067 -- -- -- -- -- 30,067 -- 30,067
Tax effect of
incentive stock
options held
less than one
year........... -- -- -- -- -- 5,030 -- -- 5,030
Net income for
1995........... 479,546 -- -- -- -- -- -- 479,546 479,546
---------- -------- ------- ---------- -------- ---------- ---------- ----------- -----------
Balance at
December 31,
1995............. $ 509,613 100,000 $ 1,000 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............ (6,422) -- -- -- -- -- (6,422) -- (6,422)
Tax effect of
incentive stock
options held
less than one
year........... -- -- -- -- -- 2,697 -- -- 2,697
Net income for
1996........... 1,233,789 -- -- -- -- -- -- 1,233,789 1,233,789
---------- -------- ------- ---------- -------- ---------- ---------- ----------- -----------
Balance at
December 31,
1996............. $1,227,367 100,000 $ 1,000 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............ 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... -- -- -- 129,677 1,297 344,700 -- -- 345,997
Change in
unrealized gain
on securities
available-for-
sale, net of
tax............ 15,878 -- -- -- -- -- 15,878 -- 15,878
Net income for
period......... 9,300,159 -- -- -- -- -- -- 9,300,159 9,300,159
---------- -------- ------- ---------- -------- ---------- ---------- ----------- -----------
Balance at
September 30,
1998............. $9,316,037 100,000 $ 1,000 10,900,444 $109,004 $2,952,293 $ 70,381 $13,183,538 $16,316,216
========== ======== ======= ========== ======== ========== ========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 479,546 $ 1,233,789 $ 2,189,215 $2,139,319 $ 9,300,159
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization......... 127,358 379,327 689,472 507,803 740,621
Net realized gain on
security
transactions......... (6,053) (3,895) -- -- --
Net loss on sale of
assets............... -- 1,578 9,398 9,398 --
Provision for doubtful
accounts............. -- -- 114,000 23,000 (30,000)
Deferred income tax
(benefit) expense.... 94,131 164,927 (39,919) (45,952) 316,609
Tax effect of stock
sale from stock
options held less
than one year........ 5,030 2,697 -- -- --
Write-off of licensing
costs................ 73,083 -- -- -- --
(Increase) decrease
in:
Accounts
receivable......... (759,876) 35,622 (1,215,678) (694,729) (945,483)
Royalty income
receivable......... -- -- -- -- (3,241,317)
Inventory, prepaid
expenses and
refundable income
taxes.............. (118,682) (88,425) (457,624) (168,792) (479,750)
Interest
receivable......... (17,540) (7,616) (805) (2,727) (4,610)
Due from
shareholder........ 5,197 -- -- -- --
Unbilled services... (114,426) (6,009) 9,300 (120,261) (9,862)
Increase (decrease)
in:
Accounts payable and
accrued expenses... 241,861 (14,055) 575,502 283,288 1,400,150
Customer deposits... 135,000 30,000 37,293 17,300 (20,000)
Unearned income..... 70,623 44,754 76,631 92,123 639,386
Income taxes
payable............ -- 338,684 (338,684) 233,905 386,852
----------- ----------- ----------- ---------- -----------
Net cash provided by
operating activities... 215,252 2,111,378 1,648,101 2,273,675 8,052,755
----------- ----------- ----------- ---------- -----------
INVESTING ACTIVITIES
(Increase) decrease in
certificate of
deposit.............. (51,080) (1,472) 52,551 52,551 --
Purchases of
investment
securities........... (3,040,166) (274,146) (163,216) (162,014) (54,315)
Proceeds from sales of
investment
securities........... 1,183,303 445,467 -- -- --
Purchases of property
and equipment........ (1,204,907) (2,596,060) (869,954) (500,979) (9,460,885)
Proceeds from sale of
equipment............ -- 1,500 4,265 4,265 --
Payments for
deposits............. (1,022) -- -- -- --
Purchase of customer
list................. -- -- -- -- (118,000)
Payments for
organizational
costs................ -- -- -- -- (4,650)
Payments for patent
application costs.... (97,518) (39,185) (85,146) (47,079) (122,923)
----------- ----------- ----------- ---------- -----------
Net cash used in invest-
ing activities......... (3,211,390) (2,463,896) (1,061,500) (653,256) (9,760,773)
----------- ----------- ----------- ---------- -----------
</TABLE>
F-6
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ----------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Principal payments on
long-term debt and
notes payable........ $ (83,090) $(2,163,883) $ (604,683) $ (490,446) $(2,004,152)
Principal payments
under capital lease
obligations.......... (4,771) (3,478) (3,550) (2,633) (1,256)
Proceeds from
borrowings under
long-term debt and
notes payable........ 1,000,000 3,720,000 -- -- 5,000,000
Payment for deferred
financing costs...... (1,750) -- -- -- 36,930
Disbursements on notes
receivable........... -- -- -- -- (100,000)
Proceeds from sale of
common stock......... 2,075,573 24,687 23,595 22,769 345,997
---------- ----------- ---------- ---------- -----------
Net cash provided by
(used in) financing
activities............. 2,985,962 1,577,326 (584,638) (470,310) 3,277,519
---------- ----------- ---------- ---------- -----------
Increase (decrease) in
cash and cash
equivalents............ (10,176) 1,224,808 1,963 1,150,109 1,569,501
Cash and cash
equivalents at
beginning of period.... 44,923 34,747 1,259,555 1,259,555 1,261,518
---------- ----------- ---------- ---------- -----------
Cash and cash
equivalents at end of
period................. $ 34,747 $ 1,259,555 $1,261,518 $2,409,664 $ 2,831,019
========== =========== ========== ========== ===========
NONCASH ITEMS:
Common stock issued
for purchase of
customer list........ $ -- $ -- $ -- $ -- $ 100,000
Common stock issued
for relocation
incentive............ $ -- $ -- $ -- $ -- $ 200,000
Property acquired
under capital lease.. $ 10,059 $ -- $ -- $ -- $ --
Increase (decrease) in
net unrealized gain
on securities
available-for-sale,
net of tax........... $ 30,067 $ (6,422) $ 30,858 $ (19,378) $ 15,878
ADDITIONAL DISCLOSURES
RELATIVE TO CASH FLOWS:
Interest paid......... $ 53,882 $ 120,058 $ 175,616 $ 133,987 $ 176,865
Income taxes paid..... $ 153,643 $ 91,800 $1,637,921 $ 734,421 $ 4,648,499
Property and equipment
depreciation
expense.............. $ 124,395 $ 368,738 $ 684,909 $ 504,379 $ 717,680
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is an integrated chemistry outsourcing company that offers a
broad range of chemistry research and development services to pharmaceutical
and biotechnology companies involved in drug discovery and development. The
Company offers services traditionally provided by the chemistry divisions
within pharmaceutical companies, including medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing. In
addition to these contract services, the Company conducts a limited amount of
proprietary research and development.
Basis of Consolidation
The consolidated financial statements include the accounts of Albany
Molecular Research, Inc. and its wholly-owned subsidiary, Albany Molecular
Research Export, Inc. (formed in April 1998). All intercompany balances and
transactions have been eliminated during consolidation.
Use of Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results can vary from these estimates.
Revenue Recognition
The Company recognizes net revenue from its fixed fee type contracts on a
percentage-of-completion basis, and other types of contracts on a per diem
basis as work is performed. In general, provisions include predetermined
payment schedules, or the submission of appropriate billing detail
establishing prerequisites for billings. Unbilled services arise when services
have been rendered under these contracts but customers have not been billed.
Similarly, unearned income represents prebilling for services that have not
yet been billed. Any losses on contracts are recorded when they are
determinable and estimable.
The Company recognizes revenue from licensing fees, milestones and royalties
when the earnings process has been deemed completed and any uncertainties
regarding potential revenue have been resolved.
Credit Risk
The Company provides credit in the normal course of business to its
customers, substantially all of which are in the pharmaceutical and
biotechnology industries. To reduce credit risk, the Company generally
requires advance payments on contracts.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method and consist primarily of organic chemicals used as raw
materials in the production process.
F-8
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over their estimated lives, generally three to seven years. The
Company utilizes accelerated depreciation methods for tax purposes over the
minimum statutory period allowed.
Organization Costs
Organization costs are amortized over 60 months.
Patents and Patent Application Costs
The costs of patents issued and acquired are being amortized on the
straight-line method over the estimated remaining lives of the issued patents,
generally 17 years. Patent application and processing costs are capitalized
and will be amortized over the estimated life once a patent is acquired or
expensed in the period the patent application is denied.
Licensing Rights
The costs of licensing rights are being amortized on the straight-line
method over the term of the license agreement, but not in excess of fifteen
years. Licensing costs are accumulated and amortized once the license
agreement is executed. Licensing costs are written off in the period the
licensing rights are canceled or are determined not to provide future
benefits.
Deferred Financing Costs
The costs of acquiring long-term debt obligations are being amortized on the
straight-line method over the term of the obligation, ranging from five to
seven years.
Research and Development
Research and development costs are charged to operations when incurred and
are included in operating expenses.
Income Taxes
The Company applies the asset/liability method of accounting for income
taxes, in which deferred income taxes are recognized for the tax consequences
of temporary differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Investments
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Marketable investment securities
at December 31, 1997 consisted of state and political subdivision obligations,
corporate debt obligations, and bond mutual funds, with the Company holding
all of these securities as available-for-sale.
F-9
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
Unrealized holding gains and losses, net of related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of shareholders' equity until realized. Interest income is
recognized when earned. Realized gains and losses for securities classified as
available-for-sale are included in earnings and are determined using the
specific identification method.
Interim Financial Data (unaudited)
The interim financial data for the nine months ended September 30, 1997 and
1998 included in the accompanying financial statements is unaudited; however,
in the opinion of the Company, the interim financial data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods. The interim financial
data are not necessarily indicative of the results of operations for a full
fiscal year.
Comprehensive Income
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." The statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income includes the
reported net income of a company adjusted for items that are currently
accounted for as direct entries to equity, such as the mark-to-market
adjustment on securities available for sale, foreign currency items and
minimum pension liability adjustments. In the case of the Company,
comprehensive income represents net income plus other comprehensive income,
which consists of the net change in unrealized gains and losses on securities
available for sale for the period. Accumulated other comprehensive income
represents the net unrealized gain on securities available-for-sale as of the
balance sheet dates. All periods for which the Company has presented financial
information contain the prescribed disclosures.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the presentation in the 1997 financial statements.
Preferred Stock
The Company's preferred stock is convertible in connection with and subject
to an initial public offering by the Company at 20 preferred shares to nine
common shares. For purposes of diluted earnings per share calculations, all
preferred shares are assumed converted to their common stock equivalents.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting by public companies
about operating segments of their business. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This Statement is effective for periods beginning
after December 15, 1997. Management does not anticipate that the adoption of
this Statement will have a material effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments, including certain
F-10
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
derivative instruments embedded in other contracts, and for hedging
activities. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management does not anticipate that the
adoption of this Statement will have a material effect on the Company's
financial statements.
In 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" (SOP 98-5). SOP 98-5 requires that the costs of start-up
activities including organizational costs, be expensed as incurred. SOP 98-5
is effective for financial statements for fiscal years beginning after
December 15, 1998. Management does not anticipate that the adoption of this
Statement will have a material effect on the Company's financial statements.
2. LEASE COMMITMENTS
The Company has a long-term operating lease for its office and laboratory
facilities with a shareholder of the Company. The present lease commenced in
December 1997 and expires in November 2007, with average monthly rental
payments of $23,000. The lease contains a ten-year renewal option with six
months' prior notice. The Company currently holds an option to purchase the
property for $3.5 million. The Company is responsible for paying for the cost
of utilities, operating costs, and property taxes.
The Company also leases laboratory facilities under a separate agreement
with a non-related party that expires June 2001 at a monthly rate of $15,000.
Minimum future payments under noncancelable operating leases as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998......................................................... $ 409,687
1999......................................................... 465,103
2000......................................................... 464,488
2001......................................................... 373,670
2002......................................................... 283,652
Thereafter................................................... 1,353,435
----------
Total minimum future lease payments.......................... $3,350,035
==========
</TABLE>
Rental expense amounted to approximately $93,000, $173,000 and $240,000
during 1995, 1996 and 1997, respectively, and $181,000 and $433,000, for the
nine months ended September 30, 1997 and 1998, respectively.
F-11
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
3. LONG-TERM DEBT
Long-term debt is comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
<S> <C> <C> <C>
Revolving line of credit from a bank with
a total commitment of $15 million.The
revolving line of credit will convert to
a five year term loan in July 2001.
Interest on the credit facility is
payable monthly at either the bank's
prime rate less 200 basis points or the
London Interbank Offer Rate (LIBOR) plus
50 basis points (the interest rate on the
credit facility was 6.14% at September
30, 1998). Principal payments are due
after the facilities' conversion to the
term loan................................ $ -- $ -- $5,000,000
Note payable to a bank in monthly
installments of $29,762, through October
2003, plus interest at LIBOR plus 1.75%
(7.44% at December 31, 1997) ............ 2,440,478 1,933,333 --
Note payable to the New York Job
Development Authority in monthly
installments of $4,747 including interest
at 5.25%, through June 1, 2001........... 227,841 181,747 145,557
Subordinated note payable to the Albany
Local Development Corporation in monthly
installments of $2,970 including interest
at 7.00%, through December 1, 2000....... 124,035 96,194 73,999
Subordinated note payable to the Albany
Local Development Corporation in monthly
installments of $2,115 including interest
at 7.00%, through June 1, 1998........... 36,037 12,434 --
---------- ---------- ----------
Total long-term debt...................... 2,828,391 2,223,708 5,219,556
Less payments due within one year......... 454,683 448,005 81,979
---------- ---------- ----------
Total long-term debt, net................. $2,373,708 $1,775,703 $5,137,577
========== ========== ==========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997 and thereafter, are as follows:
<TABLE>
<S> <C>
1998.......................................................... $ 448,005
1999.......................................................... 440,341
2000.......................................................... 445,409
2001.......................................................... 385,191
2002.......................................................... 357,143
Thereafter.................................................... 147,619
----------
Total long-term debt........................................ $2,223,708
==========
</TABLE>
In connection with the above bank notes, the Company has entered into a
general security agreement in which all assets now owned and hereafter
acquired by the Company collateralize the notes.
4. NOTE PAYABLE
The Company maintained a line of credit from a bank with unused borrowing
capacity of $500,000 at December 31, 1997. The line is collateralized by a
first security interest in all accounts receivable and inventory. Interest is
payable monthly at LIBOR, plus 1.75% (7.44% at December 31, 1997). Borrowings
under the line of credit are payable on demand.
F-12
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
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,
1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions.... $1,619,987 $39,409 $ -- $1,659,396
Bond mutual funds.......... 75,503 -- -- 75,503
---------- ------- ------- ----------
$1,695,490 $39,409 $ -- $1,734,899
========== ======= ======= ==========
</TABLE>
Proceeds from the sale of investment securities were $1,183,303 and $445,467
in 1995 and 1996, respectively, resulting in realized gains of $6,053 and
$3,895 for the years then ended.
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale securities by major security type at December 31,
1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions.... $1,619,987 $88,726 $ -- $1,708,713
Corporate debt
obligations............... 158,073 2,113 -- 160,186
Bond mutual funds.......... 80,647 -- -- 80,647
---------- ------- ------- ----------
$1,858,707 $90,839 $ -- $1,949,546
========== ======= ======= ==========
</TABLE>
There were no sales of available-for-sale securities during 1997.
Maturities of debt securities classified as available-for-sale at December
31, 1997 were as follows:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
<S> <C> <C>
Due after one year through five years............. $ 611,598 $ 631,857
Due after five years through ten years............ 770,097 812,375
Due after ten years............................... 396,365 424,667
---------- ----------
Total debt securities............................. $1,778,060 $1,868,899
========== ==========
</TABLE>
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value for available-for-sale securities by major security type at September
30, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS
GROSS UNREALIZED
AMORTIZED UNREALIZED HOLDING
COST HOLDING GAINS LOSSES FAIR VALUE
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions........ $1,671,577 $114,552 $ -- $1,786,129
Corporate debt obligations..... 158,073 2,749 -- 160,822
Bond mutual funds.............. 83,375 -- -- 83,375
---------- -------- ------- ----------
$1,913,025 $117,301 $ -- $2,030,326
========== ======== ======= ==========
</TABLE>
There were no sales of investment securities during the nine month periods
ended September 30, 1997 and 1998.
F-13
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
6. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Current:
Federal..................... $146,692 $437,800 $ 916,288 $910,110 $4,917,473
State....................... 11,982 34,749 70,572 58,216 429,255
-------- -------- --------- -------- ----------
158,674 472,549 986,860 968,326 5,346,728
-------- -------- --------- -------- ----------
Deferred:
Federal..................... 94,131 159,052 102,117 83,784 72,869
State....................... -- 5,875 (142,036) (129,736) 244,741
-------- -------- --------- -------- ----------
94,131 164,927 (39,919) (45,952) 317,610
-------- -------- --------- -------- ----------
Total income tax expense.... $252,805 $637,476 $ 946,941 $922,374 $5,664,338
======== ======== ========= ======== ==========
</TABLE>
The differences between the income tax expense and income taxes computed
using a federal statutory rate of 34% for the years ended December 31, 1995,
1996, and 1997, and for the nine months ended September 30, 1997, and 35% for
the nine months ended September 30, 1998 were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ----------------------
1995 1996 1997 1997 1998
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Amount computed using
statutory rate......... $248,999 $636,230 $1,066,293 $1,040,976 $5,237,574
Increase (reduction) in
taxes resulting from:
Tax-free interest
income............... (23,254) (31,940) (30,171) (22,497) (23,260)
Benefit of foreign
sales corporation -- -- -- -- (35,520)
Alternative minimum
tax.................. 5,785 (5,540) -- -- --
State taxes, net of
federal benefit...... 7,668 22,914 46,577 38,422 438,097
State investment tax
credits.............. -- -- (161,858) (161,858) --
Others, net........... 13,607 15,812 26,100 27,331 47,447
-------- -------- ---------- ---------- ----------
Total income tax
expense.............. $252,805 $637,476 $ 946,941 $ 922,374 $5,664,338
======== ======== ========== ========== ==========
</TABLE>
Temporary differences giving rise to the Company's deferred tax liability
consist primarily of the excess of depreciation for tax purposes over the
amount for financial reporting purposes.
The Company had available New York State investment tax credits of
approximately $68,000 and $230,000, at December 31, 1996 and 1997,
respectively. These credits have a ten-year carryforward period, with
expiration dates ranging from 2002 to 2007.
At December 31, 1997, the Company had recorded a deferred tax asset of
approximately $230,000, representing New York State investment tax credits.
The estimated annual effective tax rate for the nine months ended September
30, 1998 includes the anticipated realization of these tax credits.
F-14
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
7. EMPLOYEE BENEFIT PLAN
The Company maintains a savings and profit sharing plan under section 401(k)
of the Internal Revenue Code covering all eligible employees. Employees must
complete six months of service and be over 20 1/2 years of age as of the
plan's entry dates. Participants may contribute up to 15% of their
compensation, limited to $9,500 per annum in 1997 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 $8,000,
$10,000 and $21,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Employer matching contributions were $17,000 and $39,000, for
the nine months ended September 30, 1997 and 1998, respectively.
8. STOCK OPTION PLAN
The Company has a 1992 Stock Option Plan, through which the Company may
issue incentive stock options or non-qualified stock options. Incentive stock
options granted to employees may be granted at prices not less than 100
percent of the fair market value at the date of option grant. Non-qualified
stock options may be granted to employees, directors, advisors, consultants
and other key persons of the Company at prices established at the date of
grant, and may be less than the fair market value at the date of grant. All
incentive stock options may be exercised at any time, after vesting, over a
ten-year period subsequent to the date of grant. Non-qualified stock option
terms will be established at the date of grant, but shall have a duration of
not more than ten years.
The fair value of each option granted is estimated on the grant date using
the Black-Scholes pricing model with the following weighted-average
assumptions used for grants in 1995, 1996 and 1997: no dividend yield for all
years; zero expected volatility for all years; risk-free interest rates of
5.69%, 6.80%, and 6.80%, respectively, and expected lives of five years and
four years for the incentive options for all years and three years and four
years for the non-qualified options for all years.
The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees" in accounting for its incentive and non-qualified stock
compensation plan. Accordingly, no compensation cost has been recognized for
either plan in 1995, 1996 or 1997. Had compensation cost been determined on
the basis of fair value pursuant to Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," net income would
have been reduced as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
NET INCOME
As reported................................... $479,546 $1,233,789 $2,189,215
======== ========== ==========
Pro forma..................................... $459,057 $1,208,938 $2,146,820
======== ========== ==========
EARNINGS PER SHARE
Basic as reported............................. $ 0.05 $ 0.12 $ 0.20
Diluted as reported........................... $ 0.04 $ 0.10 $ 0.18
Basic pro forma............................... $ 0.04 $ 0.11 $ 0.20
Diluted pro forma............................. $ 0.04 $ 0.10 $ 0.18
</TABLE>
F-15
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
Following is a summary of the status of incentive and non-qualified options
during 1995, 1996, and 1997:
<TABLE>
<CAPTION>
INCENTIVE NON-QUALIFIED
------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995......... 921,375 $0.21 652,500 $2.15
Granted.............................. 108,000 1.12 67,500 1.83
Exercised............................ (45,000) 0.11 -- --
Forfeited............................ -- -- -- --
--------- ----- ------- -----
Outstanding at December 31, 1995....... 984,375 $0.39 720,000 $2.13
========= ===== ======= =====
Options exercisable at December 31,
1995.................................. 606,375 $0.23 652,500 $2.15
========= ===== ======= =====
<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......... 984,375 $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....... 916,762 $0.39 736,875 $2.13
========= ===== ======= =====
Options exercisable at December 31,
1996.................................. 713,138 $0.22 652,500 $2.15
========= ===== ======= =====
<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......... 916,762 $0.39 736,875 $2.13
Granted.............................. 361,211 3.33 78,440 3.28
Exercised............................ (8,792) 0.29 -- --
Forfeited............................ (22,500) 2.99 -- --
--------- ----- ------- -----
Outstanding at December 31, 1997....... 1,246,681 $1.32 815,315 $2.23
========= ===== ======= =====
Options exercisable at December 31,
1997.................................. 812,348 $0.34 652,500 $2.00
========= ===== ======= =====
</TABLE>
F-16
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
Following is a summary of the status of employee incentive options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
----------- ------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.11 - 0.22 613,125 5.22 years $0.17 613,125 $ 0.17
0.56 91,223 5.83 years 0.55 91,223 0.55
1.12 108,000 7.58 years 1.12 108,000 1.12
1.90 - 2.18 50,625 8.36 years 1.93 -- --
2.99 - 3.60 383,708 9.51 years 3.31 -- --
</TABLE>
The Company estimates that based on a five-year vesting period at December
31, 1997, on a weighted average basis, approximately 87% of such options will
eventually vest.
Following is a summary of the status of non-qualified options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE RANGE NUMBER LIFE PRICE NUMBER PRICE
----------- ------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$0.22 22,500 1.52 years $0.22 22,500 $ 0.22
1.84 - 2.22 714,375 5.52 years 2.19 630,000 2.22
3.06 - 3.51 78,440 9.40 years 3.28 -- --
</TABLE>
The Company estimates that based on a three-year vesting period at December
31, 1997, on a weighted average basis, approximately 77% of such options will
eventually vest.
Any options issued to non-employees are expensed based upon the fair value
of the options.
9. ROYALTY & LICENSING ARRANGEMENT
On March 15, 1995, the Company entered into a License Agreement and a Stock
Purchase Agreement with Marion Merrell Dow Inc., now known as Hoechst Marion
Roussel, Inc. ("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 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".
F-17
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
In October 1996, the Company was awarded a patent in Australia that
satisfied the ex-U.S. "Process Manufacturing Claim" milestone. In accordance
with the terms of the Agreement, the Company received a milestone payment and
will receive a royalty on all sales of fexofenadine HCl in that country. 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 issued. Under the
procedures of the PTO, a patent is not issued until the PTO publishes it. The
patent was published in May 1998. Upon the patent publication, the Company was
entitled to and did receive the milestone payment for a U.S. "Process
Manufacturing Claim." Additionally, the Company is entitled to receive a
royalty on worldwide "Sales" of fexofenadine HCl from the date of patent
issuance until expiration of the patent. In January 1997, the Company was
awarded a patent that satisfied the U.S. "Intermediate Process Claim"
milestone. In accordance with the terms of the Agreement, the Company received
a milestone payment. There are no royalties associated with this patent.
In July 1997, the Company was awarded a New Zealand patent that satisfied
the ex-U.S. "Substantially Pure Claim" milestone. In accordance with the terms
of the Agreement, the Company received a milestone payment and will receive
royalties on all sales of fexofenadine HCl in that country.
10. CONCENTRATION OF BUSINESS
For the years ended December 31, 1997, 1996 and 1995, net contract revenue
from the Company's three largest customers represented approximately 29%, 11%
and 9% for 1997, 34%, 9% and 9% for 1996, and 42%, 14% and 8% for 1995, of
total net contract revenue for such year, respectively. For the nine months
ended September 30, 1998, net contract revenue from the Company's three
largest customers represented approximately 18%, 17% and 15% of total net
contract revenue, respectively. In the majority of circumstances, there are
agreements in force with these entities that guarantee the Company's continued
involvement in present research projects. However, there regularly exists the
possibility that the Company will have no further association with these
entities once these projects conclude.
11. TECHNOLOGY DEVELOPMENT INCENTIVE PLAN
In 1993, the Company adopted a Technology Development Incentive Plan to
provide a method to stimulate and encourage novel innovative technology
development. To be eligible to participate, the individual must be an
F-18
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
employee of the Company and must be the inventor or co-inventor of novel
technology that results in new revenues generated for, or by, the Company.
Eligible participants will share in awards based on ten percent (10%) of the
"Net Technology Revenue," as defined by the Plan.
In 1995, 1996 and 1997, the Company awarded Technology Incentive
Compensation to the inventor of the terfenadine carboxylic acid metabolite
technology. The inventor is a director, officer and shareholder of the
Company.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the financial
instruments is made in accordance with the requirements of 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 used the following methods and assumptions:
Cash and short-term investments, receivables, and accounts payable: The
carrying amounts reported in the consolidated balance sheets approximate their
fair value.
Available-for-sale securities and other investments: The fair value of all
securities and investments are estimated from market prices (see Note 5).
The carrying value of long-term debt including current portion, was
approximately $2,828,389 and $2,223,708 at December 31, 1996 and 1997,
respectively, and $5,219,556 at September 30, 1998 while the estimated fair
value was $2,811,378 and $2,208,293 at December 31, 1996 and 1997,
respectively, and $5,215,078 at September 30, 1998 based upon interest rates
available to the Company for issuance of similar debt with similar terms and
remaining maturities.
13. EARNINGS PER SHARE
The following table reconciles basic and diluted earnings per share
calculations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1996
------------------------------- -------------------------------
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
share.................. $479,546 10,262,766 $0.05 $1,233,789 10,706,214 $0.12
Dilutive effect of stock
options and grants..... -- 981,424 -- -- 1,034,349 --
Dilutive effect of
assumed preferred stock
conversion............. -- 45,000 -- -- 45,000 --
-------- ---------- ----- ---------- ---------- -----
Diluted earnings per
share.................. $479,546 11,289,190 $0.04 $1,233,789 11,785,563 $0.10
======== ========== ===== ========== ========== =====
</TABLE>
F-19
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
IS UNAUDITED)
Not included in the December 31, 1995 shares above were 805,500 shares that
were anti-dilutive for earnings per share purposes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------
AVERAGE PER SHARE
NET INCOME SHARES AMOUNT
---------- ---------- ---------
<S> <C> <C> <C>
Basic earnings per share................... $2,189,215 10,760,827 $0.20
Dilutive effect of stock options and
grants.................................... -- 1,207,798 --
Dilutive effect of assumed preferred stock
conversion................................ -- 45,000 --
---------- ---------- -----
Diluted earnings per share................. $2,189,215 12,013,625 $0.18
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------------------- -------------------------------
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
share.................. $2,139,319 10,759,312 $0.20 $9,300,159 10,842,259 $0.86
Dilutive effect of stock
options and grants..... -- 1,142,306 -- -- 1,366,505 --
Dilutive effect of
assumed preferred stock
conversion............. -- 45,000 -- -- 45,000 --
---------- ---------- ----- ---------- ---------- -----
Diluted earnings per
share.................. $2,139,319 11,946,618 $0.18 $9,300,159 12,253,764 $0.76
========== ========== ===== ========== ========== =====
</TABLE>
Not included in the September 30, 1998 shares above were 174,375 shares that
were anti-dilutive for earnings per share purposes.
14. NOTES RECEIVABLE
The notes receivable represents advances to two senior officers of the
Company. The notes receivable and accrued interest will not be repaid provided
the officers remain in the employ of the Company. If employment is terminated
within the five year amortization period, a pro-rata portion of the principal
and interest shall be repayable to the Company.
15. SUBSEQUENT EVENTS
On November 30, 1998, the Board of Directors approved a 3-for-2 split of the
Company's common stock that was effective on that date. Also, in connection
with the filing of a registration statement with the Securities and Exchange
Commission for an initial public offering of the Company's common stock, the
Company will effect a reincorporation by merger prior to the effective date of
such registration statement. In connection with such reincorporation, each
share of outstanding common stock of Albany Molecular Research, Inc.
(incorporated in New York) will be exchanged for 1-1/2 shares of common stock
of a new company to be incorporated in Delaware. All share and per share
information included in the accompanying financial statements have been
restated to reflect the 3-for-2 stock split and the reincorporation by merger.
On October 28, 1998, the Company entered into a severance and stock
repurchase agreement with its former chief financial officer ("Former CFO").
In exchange for a release of any and all claims against the Company, the
Former CFO accepted a financial package that included a severance component
equal to one-years' base salary and the prior years' bonus. The Company also
agreed to vest all currently unexercisable stock options of the Former CFO and
to repurchase the shares represented by these options. The Former CFO agreed
to exchange all of his outstanding shares and the shares that were represented
by all of his outstanding stock options for a purchase price of approximately
$9.9 million. In total, the Company repurchased 1,131,903 shares of Common
Stock. The Former CFO received a $2.0 million initial payment together with a
five-year note payable for the remainder of the consideration, with principal
due in annual installments and interest due in quarterly installments at the
prime rate (7.75% at November 30, 1998).
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 25
Management............................................................... 37
Certain Transactions..................................................... 45
Principal Stockholders................................................... 46
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 54
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,200,000 SHARES
[ALBANY MOLECULAR RESEARCH, INC. LOGO APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
ING BARING FURMAN SELZ LLC
HAMBRECHT & QUIST
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- -----------
<S> <C>
SEC Registration Fee............................................ $ 14,095
NASD Filing Fee................................................. 4,801
Nasdaq Listing Fee.............................................. 75,625
Accounting Fees and Expenses.................................... 200,000
Legal Fees and Expenses......................................... 450,000
Printing Expenses............................................... 150,000
Blue Sky Qualification Fees and Expenses........................ 10,000
Transfer Agent's Fee............................................ 25,000
Miscellaneous................................................... 70,479
-----------
TOTAL......................................................... $ 1,000,000
===========
</TABLE>
- ----------
(1) The amounts set forth above, except for the SEC, NASD and Nasdaq fees, are
in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, Article VII of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the director derived an improper personal
benefit. In addition, the Certificate provides that if the Delaware General
Corporation Law is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Article V of the Company's Amended and Restated By-laws provides for
indemnification by the Company of its officers and certain non-officer
employees under certain circumstances against expenses (including attorneys
fees, judgments, fines and amounts paid in settlement) reasonably incurred in
connection with the defense or settlement of any threatened, pending or
completed legal proceeding in which any such person is involved by reason of
the fact that such person is or was an officer or employee of the Company if
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to criminal actions or proceedings, if such person had no reasonable
cause to believe his or her conduct was unlawful.
The Company has entered into indemnification agreements with each of its
directors reflecting the provisions of its By-laws and requiring the
advancement of expenses in proceedings involving such directors in most
circumstances.
Under Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto,
the Underwriters have agreed to indemnify, under certain conditions, the
Company, its directors, certain officers and persons who control the Company
within the meaning of the Securities Act against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by the Registrant for the past three years
beginning in July 1995. Further included is the consideration, if any,
received by the Registrant for such shares, and information relating to the
section of the Securities Act of 1933, as amended (the "Securities Act"), or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed. The following transactions give effect to the
Company's 2.25-for-1 stock split of its Common Stock, which will become
effective in connection with the offering.
(1) In August 1995, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 108,000 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(2) In October 1995, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 67,500 shares of
the Registrant's Common Stock to directors of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(3) In February 1996, the Registrant issued 78,750 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $11,550 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(4) In May 1996, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 67,500 shares of
the Registrant's Common Stock to employees and directors of the
Registrant in reliance upon the exemption from registration under Rule
701 promulgated under the Securities Act.
(5) In May 1996, the Registrant issued 45,113 shares of the Registrant's
Common Stock upon the exercise of outstanding stock options for an
aggregate exercise price of $5,063 to employees of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(6) In July 1996, the Registrant issued 33,750 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $4,950 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(7) In July 1996, the Registrant issued 5,625 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $3,125 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(8) In October 1996, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 22,500 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(9) In December 1996, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 22,500 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(10) In January 1997, pursuant to stock option agreements, the Registrant
granted options to purchase an aggregate of 34,115 shares of the
Registrant's Common Stock to employees of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(11) In January 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 84,348 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
II-2
<PAGE>
(12) In January 1997, the Registrant issued 113 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $63 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(13) In February 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 22,500 shares of
the Registrant's Common Stock to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(14) In April 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 16,875 shares of
the Registrant's Common Stock to directors of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(15) In May 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 67,500 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(16) In May 1997, the Registrant issued 2,153 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $1,196 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(17) In June 1997, the Registrant granted an aggregate of 6,647 shares of the
Registrant's Common Stock to directors of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(18) In July 1997, the Registrant issued 900 shares of the Registrant's Common
Stock upon the exercise of an outstanding stock option for an aggregate
exercise price of $500 to an employee of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(19) In September 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase 22,500 shares of the Registrant's
Common Stock to an employee of the Registrant in reliance upon the
exemption from registration under Rule 701 promulgated under the
Securities Act.
(20) In December 1997, pursuant to stock option agreements, the Registrant
granted options to purchase an aggregate of 27,450 shares of the
Registrant's Common Stock to employees of the Registrant in reliance upon
the exemption from registration under Rule 701 promulgated under the
Securities Act.
(21) In December 1997, under the Registrant's 1992 Stock Option Plan, the
Registrant granted options to purchase an aggregate of 164,363 shares of
the Registrant's Common Stock to employees of the Registrant in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
(22) In December 1997, the Registrant issued 5,625 shares of the Registrant's
Common Stock upon the exercise of an outstanding stock option for an
aggregate exercise price of $825 to an employee of the Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(23) In February 1998, the Registrant issued 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.
(24) 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.
(25) 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.
II-3
<PAGE>
(26) 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.
(27) 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 Registrant in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(28) 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.
(29) 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.
(30) 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.
(31) In May 1997, under the Registrant's 1992 Stock Option Plan, 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.
(32) 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.
(33) 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.
(34) 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.
(35) 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.
(36) 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.
(37) 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.
(38) 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.
II-4
<PAGE>
(39) 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.
(40) 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
+3.1 Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation (to be filed
immediately prior to effectiveness of the Registration Statement).
3.3 Form of Restated Certificate of Incorporation (to be filed following
the closing of the offering referred to in the Registration Statement).
+3.4 By-Laws.
+3.5 Form of Amended and Restated By-laws (to be effective upon
effectiveness of the Registration Statement).
3.6 Form of Certificate of Amendment of Certificate of Incorporation.
+4.1 Specimen certificate for shares of Common Stock, $0.01 par value, of
the Registrant.
+5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the
securities being offered.
+10.1 Lease dated as of October 9, 1992, as amended, by and between the
Registrant and Hoffman Enterprises.
10.2 1998 Stock Option and Incentive Plan of the Registrant.
+10.3 Amended and Restated 1992 Stock Option Plan of the Registrant.
10.4 1998 Employee Stock Purchase Plan of the Registrant.
+10.5 Form of Indemnification Agreement between the Registrant and each of
its directors.
+10.6 Form of Employee Incentive Stock Option Certificate and Agreement for
Amended and Restated 1992 Stock Option Plan.
+10.7 License Agreement dated March 15, 1995 by and between the Registrant
and Marion Merrell Dow Inc. (now Hoechst Marion Roussel, Inc.)
(excluding certain portions which have been omitted as indicated based
upon a request for confidential treatment, but which have been filed
separately with the Commission).
+10.8 Principles of Cooperation Between Albany Molecular Research and Cambrex
Corporation dated February 1, 1997 by and between the Registrant and
Cambrex Corporation (excluding certain portions which have been omitted
as indicated based upon a request for confidential treatment, but which
have been filed separately with the Commission).
+10.9 Agreement dated December 16, 1997 by and between the Registrant and Eli
Lilly and Company (excluding certain portions which have been omitted
as indicated based upon a request for confidential treatment, but which
have been filed separately with the Commission).
+10.10 Technology Development Incentive Plan.
+10.11 Form of Employment Agreement between the Registrant and Thomas E.
D'Ambra, Ph.D.
+10.12 Form of Employment Agreement between the Registrant and Harold Meckler,
Ph.D.
+10.13 Form of Employment Agreement between the Registrant and Michael P.
Trova, Ph.D.
+10.14 Form of Employee Innovation, Proprietary Information and Post-
Employment Activity Agreement between the Registrant and each of its
Named Executive Officers.
+10.15 Letter Agreement between the Registrant and Harold M. Armstrong, Jr.
10.16 Form of Employment Agreement between the Registrant and Donald E.
Kuhla, Ph.D.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
+21.1 Subsidiaries of the Registrant.
+23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
23.2 Consent of KPMG LLP.
+23.3 Consent of Ostrolenk, Faber, Gerb & Soffen, LLP.
+24.1 Powers of Attorney (included on signature pages).
+27.1 Financial Data Schedule.
</TABLE>
- ----------
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because the
required information is given in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF ALBANY, STATE OF NEW YORK, ON JANUARY 7, 1999.
Albany Molecular Research, Inc.
/s/ Thomas E. D'Ambra, Ph.D.
By: _________________________________
Thomas E. D'Ambra, Ph.D.
Chairman and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE DATE
/s/ Thomas E. D'Ambra, Ph.D. Chairman of the January 7, 1999
- ------------------------------------- Board, Chief
THOMAS E. D'AMBRA, PH.D. Executive Officer
and Director
(Principal
Executive Officer)
* President and January 7, 1999
- ------------------------------------- Director
DONALD E. KUHLA, PH.D.
/s/ Rodney A. Tillinghast Controller and January 7, 1999
- ------------------------------------- Acting
RODNEY A. TILLINGHAST Chief Financial
Officer (Principal
Accounting Officer)
* Vice President, January 7, 1999
- ------------------------------------- Senior Research
CHESTER J. OPALKA Chemist and
Director
* Director January 7, 1999
- -------------------------------------
ANTHONY P. TARTAGLIA, M.D.
* Director January 7, 1999
- -------------------------------------
FRANK W. HAYDU III
*By:/s/ Thomas E. D'Ambra, Ph.D.
----------------------------------
THOMAS E. D'AMBRA, PH.D.
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
+3.1 Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation (to be
filed immediately prior to effectiveness of the Registration
Statement).
3.3 Form of Restated Certificate of Incorporation (to be filed
following the closing of the offering referred to in the
Registration Statement).
+3.4 By-Laws.
+3.5 Form of Amended and Restated By-laws (to be effective upon
effectiveness of the Registration Statement).
3.6 Form of Certificate of Amendment of Certificate of
Incorporation.
+4.1 Specimen certificate for shares of Common Stock, $0.01 par
value, of the Registrant.
+5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the
securities being offered.
+10.1 Lease dated as of October 9, 1992, as amended, by and between
the Registrant and Hoffman Enterprises.
10.2 1998 Stock Option and Incentive Plan of the Registrant.
+10.3 Amended and Restated 1992 Stock Option Plan of the Registrant.
10.4 1998 Employee Stock Purchase Plan of the Registrant.
+10.5 Form of Indemnification Agreement between the Registrant and
each of its directors.
+10.6 Form of Employee Incentive Stock Option Certificate and
Agreement for Amended and Restated 1992 Stock Option Plan.
+10.7 License Agreement dated March 15, 1995 by and between the
Registrant and Marion Merrell Dow Inc. (now Hoechst Marion
Roussel, Inc.) (excluding certain portions which have been
omitted as indicated based upon a request for confidential
treatment, but which have been filed separately with the
Commission).
+10.8 Principles of Cooperation Between Albany Molecular Research and
Cambrex Corporation dated February 1, 1997 by and between the
Registrant and Cambrex Corporation (excluding certain portions
which have been omitted as indicated based upon a request for
confidential treatment, but which have been filed separately
with the Commission).
+10.9 Agreement dated December 16, 1997 by and between the Registrant
and Eli Lilly and Company (excluding certain portions which have
been omitted as indicated based upon a request for confidential
treatment, but which have been filed separately with the
Commission).
+10.10 Technology Development Incentive Plan.
+10.11 Form of Employment Agreement between the Registrant and Thomas
E. D'Ambra, Ph.D.
+10.12 Form of Employment Agreement between the Registrant and Harold
Meckler, Ph.D.
+10.13 Form of Employment Agreement between the Registrant and Michael
P. Trova, Ph.D.
+10.14 Form of Employee Innovation, Proprietary Information and Post-
Employment Activity Agreement between the Registrant and each of
its Named Executive Officers.
+10.15 Letter Agreement between the Registrant and Harold M. Armstrong,
Jr.
10.16 Form of Employment Agreement between the Registrant and Donald
E. Kuhla, Ph.D.
+21.1 Subsidiaries of the Registrant.
+23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
hereto).
23.2 Consent of KPMG LLP.
+23.3 Consent of Ostrolenk, Faber, Gerb & Soffen, LLP.
+24.1 Powers of Attorney (included on signature pages).
+27.1 Financial Data Schedule.
</TABLE>
- ----------
+ Previously filed.
<PAGE>
EXHIBIT 1.1
2,200,000 SHARES
ALBANY MOLECULAR RESEARCH, INC.
COMMON STOCK
(Par VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
----------------------
[INSERT DATE]
ING BARING FURMAN SELZ LLC
HAMBRECHT & QUIST
As Representatives of the
several Underwriters
c/o ING Baring Furman Selz LLC
230 Park Avenue
New York, New York 10169
Dear Sirs:
1. INTRODUCTION. Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell to the several
Underwriters named in Schedule I hereto (the "Underwriters"), for which ING
Baring Furman Selz LLC and Hambrecht & Quist are acting as representatives (the
"Representatives"), an aggregate of 2,200,000 shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock"). The 2,200,000 shares of
Common Stock to be sold by the Company are referred to herein as the "Firm
Shares." The Company also proposes to issue and sell to the several
Underwriters an aggregate of not more than 330,000 additional shares of Common
Stock (the "Additional Shares"), if requested by the Underwriters in accordance
with Section 9 hereof. The Firm Shares and the Additional Shares are
collectively referred to herein as the "Shares." The words "you" and "your"
refer to the Representatives of the Underwriters.
The Company hereby agrees with the several Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES.
The Company represents, warrants and agrees with each of the
Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-58795)
under the Securities Act of 1933 as amended (the "Act"), with respect to
the Shares, including a
<PAGE>
form of prospectus subject to completion, has been prepared by the Company
in conformity with the requirements of the Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
thereunder (the "Rules and Regulations"). Such registration statement has
been filed with the Commission under the Act, and one or more amendments to
such registration statement may also have been so filed. After the
execution of this Agreement, the Company shall file with the Commission
either (A) if such registration statement, as it may have been amended, has
been declared by the Commission to be effective under the Act, a prospectus
in the form most recently included in an amendment to such registration
statement filed with the Commission (or, if no such amendment shall have
been filed, in such registration statement), with such insertions and
changes as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act as shall have been provided to and approved by the
Representatives prior to the filing thereof, or (B) if such registration
statement, as it may have been amended, has not been declared by the
Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has
been furnished to and approved by the Representatives prior to the filing
thereof. As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto;
the Registration Statement shall be deemed to include any information
omitted therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined) and shall also mean any registration
statement filed pursuant to Rule 462(b) under the Act; the term
"Preliminary Prospectus" means each prospectus subject to completion
contained in such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto or filed pursuant to Rule
424(a) under the Act at the time it was or is declared effective); and the
term "Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required to
be filed pursuant to said Rule 424(b), such term means the prospectus
included in the Registration Statement.
(ii) The Company has not received any order preventing or
suspending the use of any Preliminary Prospectus and the Company has not
received any notice that the Commission has instituted nor, to the
Company's knowledge, has the Commission threatened to institute any
proceedings with respect to such an order. When any Preliminary Prospectus
was filed with the Commission it (A) contained all statements required to
be stated therein in accordance with, and complied in all material respects
with the requirements of the Act and the Rules and Regulations and (B) did
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto was or is declared
effective, it (A) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of the Act and the Rules and
Regulations and (B) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus and when any
amendment or supplement thereto is filed with the Commission pursuant to
Rule
2
<PAGE>
424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement and when any
amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at all times subsequent thereto up to and
including the Closing Date (as defined in Section 3 hereof) and the Option
Closing Date (as defined in Section 9 hereof), the Prospectus, as amended
or supplemented at any such time, (A) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of, the Act
and the Rules and Regulations and (B) did not or will not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (ii) shall not apply to (A) statements or
omissions made in any Preliminary Prospectus which have been corrected in a
subsequent Preliminary Prospectus or the Prospectus or (B) statements or
omissions made in any Preliminary Prospectus, the Registration Statement or
any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon, and in conformity with, information furnished in
writing to the Company by or on behalf of the Underwriters through the
Representatives expressly for use therein.
(iii) Each of the Company and its subsidiaries (the
"Subsidiaries") (A) is a duly incorporated and validly existing corporation
in good standing under the laws of its jurisdiction of incorporation, with
corporate power and corporate authority to own or lease its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus); and (B) is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction (x) in
which the conduct of its business requires such qualification (except for
those jurisdictions in which the failure so to qualify has not had and will
not have a Material Adverse Effect (as hereinafter defined)) and (y) in
which it owns or leases property. "Material Adverse Effect" means, when
used in connection with the Company or its Subsidiaries, any development,
change or effect that is materially adverse to the business, properties,
assets, net worth, condition (financial or other) or results of operations
of the Company and its Subsidiaries taken as a whole.
(iv) The Company has the duly authorized and validly outstanding
capitalization set forth under the caption "Capitalization" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, based on the
assumptions and including the exceptions set forth therein and the
footnotes thereto. The capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus). The outstanding shares of Common Stock have been duly
authorized and validly issued by the Company and are fully paid and
nonassessable. Except as created hereby or described in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no outstanding options, warrants, rights or other
arrangements requiring the Company or any subsidiary at any time to issue
any capital stock. No holders of outstanding shares of capital stock of
the Company are entitled as such to any preemptive or other rights to
3
<PAGE>
subscribe for any of the Shares, other than those which have been waived or
satisfied, and neither the filing of the registration statement nor the
offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to, the registration of any securities of the Company. The Shares
have been duly authorized; on the Closing Date or the Option Closing Date
(as the case may be), after payment therefor in accordance with the terms
of this Agreement, (A) the Firm Shares and the Additional Shares to be sold
by the Company hereunder will be validly issued, fully paid and
nonassessable, and (B) good and marketable title to the Shares will pass to
the Underwriters on the Closing Date or the Option Closing Date (as the
case may be) free and clear of any lien, encumbrance, security interest,
claim or other restriction whatsoever. All the outstanding shares of
capital stock of each Subsidiary has been duly authorized and validly
issued, are fully paid and nonassessable and are owned directly by the
Company, free and clear of any lien, encumbrance, security interest, claim
or other restriction whatsoever. The Company has received, subject to
notice of issuance, approval to have the Shares quoted on the National
Market System of the National Association of Securities Dealers' Automated
Quotation System and the Company knows of no reason or set of facts which
is likely to adversely affect such approval.
(v) The consolidated financial statements and the related notes
and schedules thereto included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, in all material respects, the
consolidated financial condition, results of operations, stockholders'
equity and cash flows of the Company and its subsidiaries at the dates and
for the periods specified therein. Such financial statements and the
related notes and schedules thereto have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved (except as otherwise noted therein) and such financial
statements as are audited have been examined by KPMG Peat Marwick LLP, who
are independent public accountants within the meaning of the Act and the
Rules and Regulations, as indicated in their reports filed therewith. The
selected financial information set forth under the caption "Selected
Financial Data" in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) have been prepared on a
basis consistent with the consolidated financial statements of the Company
and its Subsidiaries.
(vi) The Company and each of its Subsidiaries have filed all
necessary federal, state and local income, franchise and other material tax
returns and have paid all taxes shown as due thereunder, and the Company
has no knowledge of any tax deficiency which is reasonably likely to be
assessed against the Company which, if so assessed, would have a Material
Adverse Effect.
(vii) The Company and each of its Subsidiaries maintain
insurance of the types and in amounts which they reasonably believe to be
adequate for their business in such amounts and with such deductibles as is
customary for companies in the same or similar business, all of which
insurance is in full force and effect.
4
<PAGE>
(viii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there is no action, suit, proceeding or investigation pending or, to the
Company's best knowledge, threatened before or by any court, regulatory
body or administrative agency or any other governmental agency or body,
domestic or foreign, which (A) questions the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, (B) is
required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings, if any, as are summarized in the
Registration Statement are accurately summarized in all material respects),
or (C) if decided adversely to the Company, would have a Material Adverse
Effect.
(ix) The Company has all requisite corporate, power and authority
to enter into this Agreement and to consummate the transactions provided
for herein. This Agreement has been duly authorized, executed and
delivered by the Company and, assuming it is a binding agreement of yours,
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to
or affecting the enforcement of creditors' rights and the application of
equitable principles relating to the availability of remedies and except as
rights to indemnity or contribution may be limited by federal or state
securities laws and the public policy underlying such laws), and none of
the Company's execution or delivery of this Agreement, its performance
hereunder, its consummation of the transactions contemplated herein, its
application of the net proceeds of the offering in the manner set forth
under the caption "Use of Proceeds" or the conduct of its business as
described in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), conflicts or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, causes or
will cause (or permits or will permit) the maturation or acceleration of
any liability or obligation or the termination of any right under, or
result in the creation or imposition of any lien, charge, or encumbrance
upon, any property or assets of the Company or any of its Subsidiaries
pursuant to the terms of (A) the certificate of incorporation or by-laws of
the Company or any of its Subsidiaries, (B) any indenture, mortgage, deed
of trust, voting trust agreement, stockholders' agreement, note agreement
or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them are or may be bound or to
which any of their respective property is or may be subject or (C) any
statute, judgment, decree, order, rule or regulation applicable to the
Company or any of its Subsidiaries of any government, arbitrator, court,
regulatory body or administrative agency or other governmental agency or
body, domestic or foreign, having jurisdiction over the Company, any of its
Subsidiaries or any of their respective activities or properties, except,
in the cases of clauses (B) and (C) above, for breaches, violations,
defaults or terminations which would not be reasonably likely to have a
Material Adverse Effect.
(x) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company or any
of its Subsidiaries is
5
<PAGE>
a party or by which any of them are or may be bound or to which any of
their assets, properties or businesses is or may be subject have been duly
and validly authorized, executed and delivered by the Company or such
Subsidiary, as the case may be, and, assuming such agreements are the
legal, valid, binding and enforceable agreements of the other parties
thereto, constitute the legal, valid and binding agreements of the Company
or such Subsidiary, as the case may be, enforceable against each of them in
accordance with their respective terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to enforcement of creditors' rights generally, and
general equitable principles relating to the availability of remedies, and
except as rights to indemnity or contribution may be limited by federal or
state securities laws and the public policy underlying such laws). The
descriptions in the Registration Statement of contracts and other documents
are accurate in all material respects and fairly present the information
required to be shown with respect thereto by the Act and the Rules and
Regulations, and there are no contracts or other documents which are
required by the Act or the Rules and Regulations to be described in the
Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have
been filed are complete and correct copies of the documents of which they
purport to be copies.
(xi) Subsequent to the most recent respective dates as of which
information is given in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and except as expressly
contemplated therein, neither the Company nor any of its Subsidiaries has
incurred, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent, purchased any of its
outstanding capital stock, paid or declared any dividends or other
distributions on its capital stock or entered into any material
transactions not in the ordinary course of business, and there has been no
material change in capital stock or debt or any material adverse change in
the business, properties, assets, net worth, condition (financial or
other), or results of operations of the Company and its Subsidiaries taken
as a whole. Neither the Company nor any of its Subsidiaries (or the manner
in which it any of them conducts its business) is in breach or violation
of, or in default under, any term or provision of (A) its certificate of
incorporation or bylaws, (B) any indenture, mortgage, deed of trust, voting
trust agreement, stockholders' agreement, note agreement or other agreement
or instrument to which it is a party or by which it is or may be bound or
to which any of its property is or may be subject, or any indebtedness, the
effect of which breach or default singly or in the aggregate may have a
Material Adverse Effect, or (C) any statute, judgment, decree, order, rule
or regulation applicable to the Company or any of its Subsidiaries or of
any arbitrator, court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its Subsidiaries or any of their respective
activities or properties and the effect of which breach or default singly
or in the aggregate would have a Material Adverse Effect.
(xii) No labor disturbance by the employees of the Company or
any of its Subsidiaries exists or is imminent which would have a Material
Adverse Effect.
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(xiii) Except as set forth in the Prospectus under the captions
"Risk Factors - Proprietary Technology; Unpredictability of Patent
Protection" and "Business - Patents and Proprietary Rights," (i) the
Company and its Subsidiaries own or possess valid and enforceable licenses
for all inventions, patents, patent applications, trademarks (registered or
unregistered), trademark applications, tradenames, copyrights,
manufacturing processes, formulae, trade secrets, know-how, and other
intangible property and assets necessary to the conduct of their business
now conducted as described in the Prospectus (collectively, "Intellectual
Property") and the Company does not know of any facts which would form a
reasonable basis for a claim that the Company or any of its Subsidiaries do
not own or possess valid and enforceable licenses for all Intellectual
Property necessary to the conduct of their business proposed to be
conducted as described in the Prospectus; (ii) the Company has no knowledge
that it or any of its Subsidiaries lack or will be unable to obtain any
rights or licenses to use any of the Intellectual Property; (iii) the
Company does not know of any third parties who have or will be able to
establish rights to any of the Intellectual Property; (iv) to the Company's
knowledge, there is no infringement by third parties of any of the
Intellectual Property; (v) there is no pending or, to the Company's
knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's or any Subsidiary's rights of title or other
interest in or to any Intellectual Property, and the Company does not know
of any facts which would form a reasonable basis for any such claim; (vi)
except as disclosed in the Prospectus, there is no pending, or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the validity and scope of any Intellectual Property, and the
Company does not know of any facts which would form a reasonable basis for
any such claim; (vii) there is no pending or, to the Company's knowledge,
threatened action, suit, proceeding or claim by others that the Company or
any of its Subsidiaries or any of their products or processes infringe or
otherwise violate any patent, trademark, copyright, trade secret or other
proprietary right of others, and the Company is unaware of any facts which
would form a reasonable basis for any such claim; (viii) except as
disclosed in the Prospectus, to the Company's knowledge, there are no
grounds for an interference proceeding before the USPTO in relation to any
of the patents or patent applications currently owned by the Company or any
of its Subsidiaries; (ix) to the Company's knowledge, there are no facts
which would bar the grant of a patent from each of the patent applications
within the Intellectual Property; (x) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by any
current or former employee, consultant or agent of the Company or any of
its Subsidiaries seeking either ownership rights to any invention or
compensation from the Company or any of its Subsidiaries for any invention
made by such employee, consultant or agent in the course of his/her
employment with the Company or any of its Subsidiaries, nor, to the
Company's knowledge, can any such action, suit, proceeding or claim, if
instituted, be sustained; and (xi) there is no act or omission by the
Company or its agents or representatives of which the Company has knowledge
that may render any patent or patent application within the Intellectual
Property unpatentable, unenforceable or invalid. The Prospectus fairly and
accurately describes in all material respects the Company's and its
Subsidiaries' rights with respect to the Intellectual Property.
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<PAGE>
(xiv) No consent, approval, authorization or order of or filing
with any court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, is required for the
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been or may be required to be
obtained under the Act or may be required under state securities or Blue
Sky laws in connection with the Underwriters' purchase and distribution of
the Shares.
(xv) Neither the Company nor any of its officers, directors or
affiliates (within the meaning of the Rules and Regulations) has taken,
directly or indirectly, any action designed to stabilize or manipulate the
price of any security of the Company, or which has constituted or which
might in the future reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company,
to facilitate the sale or resale of the Shares or otherwise.
(xvi) Each of the Company and its Subsidiaries has good and
valid title to, or valid and enforceable leasehold interests in, all
properties and assets owned or leased by it, free and clear of all liens,
encumbrances, security interests, claims, restrictions, equities, claims
and defects, except (A) such as are described in the Registration Statement
and Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), or such as do not materially adversely affect the
value of any of such properties or assets taken as a whole and do not
materially interfere with the use made and proposed to be made of any of
such properties or assets, and (B) liens for taxes not yet due and payable
as to which appropriate reserves have been established and reflected in the
financial statements included in the Registration Statement. The Company
owns or leases all such properties as are materially necessary to its
operations as now conducted, and as proposed to be conducted as set forth
in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus); and the
properties and business of the Company and its Subsidiaries conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus). All the material leases and
subleases of the Company and its Subsidiaries, and under which the Company
or any Subsidiary holds properties or assets as lessee or sublessee,
constitute valid leasehold interests of the Company or such Subsidiary free
and clear of any lien, encumbrance, security interest, restriction, equity,
claim or defect, are in full force and effect, and neither the Company nor
any Subsidiary is in default in respect of any of the material terms or
provisions of any such material leases or subleases, and neither the
Company nor any Subsidiary has notice of any claim which has been asserted
by anyone adverse to the Company's or any of its Subsidiary's rights as
lessee or sublessee under either the material lease or sublease, or
affecting or questioning the Company's or any Subsidiary's right to the
continued possession of the leased or subleased premises under any such
material lease or sublease, in each case which default or claim would have
a Material Adverse Effect.
(xvii) Neither the Company nor any Subsidiary has violated any
applicable environmental, safety, health or similar law applicable to the
business of the Company, nor any federal or state law relating to
discrimination in the hiring, promotion, or pay of employees, nor any
applicable federal or state wages and hours law, nor any
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provisions of ERISA or the rules and regulations promulgated thereunder,
the consequences of which violation would have a Material Adverse Effect.
(xviii) Each of the Company and its Subsidiaries hold and at the
Closing Date and any later Option Closing Date, as the case may be, will
hold, all franchises, licenses, permits, approvals, certificates and other
authorizations from federal, state and foreign and other governmental or
regulatory authorities, including, but not limited to, the FDA and any
foreign regulatory authorities performing functions similar to those
performed by the FDA, necessary to the ownership, leasing and operation of
their properties or required for the present conduct of business, and such
franchises, licenses, permits, approvals, certificates and other
governmental authorizations are in full force and effect and the Company
and its Subsidiaries are in compliance therewith in all material respects
except where the failure so to obtain, maintain or comply with would not be
reasonably likely to have a Material Adverse Effect. All of the
descriptions in the Registration Statement and Prospectus of the legal and
governmental proceedings by or before the FDA or any foreign, state or
local government body exercising comparable authority are true, complete
and accurate in all material respects.
(xix) No Subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such Subsidiary's capital stock, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary's property or assets to
the Company or any other Subsidiary of the Company, except as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xx) Neither the Company nor any of its Subsidiaries is (i) in
violation of its certificate of incorporation or bylaws, (ii) in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness, which default would have a Material Adverse Effect, (iii) in
default in the performance or observance of any contract, indenture,
mortgage, loan agreement joint venture or other agreement or instrument to
which it is a party or by which its or any of its properties are bound,
which default would have a Material Adverse Effect, or (iv) in violation of
any law, order, rule, regulation, writ, injunction, judgment or decree of
any court of government agency or body to which the Company is subject,
including, but not limited to, the FDA, which violation would have a
Material Adverse Effect.
(xxi) The Company and its Subsidiaries are (i) in compliance
with any and all applicable United States, foreign, state and local
environmental laws, rules, regulations, treaties, statutes and codes
promulgated by any and all governmental authorities relating to the
protection of human health and safety, the environment or toxic substances
or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct their business as currently
conducted, and (iii) are in compliance with all terms and conditions of any
such permit, license or approval, except, in the case of each of clauses
(i) through (iii), above, where such noncompliance with
9
<PAGE>
Environmental Laws, failure to receive required permit licenses or other
approvals would not, individually or in the aggregate, be reasonably likely
to have a Material Adverse Effect. No action, proceeding, revocation
proceeding, writ, injunction or claim is pending or, to the Company's
knowledge, threatened against the Company or its Subsidiaries relating to
the Environmental Laws or to their activities involving Hazardous
Materials. "Hazardous Materials" means for purposes of this Agreement any
material or substance (i) that is prohibited or regulated by any
environmental law, rule, regulation, order, treaty, statute or code
promulgated by any governmental authority, or any amendment or modification
thereto, or (ii) that has been designated or regulated by any governmental
authority as radioactive, toxic, hazardous or otherwise a danger to health,
reproduction or the environment. The Company and its Subsidiaries have not
engaged in the generation, use, manufacture, transportation or storage of
any Hazardous Materials on any of their properties or former properties,
except where such use, manufacture, transportation or storage is in
compliance in all material respects with Environmental Laws. The Company
and its Subsidiaries have not disposed of any, and to the Company's
knowledge, no parties other than the Company and its Subsidiaries have
disposed of, Hazardous Materials on any of their properties or on
properties formerly owned or leased by them during the time of such
ownership or lease, except in compliance in all material respects with
Environmental Laws. To the Company's knowledge, no spills, discharges,
releases, deposits, emplacements, leaks or disposal of any Hazardous
Materials have occurred on or under or have emanated from any of the
Company's or its Subsidiaries' properties or former properties during the
time of their ownership or lease thereof except in compliance in all
respects with Environmental Laws or that would not be reasonably likely to
have a Material Adverse Effect, and except as disclosed in the Prospectus,
the Company has no knowledge of any spills, discharges, releases, deposits,
emplacements, leaks or disposal of any Hazardous Materials that have
occurred on or under or have emanated from any of the Company's or
Subsidiaries' properties or former properties prior to the Company's or
Subsidiaries' ownership or lease thereof.
(xxii) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be
disclosed therein by Item 404 of Regulation S-K of the Commission.
(xxiii) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxiv) The Company and its Subsidiaries are in compliance with
all provisions of Florida Statutes (S)517.075 and the regulations
thereunder, relating to issuers doing business with Cuba.
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<PAGE>
(xxv) The Company and its Subsidiaries have not at any time
during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any foreign, United States
or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter and each Underwriter, severally and not jointly, agrees to
purchase from the Company at a purchase price of $______________ per Share, the
number of Firm Shares set forth opposite the name of such Underwriter in Column
(1) of Schedule I hereto.
Delivery of certificates, and payment of the purchase price, for the
Firm Shares shall be made at the offices of ING Baring Furman Selz LLC at 230
Park Avenue, New York, New York 10169, or such other location as shall be agreed
upon by the Company and the Representatives. Such delivery and payment shall be
made at 10:00 a.m., New York City time, on __________, 1998 or at such other
time and date not more than ten business days thereafter as shall be agreed upon
by the Representatives and the Company. The time and date of such delivery and
payment are herein called the "Closing Date." Delivery of the certificates for
the Firm Shares shall be made to the Representatives for the respective accounts
of the several Underwriters against payment by the several Underwriters through
the Representatives of the purchase price for the Firm Shares by wire transfer
of immediately available funds to an account designated to the Representatives
in writing at least two business days preceding the Closing Date. The
certificates for the Shares to be so delivered will be in definitive, fully
registered form, will bear no restrictive legends and will be in such
denominations and registered in such names as the Representatives shall request,
not less than two full business days prior to the Closing Date. The
certificates for the Firm Shares will be made available to the Representatives
at such office or such other place as the Representatives may designate for
inspection, checking and packaging not later than 9:30 a.m., New York time on
the business day prior to the Closing Date.
4. PUBLIC OFFERING OF THE SHARES. It is understood that the
Underwriters propose to make a public offering of the Shares at the price and
upon the other terms set forth in the Prospectus.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
practicable. If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. During any
time when a prospectus relating to the Shares is required to be delivered
11
<PAGE>
under the Act, the Company (A) will comply with all requirements imposed
upon it by the Act and the Rules and Regulations to the extent necessary to
permit the continuance of sales of or dealings in the Shares in accordance
with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (B) will not file with the Commission the prospectus or
the amendment referred to in the third sentence of Section 2(a)(i) hereof,
any amendment or supplement to such prospectus or any amendment to the
Registration Statement of which the Representatives shall not previously
have been advised and furnished with a copy a reasonable period of time
prior to the proposed filing and as to which filing the Representatives
shall not have given their consent.
(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representatives (A) when the
Registration Statement, as amended, has become effective; if the provisions
of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective;
(B) of any request made by the Commission for amending the Registration
Statement, for supplementing any Preliminary Prospectus or the Prospectus
or for additional information, or (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or the institution or threat of any
investigation or proceeding for that purpose, and will use its best efforts
to prevent the issuance of any such order and, if issued, to obtain the
lifting thereof as soon as possible.
(iii) The Company will (A) use its best efforts to arrange for
the qualification of the Shares for offer and sale under the state
securities or blue sky laws of such jurisdictions as the Representatives
may designate, and the continuation of such qualifications in effect for as
long as may be necessary to complete the distribution of the Shares, and
(B) make such applications, file such documents and furnish such
information as may be required for the purposes set forth in clause (A);
provided, however, that the Company shall not be required to qualify as a
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foreign corporation or file a general or unlimited consent to service of
process in any such jurisdiction.
(iv) The Company consents to the use of the Prospectus (and any
amendment or supplement thereto) by the Underwriters and all dealers to
whom the Shares may be sold, in connection with the offering or sale of the
Shares and for such period of time thereafter as the Prospectus is required
by law to be delivered in connection therewith. If, at any time when a
prospectus relating to the Shares is required to be delivered under the
Act, any event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading, or if it becomes necessary at any time to amend or supplement
the Prospectus to comply with the Act or the Rules and Regulations, the
Company promptly will so notify the Representatives and, subject to Section
5(a)(i) hereof, will prepare and file with the Commission an amendment to
the Registration Statement or an amendment or supplement to the Prospectus
which will correct such statement or omission or effect
12
<PAGE>
such compliance, each such amendment or supplement to be reasonably
satisfactory to counsel to the Underwriters.
(v) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company
will make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representatives, an earnings statement which will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations, which statement need not
be audited unless required by the Act or the Rules and Regulations,
covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(vi) During a period of five years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver
to the Representatives:
(A) concurrently with furnishing any quarterly reports to
its stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders;
(B) concurrently with furnishing annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity, and cash flows of the Company for such
fiscal year, accompanied by a copy of the report thereon of
independent public accountants;
(C) as soon as they are available, copies of all
information (financial or other) mailed to stockholders;
(D) as soon as they are available, copies of all reports
and financial statements furnished to or filed with the
Commission, the National Association of Securities Dealers, Inc.
("NASD") or any securities exchange;
(E) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs which was released or prepared by the
Company; and
(F) any additional information of a public nature
concerning the Company or its business in the possession of the
Company which the Representatives may reasonably request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to
the extent that
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<PAGE>
the accounts of the Company and its subsidiaries are consolidated, and
will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(vii) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Common Stock.
(viii) The Company will furnish, without charge, to the
Representatives or on the Representatives' order, at such place as the
Representatives may designate, copies of the each Preliminary Prospectus,
the Registration Statement and any pre-effective or post-effective
amendments thereto (two of which copies will be signed and will include all
financial statements and exhibits) and the Prospectus, and all amendments
and supplements thereto, in each case as soon as available and in such
quantities as the Representatives may reasonably request.
(ix) The Company will not, directly or indirectly, without the
prior written consent of the Representatives, issue, offer, sell, grant any
option to purchase or otherwise dispose (or announce any issuance, offer,
sale, grant of any option to purchase or other disposition) of any shares
of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for the period ending 180 days
after the date hereof, except pursuant to this Agreement , except for
issuances pursuant to the exercise of stock options outstanding on or
granted subsequent to the date hereof, pursuant to a stock option or other
employee benefit plan in existence on the date hereof, except for the
Company's issuance of shares of Common Stock upon the conversion of the
outstanding shares of the Convertible Preferred Stock in connection with
the consummation of the transactions contemplated hereby and by the
Prospectus, except for the issuance of shares of Common Stock in connection
with the acquisition by the Company of another business or entity, provided
that the terms of such acquisition prohibit the resale or other disposition
of such shares for the period ending 180 days after the date hereof and
except as contemplated by the Prospectus.
(x) The Company will use its best efforts to cause the Shares to
be included for quotation on the Nasdaq National Market prior to the
Closing Date.
(xi) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(xii) The Company will timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the
Rules and Regulations, the Exchange Act, and the rules and regulations
thereunder, and all such reports, forms and documents filed will comply as
to form and substance with the applicable requirements under the Act, the
Rules and Regulations, the Exchange Act and the rules and regulations
thereunder.
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<PAGE>
6. EXPENSES.
(a) Regardless of whether the transactions contemplated in this
Agreement are consummated, and regardless of whether for any reason this
Agreement is terminated subject to the last sentence of this Section 6(a), the
Company will pay, and hereby agrees to indemnify each Underwriter against, all
fees and expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, (i) fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, filing, delivery and
shipping of copies of the Registration Statement and any pre-effective or post-
effective amendments thereto, any Preliminary Prospectus and the Prospectus and
any amendments or supplements thereto (including postage costs related to the
delivery by the Underwriters of any Preliminary Prospectus or Prospectus, or any
amendment or supplement thereto), this Agreement, the Agreement Among
Underwriters, any Selected Dealer Agreement, Underwriters' Questionnaire,
Underwriters' Power of Attorney, and all other documents in connection with the
transactions contemplated herein, including the cost of all copies thereof,
(iii) fees and expenses relating to qualification of the Shares under state
securities or blue sky laws, including the cost of preparing and mailing the
preliminary and final blue sky memoranda and filing fees and disbursements and
reasonable fees of counsel and other related expenses, if any, in connection
therewith, (iv) filing fees of the Commission and the NASD relating to the
Shares, (v) any fees and expenses in connection with the quotation of the Shares
on the Nasdaq National Market and reasonable fees of counsel to the Underwriters
in connection with NASD filings, (vi) costs and expenses incident to the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Shares, including transfer agent's and registrar's fees and any
applicable transfer taxes incurred in connection with the delivery to the
Underwriters of the Shares to be sold by the Company pursuant to this Agreement,
(vii) costs and expenses incident to any meetings with prospective investors in
the Shares (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters) and (viii) costs and
expenses of advertising relating to the offering of the Shares (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). Except as set forth above and in Section 6(b) below, the
Underwriters shall pay all of their own expenses (including the fees and
disbursements of their counsel and their travel expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(b) If the purchase of the Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of Section 11(a), the Company shall reimburse
the several Underwriters for their reasonable out-of-pocket expenses (including
reasonable counsel fees and disbursements) in connection with any investigation
made by them, and any preparation made by them in respect of marketing of the
Shares or in contemplation of the performance by them of their obligations
hereunder.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligation of
each Underwriter to purchase and pay for the Shares set forth opposite the name
of such Underwriter in Schedule I is subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date as if they had been made on and as of the Closing Date;
the accuracy on and as of the Closing Date of the statements of officers of the
Company made pursuant to the provisions hereof; the performance by the Company
on and as of the Closing Date of all of its covenants and agreements hereunder
which are to be performed on or prior to the Closing Date; and the following
additional conditions:
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<PAGE>
(a) If the Company has elected to rely on Rule 430A under the Act, the
Registration Statement shall have been declared effective, and the Prospectus
(containing the information omitted pursuant to Rule 430A) shall have been filed
with the Commission not later than the Commission's close of business on the
second business day following the date hereof or such later time and date to
which the Representatives shall have consented; if the Company does not elect to
rely on Rule 430A, the Registration Statement shall have been declared effective
not later than 11:00 A.M., New York time, on the first business day following
the date hereof or such later time and date to which the Representatives shall
have consented; if required, in the case of any changes in or amendments or
supplements to the Prospectus in addition to those contemplated above, the
Company shall have filed such Prospectus as amended or supplemented with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act; no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or, to the knowledge of the Company
or the Representatives, shall be contemplated or threatened by the Commission;
and the Company shall have complied with any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise).
(b) The Registration Statement, or any amendment thereto, shall not
contain an untrue statement of material fact, or omit to state a material fact
which is required to be stated therein or is necessary to make the statements
therein not misleading, and the Prospectus, or any supplement thereto, shall not
contain an untrue statement of material fact, or omit to state a material fact
which is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) On or prior to the Closing Date, the Representatives shall have
received from counsel to the Underwriters, such opinion or opinions with respect
to the issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives reasonably may
request and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
(d) On the Closing Date, the Underwriters shall have received the
opinion, dated the Closing Date, of (i) Goodwin, Procter & Hoar LLP, counsel to
the Company ("Company Counsel") and (ii) Ostolenk, Fabes, Gerb & Soffen LLP
special patent counsel to the Company, in the forms attached hereto as Appendix
--------
A, addressed to the Underwriters.
- -
(e) On or prior to the Closing Date, counsel to the Underwriters shall
have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company, or
conditions herein contained.
(f) On the Closing Date, the Representatives shall have received, a
letter from the KPMG Peat Marwick LLP addressed to the Company and the
Underwriters, dated the Closing Date, confirming that it is an independent
certified public accountant with respect to the Company within the meaning of
the Act and the Rules and Regulations thereunder and based upon the procedures
described in its letter delivered to you concurrently with the execution of this
Agreement (herein called the "Original Letter"), but carried out to a date not
more than three
16
<PAGE>
days prior to the Closing Date, (i) confirming that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date; and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter that are necessary to reflect any
changes in the facts described in the Original Letter since the date of such
letter, or to reflect the availability of more recent financial statements, data
or information. The letter shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company which, in your reasonable judgment, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In addition, you shall have received from the Accountants a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that its review of the Company's system of internal
accounting controls, to the extent it deemed necessary in establishing the scope
of its latest examination of the Company's financial statements, did not
disclose any weaknesses in internal controls that it considered to be material
weaknesses. All such letters shall be in a form reasonably satisfactory to the
Representatives and their counsel.
(g) On the Closing Date, the Representatives shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Registration Statement and the
Prospectus and any amendments or supplements thereto and this Agreement, and
that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best knowledge of each of
such persons are contemplated or threatened under the Act and any and
all filings required by Rule 424 and Rule 430A have been timely made;
(iii) The Registration Statement and Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and neither the
Registration Statement nor any amendment thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and neither the Prospectus nor any supplement
thereto includes any untrue statement of a material fact or omits or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and
including the Closing Date, other than as contemplated by the
Prospectus, neither the Company nor any of the
17
<PAGE>
Subsidiaries has incurred, other than in the ordinary course of its
business, any material liabilities or obligations, direct or
contingent; neither the Company nor any of the Subsidiaries has
purchased any of its outstanding capital stock or paid or declared any
dividends or other distributions on its capital stock; neither the
Company nor any of the Subsidiaries has entered into any transactions
not in the ordinary course of business; and there has not been any
change in the capital stock or consolidated long-term debt or any
increase in the consolidated short-term borrowings (other than any
increase in short-term borrowings in the ordinary course of business)
of the Company or any material adverse change to the business,
properties, assets, net worth, condition (financial or other), or
results of operations of the Company and its Subsidiaries taken as a
whole; neither the Company nor any of the Subsidiaries has sustained
any material loss or damage to its property or assets, whether or not
insured; there is no litigation which is pending or threatened against
the Company or any of its Subsidiaries which if adversely decided
would have a Material Adverse Effect.
References to the Registration Statement and the Prospectus in
this paragraph (g) are to such documents as amended and supplemented
at the date of the certificate.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including the
Closing Date there has not been (i) any material change or decrease specified in
the letter or letters referred to in paragraph (f) of this Section 7 or (ii) any
material adverse change, or any development involving a prospective material
adverse change, in the business or properties of the Company or its Subsidiaries
which change or decrease in the case of clause (i) or change or development in
the case of clause (ii) makes it impractical or inadvisable in the
Representatives' judgment to proceed with the public offering or the delivery of
the Shares as contemplated by the Prospectus.
(i) No order suspending the sale of the Shares in any jurisdiction
designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
(j) The Representatives shall have received from each person
identified on Appendix B attached hereto an agreement to the effect that such
----------
person will not, for the period ending one hundred and eighty (180) days after
the date hereof, directly or indirectly offer, sell, solicit an offer to buy,
make any short sale, pledge, grant any option to purchase, contract to sell, or
otherwise dispose of or transfer (collectively, a "Disposition") any shares of
Common Stock (including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned by the undersigned in accordance with the rules
and regulations of the Securities and Exchange Commission) or any securities
convertible into or exercisable or exchangeable for, or any rights to purchase
or acquire, shares of Common Stock now owned or hereafter acquired directly by
the undersigned or with respect to which the undersigned has or hereafter
acquires the power of Disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction or (ii) as a distribution to partners or
18
<PAGE>
stockholders of the undersigned, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction.
(k) The Company shall have furnished the Underwriters with such
further opinions, letters, certificates or documents as you or counsel for the
Representatives may reasonably request. All opinions, certificates, letters and
documents to be furnished by the Company will comply with the provisions hereof
(to the extent a form of such document is not attached hereto) only if they are
reasonably satisfactory in all material respects to the Representatives and to
counsel for the Representatives. The Company shall furnish the Representatives
with conformed copies of such opinions, certificates, letters and documents in
such quantities as you reasonably request. The certificates delivered under
this Section 7 shall constitute representations, warranties and agreements of
the Company, as to all matters set forth therein as fully and effectively as if
such matters had been set forth in Section 2 of this Agreement.
(l) The Shares shall have been duly authorized for quotation on the
Nasdaq National Market.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls such Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any and all
losses, claims, damages or liabilities, joint or several (and actions in respect
thereof), to which such Underwriter or such controlling person may become
subject, under the Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or the
Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, or any blue sky application or other document executed by the Company
specifically for the purpose of qualifying, or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify, any or all of the Shares under the securities or blue sky laws thereof
(any such application, document or information being hereinafter called a "Blue
Sky Application"), or arise out of or are based upon the omission or alleged
omission therein of a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, and will reimburse, as incurred, such
Underwriter or such controlling persons for any legal or other expenses
reasonably incurred by such Underwriter or such controlling persons in
connection with investigating, defending or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action; provided,
--------
however, that the Company will not be liable in any such case to the extent that
- -------
any such loss, claim, damage, liability or action arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in any of such documents in reliance upon and in conformity with
information furnished in writing to the Company on behalf of such Underwriter
through the Representatives expressly for use therein, and provided, further,
-------- -------
that such indemnity with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter (or to the benefit of any person controlling
such Underwriter) from whom the person asserting any such loss, claim, damage,
liability or action purchased Shares which are the
19
<PAGE>
subject thereof to the extent that any such loss, claim, damage, liability or
action (i) results from the fact that such Underwriter failed to send or give a
copy of the Prospectus (as amended or supplemented) to such person at or prior
to the confirmation of the sale of such Shares to such person in any case where
such delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or omission of a material fact contained in such Preliminary
Prospectus that was corrected in the Prospectus (as amended and supplemented),
unless such failure resulted from non-compliance by the Company with Section
5(viii) hereof.
The indemnity agreement in this paragraph (a) shall be in addition to
any liability which the Company may otherwise have.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any and all losses, claims, damages or liabilities
(and actions in respect thereof) to which the Company or any such director,
officer, or controlling person may become subject, under the Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto or in any Blue
Sky Application, or arise out of or are based upon the (i) any untrue statement
or alleged untrue statement of any material fact contained therein, or (ii) the
omission or alleged omission therein of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with information furnished in writing by that Underwriter through the
Representatives to the Company expressly for use therein; and will reimburse, as
incurred, all legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. The Company
acknowledges that the statements with respect to the public offering of the
Shares set forth in paragraphs one (1) and three (3) under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriters to the Company expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Registration Statement, the Prospectus and any
Preliminary Prospectus. The indemnity agreement contained in this subsection
(b) shall be in addition to any liability which the Underwriters may otherwise
have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) of this Section 8 or to the extent
that the indemnifying party was not adversely affected by such omission. In
case any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the
20
<PAGE>
commencement thereof, the indemnifying party or parties against which a claim is
to be made will be entitled to participate therein and, to the extent that it or
they may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided however, that if the defendants
-------- -------
in any such action include both the indemnified party and the indemnifying party
and the indemnified party has reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and otherwise to participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses (other than the reasonable costs of
investigation) subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party has employed such
counsel in connection with the assumption of such different or additional legal
defenses in accordance with the proviso to the immediately preceding sentence,
(ii) the indemnifying party has not employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party; provided, however, that the Company shall
-------- -------
only be liable for the reasonable fees and expenses of one (1) such additional
counsel in any single jurisdiction plus appropriate local counsel in other
jurisdictions.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) (i) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. In any case where the Company is the
contributing party and the Underwriters are the indemnified party, the relative
benefits received by the Company on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this paragraph (d) shall be deemed to
21
<PAGE>
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (d), the Underwriters shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Shares purchased by the Underwriters hereunder. The
Underwriters' obligations to contribute pursuant to this paragraph (d) are
several in proportion to their respective underwriting obligations, and not
joint. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter and (ii) each director of
the Company, each officer of the Company who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company, subject in each case to this paragraph
(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any other
obligation (x) it or they may have hereunder or otherwise than under this
paragraph (d) or (y) to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may otherwise have.
9. RIGHT TO INCREASE OFFERING. At anytime during a period of 30 days
from the date of the Prospectus, the Underwriters, by no less than two business
days' prior notice to the Company may designate a closing (which may be
concurrent with, and part of, the closing on the Closing Date with respect to
the Firm Shares or may be a second closing held on a date subsequent to the
Closing Date, in either case such date shall be referred to herein as the
"Option Closing Date") at which the Underwriters may purchase all or less than
all of the Additional Shares in accordance with the provisions of this Section 9
at the purchase price per share to be paid for the Firm Shares. In no event
shall the Option Closing Date be later than 10 business days after written
notice of election to purchase Additional Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Additional Shares specified in such notice and the
Underwriters agree severally and not jointly, to purchase such Additional Shares
on the Option Closing Date. Such Additional Shares shall be purchased for the
account of each Underwriter in the same proportion as the number of Firm Shares
set forth opposite the name of such Underwriter in Column (3) of Schedule I
bears to the total number of Firm Shares (subject to adjustment by you to
eliminate fractions) and may be purchased by the Underwriters only for the
purpose of covering over-allotments made in connection with the sale of the Firm
Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
22
<PAGE>
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, mutatis mutandis, to the
Option Closing Date for the sale of the Additional Shares.
10. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers and the Underwriters,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, and will survive delivery of and payment for the Shares. Any
successors to the Underwriters shall be entitled to the indemnity, contribution
and reimbursement agreements contained in this Agreement.
11. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at 11:00 A.M., New York time
on the first business day following the date hereof, or at such earlier time
after the Registration Statement becomes effective as the Representatives, in
their sole discretion, shall release the Shares for the sale to the public
unless prior to such time the Representatives shall have received written notice
from the Company that it elects that this Agreement shall not become effective,
or the Representatives shall have given written notice to the Company that the
Representatives on behalf of the Underwriters elect that this Agreement shall
not become effective; provided, however, that the provisions of this Section and
-------- -------
of Section 6 and Section 8 hereof shall at all times be effective. For purposes
of this Section 11(a), the Shares to be purchased hereunder shall be deemed to
have been so released upon the earlier of notification by the Representatives to
securities dealers releasing such Shares for offering or the release by the
Representatives for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
(b) This Agreement (except for the provisions of Sections 6 and 8
hereof) may be terminated by the Representatives by notice to the Company has
failed to comply in any respect with any of the provisions of this Agreement
required on its part to be performed at or prior to the Closing Date or the
Option Closing Date, or if any of the representations or warranties of the
Company is not accurate in any respect or if the covenants, agreements or
conditions of, or applicable to the Company herein contained have not been
complied with in any respect or satisfied within the time specified on the
Closing Date or the Option Closing Date, respectively, or if prior to the
Closing Date or the Option Closing Date:
(i) the Company or any of its Subsidiaries shall have sustained a
loss by strike, fire, flood, accident or other calamity of such a character
as to interfere materially with the conduct of the business and operations
of the Company and its Subsidiaries taken as a whole regardless of whether
or not such loss was insured;
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally
on the New York Stock Exchange or the National Association of Securities
Dealers Automated Quotations National Market System shall have been
suspended or a material limitation
23
<PAGE>
on such trading shall have been imposed or minimum or maximum prices shall
have been established on any such exchange or market system;
(iii) a banking moratorium shall have been declared by New York
or United States authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States; or
(v) there shall have been a material adverse change in (A)
general economic, political or financial conditions or (B) the present or
prospective business or condition (financial or other) of the Company and
its Subsidiaries taken as a whole that, in each case, in the
Representatives' judgment makes it impracticable or inadvisable to make or
consummate the public offering, sale or delivery of the Company's Shares on
the terms and in the manner contemplated in the Prospectus and the
Registration Statement.
(c) Termination of this Agreement under this Section 11 or Section 12
after the Firm Shares have been purchased by the Underwriters hereunder shall be
applicable only to the Additional Shares. Termination of this Agreement shall
be without liability of any party to any other party other than as provided in
Sections 6 and 8 hereof.
12. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 11 hereof) to
purchase and pay for (a) in the case of the Closing Date, the number of Firm
Shares agreed to be purchased by such Underwriter or Underwriters upon tender to
you of such Firm Shares in accordance with the terms hereof or (b) in the case
of the Option Closing Date, the number of Additional Shares agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Shares shall not exceed 10% of the Firm Shares or Additional Shares required to
be purchased on the Closing Date or the Option Closing Date, as the case may be,
then, each of the non-defaulting Underwriters shall purchase and pay for (in
addition to the number of such Shares which it has severally agreed to purchase
hereunder) that proportion of the number of Shares which the defaulting
Underwriter or Underwriters shall have so failed or refused to purchase on such
Closing Date or Option Closing Date, as the case may be, which the number of
Shares agreed to be purchased by such non-defaulting Underwriter bears to the
aggregate number of Shares so agreed to be purchased by all such non-defaulting
Underwriters on such Closing Date or Option Closing Date, as the case may be.
In such case, you shall have the right to postpone the Closing Date or the
Option Closing Date, as the case may be, to a date not exceeding seven full
business days after the date originally fixed as such Closing Date or the Option
Closing Date, as the case may be, pursuant to the terms hereof in order that any
necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 7 or 11
24
<PAGE>
hereof) to purchase and pay for (a) in the case of the Closing Date, the number
of Firm Shares agreed to be purchased by such Underwriter or Underwriters upon
tender to you of such Firm Shares in accordance with the terms hereof or (b) in
the case of the Option Closing Date, the number of Additional Shares agreed to
be purchased by such Underwriter or Underwriters upon tender to you of such
Additional Shares in accordance with the terms hereof, and the number of such
Shares shall exceed 10% of the Firm Shares or Additional Shares required to be
purchased by all the Underwriters on the Closing Date or the Option Closing
Date, as the case may be, then (unless within 48 hours after such default
arrangements to your satisfaction shall have been made for the purchase of the
defaulted Shares by an Underwriter or Underwriters) and subject to the
provisions of Section 11(b) hereof, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or on the part of the
Company except as otherwise provided in Sections 6 and 8 hereof. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this paragraph. Nothing in this Section 12, and no action
taken hereunder, shall relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
13. NOTICES. All communications hereunder shall be in writing and if
sent to the Representatives shall be mailed or delivered or telegraphed and
confirmed by letter or telecopied and confirmed by letter to c/o ING Baring
Furman Selz LLC at 230 Park Avenue, New York, New York 10169, Attention:
Syndicate Department, with a copy to Brobeck, Phleger & Harrison LLP, 1633
Broadway, New York, New York 10019, Attention: Alexander D. Lynch or, if sent to
the Company, shall be mailed or delivered or telegraphed and confirmed to the
Company at 21 Corporate Circle, Albany, New York 12203-5154, with a copy to
Goodwin, Proctor & Hoar LLP, Exchange Place, Boston, Massachusetts 02109,
Attention: Stuart M. Cable.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company and each Underwriter and the Company's and each
Underwriter's respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or in
respect of this Agreement, or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person, except that the representations, warranties, indemnities and
contribution agreements of the Company contained in this Agreement shall also be
for the benefit of any person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and except that the Underwriters' indemnity and contribution agreements shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement, any person or persons, if
any, who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act. No purchaser of Shares from the Underwriters
will be deemed a successor because of such purchase.
15. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to the choice of law or conflict of law principles thereof. Each
party hereto consents to the jurisdiction of each court in which any action is
commenced seeking indemnity or contribution pursuant to Section 8 above and
agrees to accept, either directly or through an agent, service of process of
each such court.
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<PAGE>
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
ALBANY MOLECULAR RESEARCH, INC.
Name:
Title:
Accepted as of the date first
above written:
ING BARING FURMAN SELZ LLC
By: ING Baring Furman Selz LLC
Acting on its own behalf and as
one of the Representatives
of the several Underwriters
referred to in the foregoing Agreement
By:
Title:
26
<PAGE>
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated ______________, 1998
<TABLE>
<S> <C> <C>
(1) (2)
Number of Firm Aggregate
Shares to be Number of
Purchased from Firm Shares
the Company to be Purchased
------------------- -------------------
Name and Address
- ----------------
ING Baring Furman Selz LLC.............
------------------- -------------------
Hambrecht & Quist......................
------------------- -------------------
Total..................................
------------------- -------------------
=================== ===================
</TABLE>
1
<PAGE>
APPENDIX A
1. Opinion of Counsel to the Company
---------------------------------
(a) The Company is a corporation, validly existing and in good
standing under the laws of the state of its incorporation with all requisite
corporate power and corporate authority to own or lease its properties and to
conduct its business as described in the Prospectus;
(b) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;
the issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued by the Company, are fully paid and nonassessable
and have been issued in compliance with all federal and state securities laws
and to the knowledge of such counsel, have not been issued in violation of any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right known to such counsel;
(c) The Company has duly authorized the issuance and sale of the
Shares to be sold by it hereunder; such Shares, when issued by the Company and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable and will conform in all material respects to the description
thereof contained in the Prospectus and will be sold free and clear of any
pledge, lien, security interests, encumbrance, claim, or equitable interest,
and, to the knowledge of such counsel, not in violation of or subject to any
preemptive right, co-sale right, right of first refusal or other similar right,
which rights have not previously been waived, in connection with the purchase or
sale of any of the Shares;
(d) To the best knowledge of such counsel, there are no contracts or
documents which are required by the Act to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement which are not described or filed as required by the Act and the Rules
and Regulations;
(e) The statements set forth under the headings "Risk Factors --
Government Regulation," "Risk Factors -- Anti-Takeover Provisions," "Business --
Government Regulation," "Business -- Legal Proceedings," "Management -- Employee
Stock and Other Benefit Plans," "Description of Capital Stock," "Shares Eligible
for Future Sale" and "Certain Transactions" and statements in response to Items
14 and 15 of Form S-1 under the Act of the Registration Statement in the
Prospectus, insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein, provide an accurate
summary in all material respects of such legal matters, documents and
proceedings;
(f) The Company has all requisite corporate legal right, power, and
authority to enter into this Agreement and to consummate the transactions
provided for herein; this Agreement has been duly authorized, executed and
delivered by the Company;
(g) None of the Company's execution or delivery of this Agreement, its
performance hereof, its consummation of the transactions contemplated herein
conflicts or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitute a default under,
the terms of the certificate of incorporation or by-laws of the
1
<PAGE>
Company; the terms of any indenture, mortgage, deed of trust, voting trust
agreement, stockholder's agreement, note agreement or other agreement or
instrument filed as an exhibit to the Registration Statement to which the
Company is a party or by which it is or may be bound or to which any of its
properties may be subject; or, to the best knowledge of such counsel, any
Massachusetts or United States statute, rule or regulation or the Delaware
General Corporate Law, of any state or Federal regulatory body or administrative
agency or other governmental agency or body, of any state or Federal government,
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having such jurisdiction;
(h) No consent, approval, authorization or order of any state or
Federal court regulatory body or administrative agency or other Massachusetts or
Federal governmental agency or body, has been or is required for the Company's
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been obtained under the Act or may be
required under state securities or blue sky laws (as to which no opinion shall
be expressed) in connection with the purchase and distribution by the
Underwriters of the Shares or may be required by the National Association of
Securities Dealers, Inc. (as to which no opinion shall be expressed);
(i) All holders of securities of the Company who, to such counsel's
knowledge, have rights to cause the Company to register shares of Common Stock
or other securities because of the filing of the Registration Statement by the
Company have waived such rights, such rights have expired by reason of lapse of
time following notification of the Company's intent to file the Registration
Statement or such rights have been satisfied in accordance with their respective
terms;
(j) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Shares;
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the Commonwealth of
Massachusetts, the Delaware General Corporation Law or the United States.
References to the Registration Statement and the Prospectus in such
opinion shall include any amendment or supplement thereto at the date of such
opinion.
In addition, such counsel shall provide a separate letter to the
Representatives of the several Underwriters in the form attached hereto as
Appendix A-1.
2
<PAGE>
2. Opinion of Patent Counsel to the Company.
----------------------------------------
c/o Furman Selz LLC
230 Park Avenue
New York, NY 10169
Ladies and Gentlemen:
Our client, Albany Molecular Research, Inc., a New York corporation
(the "Company"), has requested that we furnish to you, as representatives of the
several underwriters, our opinion in respect of certain matters pursuant to
Section ____ of the Underwriting Agreement, dated _______________, 1998, by and
among Furman Selz LLC and Hambrecht & Quist LLC as representatives of the
several underwriters and the Company (the "Underwriting Agreement").
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Underwriting Agreement.
For the purposes of rendering the opinions set forth below, we have
reviewed the following (collectively the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Form S-1 as filed by the Company with the Securities
and Exchange Commission on [INSERT DATE], together with any and all
exhibits; Amendment No. 1 as filed by the Company with the Securities
and Exchange Commission on [INSERT DATE]; and [INSERT DETAILS OF ANY
OTHER AMENDMENTS TO THE S-1];
(iii) the Company's Prospectus dated [INSERT DATE];
(iv) the patents and patent applications listed on Schedule 1 attached
hereto, which include all of the patents and patent applications
referred to in the Prospectus (the "Patents and Patent Applications")
and which are divided into category A, which are the patents and
patent applications owned by the Company and the Company's
subsidiaries listed on Schedule 2 attached hereto (the "Subsidiaries")
(collectively, the "Owned Patent Rights") and category B, which are
the patents and patent applications licensed from third parties by the
Company and its Subsidiaries (collectively, the "Licensed Patent
Rights");
(v) copies of the license agreements listed on Schedule 3 attached
hereto (collectively, the "License Agreements");
(vi) copies of assignments relevant to ownership of the Patents and
Patent Applications;
(vii) the results of searches in the United States Patent and
Trademark Office ("USPTO"), completed on ____________ [DATE MUST BE
JUST PRIOR TO THE DATE OF THE OPINION] in relation to the USPTO's
record of title to the United States patents and patent applications
within the Patents and Patent Applications;
3
<PAGE>
(viii) the results of a search of the Uniform Commercial Code ("UCC")
records of the following jurisdictions [INSERT DETAILS OF THE STATE(S)
AND COUNTY/COUNTIES] completed on ________ [DATE MUST BE JUST PRIOR TO
THE DATE OF THE OPINION] against the current and former names of the
Company, the Subsidiaries and the licensors specified in the License
Agreements (collectively, the "Licensors") [OTHER POTENTIAL UCC
SEARCHES TO BE DISCUSSED];
(ix) a litigation search of the ________ database completed on
___________ [DATE MUST BE JUST PRIOR TO THE DATE OF THE OPINION];
(x) any and all references cited to, or by, the USPTO during the
prosecution of the United States patents and patent applications
included within the Patents and Patent Applications;
(xi) the documents referred to in those certain opinions of this firm
copies of which are attached as Exhibits hereto;
(xii) the internal files of this firm pertaining to the Company and
its Subsidiaries.
[INSERT DETAILS OF OTHER DOCUMENTS UPON WHICH COUNSEL HAS RELIED IN
PREPARING THIS OPINION]
Whenever our opinions herein are qualified by the phrase "to our best
knowledge," except as may be further qualified below, such language means that
based upon the Documents, the actual knowledge of attorneys within our firm
(i.e., not including matters as to which such attorneys could be deemed to have
constructive knowledge) and inquiries of officers, directors and employees of
the Company, we believe that such opinions are factually correct.
(a) To our best knowledge, the Company and its Subsidiaries are
the sole owners of the Owned Patent Rights and have obtained valid,
currently effective licenses to the Licensed Patent Rights pursuant to the
License Agreements.
(b) The Company and its Subsidiaries are listed in the records of
the USPTO as the sole owners of the United States patents and patent
applications within the Owned Patent Rights.
(c) The Licensors are listed in the records of the USPTO as the
sole owners of the United States patents and patent applications within the
Licensed Patent Rights.
(d) To our best knowledge, the Company and its Subsidiaries have
good and marketable title to the Owned Patent Rights, free of any liens,
pledges, claims, security interests or other encumbrances.
(e) To our best knowledge, the Licensors have good and marketable
title to the Licensed Patent Rights, free of any liens, pledges, claims,
security interests or
4
<PAGE>
other encumbrances, except for the licenses granted to the Company and the
Subsidiaries pursuant to the License Agreements.
(f) To our best knowledge, there are no facts which would
preclude the grant of a patent from each of the patent applications within
the Patents and Patent Applications.
(g) To our best knowledge, the Company, the Subsidiaries and the
Licensors have all complied with USPTO's duty of candor and disclosure for
each of the United States patents and patent applications included in the
Patents and Patent Applications.
(h) To our best knowledge, there are no facts which form a basis
for a finding of unenforceability or invalidity of any of the claims of the
Patents and Patent Applications.
(i) To our best knowledge, no one other than the Company, the
Subsidiaries and the Licensors have or will be able to establish any rights
of title or other interest to any of the Patents and Patent Applications,
trademarks (either registered and unregistered), trade names, copyrights or
trade secrets described in the Prospectus as being owned or licensed by the
Company or its Sublicensees (collectively, the "Intellectual Property").
(j) To our best knowledge, there are no facts known to us that
indicate that the Company and its Subsidiaries lack or will be unable to
obtain any rights or licenses which are necessary for its business as
described in the Prospectus.
(k) There is no pending or, to our best knowledge, threatened
action, suit, proceeding or claim by others challenging the Company's or
its Subsidiaries' ownership or license rights in or to any of the
Intellectual Property.
(l) Except as disclosed in the Prospectus, there is no pending
or, to our best knowledge, threatened action, suit, proceeding or claim by
others challenging the validity or scope of any of the Intellectual
Property.
(m) There is no pending or, to our best knowledge, threatened
action, suit, proceeding or claim by the Company or its Subsidiaries that a
third party has or will infringe or otherwise violate any of the
Intellectual Property.
(n) There is no pending or, to our best knowledge, threatened
action, suit, proceeding or claim by any third party that the Company or
its Subsidiaries or their products and processes infringe or otherwise
violate any patent, trademark, copyright, trade secret, or other right of
such third party.
(o) The statements in the Registration Statement and Prospectus
under the captions "Risk Factors - Uncertainty Relating to Licenses,
Patents and Proprietary Rights" and "Business - Licenses, Patents, and
Proprietary Rights" and other references in the Prospectus to the
Intellectual Property and other patent, trade secret, trademark and
licensing matters, insofar as such statements constitute a summary of the
legal matters,
5
<PAGE>
documents or proceedings referred to therein, are accurate in all material
respects and fairly present the information purported to be disclosed
therein.
(p) To our best knowledge, there are no contracts or other
documents relating to the Intellectual Property that are of a character
required to be filed as an exhibit to the Registration Statement or
required to be described in the Registration Statement or Prospectus that
are not filed or described as required.
We have participated in conferences with officials and other
representatives of the Company, Company's counsel and others, at which
conferences the contents of the Registration Statement and the Prospectus and
related matters were discussed, and although we have not verified the accuracy
or completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to our attention which leads us to believe that, at
the time the Registration Statement became effective and at all times subsequent
thereto up to and including the date hereof, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date and
all times subsequent thereto up to and including the date hereof, contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
6
<PAGE>
Schedule 1
----------
A. Patents and Patent Applications owned by the Company and the Subsidiaries
-------------------------------------------------------------------------
[LIST ALL U.S. AND FOREIGN PATENTS AND PATENT APPLICATIONS WITHIN
THIS CATEGORY, WITH THE FOLLOWING DETAILS:
. patent number for patents and serial number for patent
applications
. date of issuance for patents and filing date for patent
applications
B. Patents and Patent Applications licensed by the Company and the
---------------------------------------------------------------
Subsidiaries
------------
[LIST ALL U.S. AND FOREIGN PATENTS AND PATENT APPLICATIONS WITHIN THIS
CATEGORY, WITH THE FOLLOWING DETAILS:
. patent number for patents and serial number for patent
applications
. date of issuance for patents and filing date for patent
applications
. name and address of licensor
1
<PAGE>
Schedule 2
----------
1
<PAGE>
The Subsidiaries
----------------
1
<PAGE>
Schedule 3
----------
The License Agreements
----------------------
1
<PAGE>
Schedule 1
----------
A. Patents and Patent Applications owned by the Company
----------------------------------------------------
list all U.S. and foreign patents and patent applications within this
category, with the following details:
. patent number for patents and serial number for patent
applications
. date of issuance for patents and filing date for patent
applications
B. Patents and Patent Applications licensed by the Company
-------------------------------------------------------
list all U.S. and foreign patents and patent applications within this
category, with the following details:
. patent number for patents and serial number for patent
applications
. date of issuance for patents and filing date for patent
applications
. name and address of licensor
1
<PAGE>
Schedule 2
----------
The License Agreements
----------------------
1
<PAGE>
APPENDIX A-1
[Insert Date]
ING Baring Furman Selz LLC
Hambrecht & Quist
As representatives of the several
Underwriters named in Schedule I hereto
c/o ING Baring Furman Selz LLC
230 Park Avenue
New York, New York 10169
Ladies and Gentlemen:
We have acted as counsel for Albany Molecular Research, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), of its Registration Statement on
Form S-1 (Registration No. 333-58795), as amended, relating to the offering of
an aggregate of 2,200,000 shares (the "Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock"), by the Company to the several
underwriters (the "Underwriters") listed in Schedule I to the Underwriting
Agreement, dated __________, 1998 (the "Agreement"), between the Company and
you, as representatives of the several Underwriters (the "Representatives").
The Registration Statement, as amended when it became effective (including the
information deemed to be a part thereof as of such time pursuant to Rule 430A
under the Securities Act), is herein called the "Registration Statement," and
the related prospectus dated __________, 1998, as filed on __________, 1998 with
the Commission pursuant to Rule 424(b) under the Securities Act, is herein
called the "Prospectus."
We have examined such corporate records, certificates and other documents
as we have considered necessary or appropriate for the purposes of this letter.
Whenever a statement herein is indicated to be based upon "our knowledge"
or "the best of our knowledge" or contains a similar qualification, it should be
understood that during the course of our representation of the Company we have
not undertaken any independent investigation to determine the existence or
absence of facts in connection with the preparation of this letter. The phrase
"our knowledge," and similar language used in certain of the statements below,
are limited to the knowledge of the lawyers within our firm who have [given
substantive attention to the Company's affairs].
2
<PAGE>
Capitalized terms used but not defined herein shall have the respective
meanings attributed to them in the Agreement.
We have participated in the preparation of the Registration Statement and
Prospectus and have participated in discussions with your representatives, those
of counsel for the Underwriters, and those of the Company and its accountants.
On the basis of the information that we gained in the course of the performance
of the services referred to above, considered in the light of our understanding
of the applicable law and the experience we have gained through our practice
under the Securities Act, we confirm to you that nothing that came to our
attention in the course of such review has caused us to believe that the
Registration Statement or any further amendment thereto made by the Company
prior to the Closing Date contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the Company
prior to the Closing Date contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading or that, as of the Closing Date, either the Registration
Statement or the Prospectus or any further amendment or supplement thereto made
by the Company prior to the Closing Date contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
The Registration Statement and the Prospectus and any further amendments or
supplements thereto made by the Company prior to the Closing Date (other than
financial, statistical or accounting data and related schedules therein, as to
which we make no statement) appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act
and the applicable Rules and Regulations promulgated under the Securities Act.
To the best of our knowledge, there is not pending or threatened against
the Company any action, suit, proceeding or investigation before or by any
court, regulatory body or administrative agency, or any other governmental
agency or body, domestic or foreign (other than the FDA or the USPTO, as to
which we make no statement), of a character required to be disclosed in the
Registration Statement or the Prospectus which is not so disclosed therein.
The Registration Statement has become effective under the Securities Act.
The foregoing statement is based solely upon verbal advice of __________ the
Securities and Exchange Commission staff on __________, 1998 that the Commission
had declared the Registration Statement effective as of _____ p.m. on
__________, 1998. To the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued by the Commission
nor has any proceeding been instituted or contemplated for that purpose under
the Securities Act. Based solely upon a written confirmation from the
Commission's EDGAR Filing Desk dated __________, 1998, the Prospectus has been
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
promulgated under the Securities Act within the time period required thereby.
<PAGE>
Notwithstanding the foregoing, the limitations inherent in the independent
verification of factual matters and the character of determinations involved in
the registration process are such, however, that we do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus except for those made
under the captions "risk Factors--Governmental Regulation," "Risk Factors--Anti-
takeover Provisions," "Business--Government Regulation," "Business--Legal
Proceedings," "Management--Employee Stock and Other Benefit Plans," "Description
of Capital Stock," "Shares Eligible for Future Sale" and "Certain Transactions"
in the Prospectus and statements in response to Items 14 and 15 of Form S-1
under the Act of the Registration Statement, insofar as such statements
constitute a summary in all material respects of documents referred to therein
or matters of law. Also, we do not express any belief or otherwise make any
statement as to (i) the statements in the Registration Statement or the
Prospectus made under the captions "Risk Factors--Proprietary Technology;
Unpredictability of Patent Protection," "Business--Allegra Royalty and Licensing
Arrangement" and "Business--Patents and Proprietary Rights" and (ii) the
financial statements, other financial, statistical or accounting data and
related schedules contained in the Registration Statement or the Prospectus.
This letter is furnished by us as counsel for the Company to you as
Representatives of the several Underwriters and is solely for the benefit of the
several Underwriters and may not be relied upon by any other person without our
express written consent. The statements in this letter are made as of the date
hereof and we disclaim any obligation to advise you of any changes in facts or
circumstances which might affect any matters or statements set forth herein.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
4
<PAGE>
APPENDIX B
[List of Persons Subject to Lockups]
1
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALBANY MOLECULAR RESEARCH, INC.
ALBANY MOLECULAR RESEARCH, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Albany Molecular Research, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was August 6, 1998.
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the original Certificate of
Incorporation of the Corporation filed with the Secretary of State of the State
of Delaware on August 6, 1998, as heretofore amended (the "Original Certificate
of Incorporation"), and (i) was duly adopted by the Board of Directors in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware (the "DGCL"), (ii) was declared by the
Board of Directors to be advisable and in the best interests of the Corporation
and was directed by the Board of Directors to be submitted to and be considered
by the stockholders of the Corporation entitled to vote thereon for approval by
the affirmative vote of such stockholders in accordance with Section 242 of the
DGCL and (iii) was duly adopted by the stockholders, with the holders of a
majority of the outstanding shares of the Corporation's common stock, par value
$.01 per share, adopting this Amended and Restated Certificate of Incorporation
in accordance with the provisions of Section 242 of the DGCL and the terms of
the Original Certificate of Incorporation, such holders being all of the holders
of the Corporation's capital stock entitled to vote thereon.
3. The text of the Original Certificate of Incorporation is hereby
amended and restated in its entirety to provide as herein set forth in full.
ARTICLE I
---------
NAME
----
The name of the Corporation is Albany Molecular Research, Inc.
<PAGE>
ARTICLE II
----------
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
-----------
PURPOSE
-------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
----------
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is Fifty-Two Million One Hundred Thousand (52,100,000)
shares, of which (a) One Hundred Thousand (100,000) shares shall be Series A
Convertible Preferred Stock, par value $.01 per share (the "Convertible
Preferred Stock"), (b) Fifty Million (50,000,000) shares shall be common stock,
par value $.01 per share (the "Common Stock"), and (c) Two Million (2,000,000)
shares shall be undesignated preferred stock, par value $.01 per share (the
"Undesignated Preferred Stock").
Except as otherwise restricted by this Amended and Restated Certificate of
Incorporation, the Corporation is authorized to issue, from time to time, all or
any portion of the capital stock of the Corporation which may have been
authorized but not issued, to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and manner of any disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding)
2
<PAGE>
by the affirmative vote of the holders of a majority of the shares of Common
Stock entitled to vote, without a vote of the holders of the Undesignated
Preferred Stock.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. SERIES A CONVERTIBLE PREFERRED STOCK
------------------------------------
1. Designation; Ranking. A total of 100,000 shares of the Corporation's
--------------------
preferred stock shall be designated as Series A Convertible Preferred Stock (the
"Convertible Preferred Stock").
2. Voting. The Convertible Preferred Stock shall be non-voting, except
------
as required by the DGCL.
3. Dividends. When and as the Board of Directors declares a dividend
---------
payment on the Corporation's Common Stock, the Board of Directors shall also
declare a dividend on the Convertible Preferred Stock, such that each share of
Convertible Preferred Stock shall receive 9/20 of the dividend paid on each
share of Common Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation and it subsidiaries, whether voluntary or involuntary (a
"Liquidation Event"), the holders of Convertible Preferred Stock will be
entitled to be paid, before any distribution or payment is made upon any Common
Stock, an amount in cash equal to the aggregate Liquidation Value of all shares
of Convertible Preferred Stock outstanding, and the holders of Convertible
Preferred Stock will not be entitled to any further payment. If upon any such
Liquidation Event, the Corporation's assets to be distributed among the holders
of the Convertible Preferred Stock are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid, then the
entire assets to be distributed will be distributed ratably among such holders
based upon the aggregate Liquidation Value of the Convertible Preferred Stock
held by each such holder.
The Liquidation Value of each share of Convertible Preferred Stock shall be
$.75. The Corporation will mail written notice of such Liquidation Event, not
less than thirty (30) days prior to the payment date stated therein, to each
record holder of Convertible Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed to be
a Liquidation Event within the meaning of this Section 4.
3
<PAGE>
5. Conversion.
----------
(a) Any holder of Convertible Preferred Stock may at any
time convert all or any portion of the Convertible Preferred
Stock (including any fraction of a share) held by such holder
into a number of shares of the Corporation's Common Stock
computed by dividing the number of shares of Convertible
Preferred Stock to be converted by 2.22222.
(b) The Corporation may, in conjunction with the issuance
of Common Stock pursuant to a "public offering" or a private
placement to persons other than executive officers of the
Corporation that would increase the number of issued and
outstanding shares by ten percent (10%) or more (before giving
effect to the conversion of any convertible securities) require
the holders of Convertible Preferred Stock to convert all of
their Convertible Preferred Stock by sending written notice to
all such holders specifying the conversion date. All Common Stock
originally issued by the Corporation within any six month period
shall be integrated for the purpose of determining whether the
ten percent (10%) trigger referred to in the preceding sentence
has been met. Any shares of Convertible Preferred Stock that are
not delivered to the Corporation in response to the written
notice on the conversion date specified therein shall lose all
right to convert the Convertible Preferred Stock to Common Stock.
The term "public offering" shall refer to the sale by the Corporation or a
subsidiary of its Common Stock on a best efforts or a firm offering made by
an investment banking firm acting as underwriter.
(c) Each conversion of Convertible Preferred Stock will be
deemed to have been effected as of the close of business on the
date on which the certificate or certificates representing the
Convertible Preferred Stock to be converted have been surrendered
at the principal office of the Corporation. At such time as such
conversion has been effected, the rights of the holder of such
Convertible Preferred Stock as such holder will cease and the
person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon
such conversion will be deemed to have become the holder or
holders of record of the shares of Common Stock represented
thereby.
(d) As soon as practicable after a conversion has been
effected, the Corporation will deliver to the converting holder:
(i) a certificate or certificates representing
the number of shares of Common Stock issuable by reason
of such conversion in such name or names and such
denomination or denominations as the converting holder
has specified;
4
<PAGE>
(ii) payment in an amount equal to all declared
and unpaid dividends with respect to each share
converted, which have not been paid prior thereto; and
(iii) a certificate representing any shares of
Convertible Preferred Stock which were represented by
the certificate or certificates delivered to the
Corporation in connection with such conversion but
which were not converted.
(e) If for any reason the Corporation is unable to pay any
declared and unpaid dividends on the Convertible Preferred Stock
being converted, the Corporation will pay such dividends to the
converting holder as soon thereafter as funds of the Corporation
are legally available for such payment. At the request of any
such converting holder, the Corporation will provide such holder
with written evidence of its obligation to such holder.
(f) If the issuance of certificates for shares of Common
Stock upon conversion of Convertible Preferred Stock requires the
payment of any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such conversion
and the related issuance of shares of Common Stock, each holder
of the Convertible Preferred Stock shall pay the amount of the
issuance tax to the Corporation at the time the Corporation
delivers the certificates to the holder.
(g) The Corporation will not close its books against the
transfer of Convertible Preferred Stock or of Common Stock issued
or issuable upon conversion of Convertible Preferred Stock in any
manner which interferes with the timely conversion of Convertible
Preferred Stock.
6. Pre-emptive Rights. The holders of Convertible Preferred Stock, in
------------------
the case of the proposed issuance of Common Stock, or granting by the
Corporation of any rights or options to purchase any shares or other securities
convertible into or carrying rights or options to purchase Common Stock (in each
case, "Common Equity Shares"), shall, if the issuance of the Common Equity
Shares proposed to be issued would adversely affect the unlimited dividend
rights of such holders, have the right during a reasonable time and on
reasonable conditions, both to be fixed by the Board of Directors, to purchase
such Common Equity Shares in such proportions as shall be determined as provided
below.
The pre-emptive rights provided for in this Section 6 shall entitle the
holders of Convertible Preferred Stock to purchase Common Equity Shares to be
offered or optioned for sale as nearly as practicable in such proportions as
would, if such pre-emptive rights were exercised (and after giving effect to the
issuance and sale of the Common Equity Shares offered or optioned for sale),
preserve the relative unlimited dividend rights of such holders and at a price
or prices not less favorable than the price or prices at which such Common
5
<PAGE>
Equity Shares are offered for sale to others, without deduction of such
reasonable expenses of and compensation for the sale, underwriting or purchase
of such Common Equity Shares by underwriters or dealers as may lawfully be paid
by the Corporation. The price at which such Common Equity Shares are offered,
if offered for consideration other than cash, shall equal the stated equivalent
dollar amount in any document between the Corporation and the offeree or, if
none is stated, by an independent appraiser.
Notwithstanding anything contained herein, the pre-emptive rights provided
for in this Section 6 will not apply to Common Equity Shares if they:
(1) Are to be issued by the Corporation to effect a merger;
(2) Are treasury shares;
(3) Are to be issued under a plan of reorganization approved in a
proceeding under any applicable act of Congress relating to reorganization of
corporations;
(4) Are, or may be converted to, not more than 2,250,000 shares of Common
Stock and which are issued pursuant to any stock incentive plan to any employee.
The Board of Directors shall cause to be given to each holder of
Convertible Preferred Stock, a notice directed to it setting forth the time
within which and the terms and conditions upon which the holder may purchase
such Common Equity Shares. Such notice shall be given personally or by mail at
least fifteen (15) days prior to the expiration of the period during which the
holder shall have the right to purchase. All holders entitled to pre-emptive
rights to whom notice shall have been given as aforesaid shall be deemed
conclusively to have had a reasonable time in which to exercise their pre-
emptive rights.
7. Reorganization, Reclassification, Consolidation, Merger or Sale. Any
---------------------------------------------------------------
capital reorganization, reclassification, consolidation, merger or sale of all
or substantially all of the Corporation's assets to another person which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as an
"Organic Change." At least thirty (30) days prior to the consummation of any
Organic Change, the Corporation will give written notice to each holder of
Convertible Preferred Stock to insure that each of the holders of Convertible
Preferred Stock has the opportunity immediately prior to such Organic Change to
convert such holders' shares of Convertible Preferred Stock into Common Stock
pursuant to the terms of the Corporation's Amended and Restated Certificate of
Incorporation.
8. Registration of Transfer. The Corporation will keep at its principal
------------------------
office a register for the registration of Convertible Preferred Stock. Upon the
surrender of any certificate representing Convertible Preferred Stock at such
place, the Corporation will, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's
6
<PAGE>
expense) a new certificate or certificates in exchange therefor representing in
the aggregate the number of shares represented by the surrendered certificate.
Each such new certificate will be registered in such name and will represent
such number of shares as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the Convertible Preferred Stock
represented by the surrendered certificate.
9. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of any class of Convertible Preferred Stock and, in the case
of any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is an institutional
--------
investor its own agreement will be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the Convertible
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
B. COMMON STOCK
------------
1. Designation; Ranking. A total of 50,000,000 shares of the
--------------------
Corporation's common stock shall be designated as Common Stock, $.01 par value
per share (the "Common Stock").
2. Voting.
------
(a) Election of Directors. The holders of Common Stock shall be
---------------------
entitled to elect all of the Directors of the Corporation. Such Directors
shall be the candidates receiving the highest number of affirmative votes
entitled to be cast (with each holder entitled to cast one vote for or
against each candidate with respect to each share held by such holder),
with votes cast against such candidates and votes withheld having no legal
effect. The election of such Directors shall occur at the annual meeting
of holders of capital stock or at any special meeting called and held in
accordance with the by-laws of the Corporation. If a person elected in
accordance with the foregoing provisions should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent
of holders of the outstanding shares entitled to vote for such Directors,
in the manner and on the basis specified above.
(b) Other Voting. The holder of each share of Common Stock shall be
------------
entitled to one vote for each such share as determined on the record date
for the vote or consent of stockholders upon any items submitted to a vote
of stockholders.
7
<PAGE>
3. Dividends. The holders of Common Stock shall be entitled to receive
---------
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in its sole discretion.
4. Liquidation. Upon any Liquidation Event, after the payment or
-----------
provision for payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of Convertible Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the holders
of Common Stock shall be entitled to share ratably in the remaining assets of
the Corporation available for distribution.
C. UNDESIGNATED PREFERRED STOCK
----------------------------
1. Authority to Issue. Subject to any limitations prescribed by law, the
------------------
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of the shares of Undesignated Preferred Stock in one
or more series of such stock, and by filing a certificate pursuant to applicable
law of the State of Delaware, to establish or change from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof. Any action by the Board of Directors or
any authorized committee thereof under this Article C shall require the
affirmative vote of a majority of the Directors then in office or a majority of
the members of such committee.
2. Powers, Preferences, Rights, Qualifications, Limitations and
------------------------------------------------------------
Restriction of Each Series of Undesignated Preferred Stock. The Board of
- ----------------------------------------------------------
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting rights and powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
8
<PAGE>
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall be
issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or series thereof) and whether such shares may be reissued
as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable.
ARTICLE V
---------
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
9
<PAGE>
ARTICLE VI
----------
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
------------------
be fixed by resolution duly adopted from time to time by the Board of Directors.
The Directors, other than those who may be elected by the holders of any series
of Undesignated Preferred Stock of the Corporation, shall be classified, with
respect to the term for which they severally hold office, into three classes, as
nearly equal in number as possible. The initial Class I 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 Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have the
right, voting separately as a series or together with holders of other such
series, to elect Directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation and any certificate of designations applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI.3.
During any period when the holders of any series of Undesignated Preferred
Stock have the right to elect additional Directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues: (i) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors
10
<PAGE>
so provided for or fixed pursuant to said provisions, and (ii) each such
additional Director shall serve until such Director's successor shall have been
duly elected and qualified, or until such Director's right to hold such office
terminates pursuant to said provisions, whichever occurs earlier, subject to
such Director's earlier death, disqualification, resignation or removal. Except
as otherwise provided by the Board of Directors in the resolution or resolutions
establishing such series, whenever the holders of any series of Undesignated
Preferred Stock having such right to elect additional Directors are divested of
such right pursuant to the provisions of such stock, the terms of office of all
such additional Directors elected by the holders of such stock, or elected to
fill any vacancies resulting from the death, resignation, disqualification or
removal of such additional Directors, shall automatically terminate and the
total and authorized number of Directors of the Corporation shall be reduced
accordingly.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series of Undesignated Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; provided, however, that no decrease in the number of Directors
-------- -------
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
5. Removal. Subject to the rights, if any, of any series of Undesignated
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of such Director. At least thirty (30) days prior
to any meeting of stockholders at which it is proposed that any Director be
removed from office, written notice of such proposed removal shall be sent to
the Director whose removal will be considered at the meeting. For purposes of
this Amended and Restated Certificate of Incorporation, "cause," with respect to
the removal of any Director, shall mean only (i) conviction of a felony, (ii)
declaration of unsound mind by order of court, (iii) gross dereliction of duty,
(iv) commission of any action involving moral turpitude, or (v) commission of an
action which constitutes intentional misconduct or a knowing violation of law if
such action in either event results both in an improper substantial personal
benefit and a material injury to the Corporation.
11
<PAGE>
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Amended and Restated Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
------------
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the By-
----------------------
laws of the Corporation may be amended or repealed by the Board of Directors by
the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least two-thirds of the total votes eligible to be cast
on such amendment or repeal by holders of voting stock, voting together as a
single class; provided, however, that if the Board of Directors recommends that
-------- -------
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cast on such amendment or repeal by holders of
voting stock, voting together as a single class.
12
<PAGE>
ARTICLE IX
----------
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by statute and this Amended and Restated Certificate of Incorporation, and all
rights conferred upon stockholders herein, are granted subject to this
reservation. No amendment or repeal of this Amended and Restated Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 242 of the DGCL, and, except as otherwise provided by
law, thereafter approved by the stockholders. Whenever any vote of the holders
of voting stock is required, and in addition to any other vote of holders of
voting stock that is required by this Amended and Restated Certificate of
Incorporation or by law, the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal, voting together as a single class, at a duly constituted meeting of
stockholders called expressly for such purpose shall be required to amend or
repeal any provisions of this Amended and Restated Certificate of Incorporation;
provided, however, that the affirmative vote of not less than 80% of the total
- -------- -------
votes eligible to be cast by holders of voting stock, voting together as a
single class, shall be required to amend or repeal any of the provisions of
Article V, Article VI, Article VII or Article IX of this Amended and Restated
Certificate of Incorporation.
13
<PAGE>
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of
this ____ day of _____, 1999.
ALBANY MOLECULAR RESEARCH, INC.
By:_________________________________________
Name:
Title:
14
<PAGE>
EXHIBIT 3.3
RESTATED
CERTIFICATE OF INCORPORATION
OF
ALBANY MOLECULAR RESEARCH, INC.
ALBANY MOLECULAR RESEARCH, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Albany Molecular Research, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was August 6, 1998.
2. This Restated Certificate of Incorporation restates and integrates,
but does not further amend, the provisions of the Amended and Restated
Certificate of Incorporation of the Corporation filed with the Secretary of
State of the State of Delaware on _______, 1999 (the "Certificate"), and there
is no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation. This Restated Certificate of Incorporation was
duly adopted by the Board of Directors in accordance with the provisions of
Section 245 of the General Corporation Law of the State of Delaware (the
"DGCL").
3. The text of the Certificate is hereby restated in its entirety to
provide as herein set forth in full.
ARTICLE I
---------
NAME
----
The name of the Corporation is Albany Molecular Research, Inc.
ARTICLE II
----------
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
<PAGE>
ARTICLE III
-----------
PURPOSE
-------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
----------
CAPITAL STOCK
-------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is Fifty-Two Million (52,000,000) shares, of which (a)
Fifty Million (50,000,000) shares shall be common stock, par value $.01 per
share (the "Common Stock"), and (b) Two Million (2,000,000) shares shall be
undesignated preferred stock, par value $.01 per share (the "Undesignated
Preferred Stock").
Except as otherwise restricted by this Restated Certificate of
Incorporation, the Corporation is authorized to issue, from time to time, all or
any portion of the capital stock of the Corporation which may have been
authorized but not issued, to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and manner of any disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the shares of Common Stock entitled to vote, without a vote of the holders of
the Undesignated Preferred Stock.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
2
<PAGE>
A. COMMON STOCK
------------
1. Designation; Ranking. A total of 50,000,000 shares of the
--------------------
Corporation's common stock shall be designated as Common Stock, $.01 par value
per share (the "Common Stock").
2. Voting.
------
(a) Election of Directors. The holders of Common Stock shall be
---------------------
entitled to elect all of the Directors of the Corporation. Such Directors
shall be the candidates receiving the highest number of affirmative votes
entitled to be cast (with each holder entitled to cast one vote for or
against each candidate with respect to each share held by such holder),
with votes cast against such candidates and votes withheld having no legal
effect. The election of such Directors shall occur at the annual meeting of
holders of capital stock or at any special meeting called and held in
accordance with the by-laws of the Corporation. If a person elected in
accordance with the foregoing provisions should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent
of holders of the outstanding shares entitled to vote for such Directors,
in the manner and on the basis specified above.
(b) Other Voting. The holder of each share of Common Stock shall be
------------
entitled to one vote for each such share as determined on the record date
for the vote or consent of stockholders upon any items submitted to a vote
of stockholders.
3. Dividends. The holders of Common Stock shall be entitled to receive
---------
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in its sole discretion.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation and its subsidiaries, whether voluntary or involuntary, after the
payment or provision for payment of all debts and liabilities of the
Corporation, the holders of Common Stock shall be entitled to share ratably in
the remaining assets of the Corporation available for distribution.
B. UNDESIGNATED PREFERRED STOCK
----------------------------
1. Authority to Issue. Subject to any limitations prescribed by law, the
------------------
Board of Directors or any authorized committee thereof is expressly authorized
to provide for the issuance of the shares of Undesignated Preferred Stock in one
or more series of such stock, and by filing a certificate pursuant to applicable
law of the State of Delaware, to establish or change from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and the relative, participating, optional or
other special rights of the shares of each series and any qualifications,
limitations and restrictions thereof.
3
<PAGE>
Any action by the Board of Directors or any authorized committee thereof under
this Article B shall require the affirmative vote of a majority of the Directors
then in office or a majority of the members of such committee.
2. Powers, Preferences, Rights, Qualifications, Limitations and
------------------------------------------------------------
Restriction of Each Series of Undesignated Preferred Stock. The Board of
- ----------------------------------------------------------
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting rights and powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, the conversion price or
prices, or the rate or rates of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(h) The consideration for which the shares of such series shall be
issued;
4
<PAGE>
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or series thereof) and whether such shares may be reissued
as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any
authorized committee thereof may deem advisable.
ARTICLE V
---------
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
ARTICLE VI
----------
DIRECTORS
---------
1. General. The business and affairs of the Corporation shall be managed
-------
by or under the direction of the Board of Directors except as otherwise provided
herein or required by law.
2. Election of Directors. Election of Directors need not be by written
---------------------
ballot unless the By-laws of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
------------------
be fixed by resolution duly adopted from time to time by the Board of Directors.
The Directors, other than those who may be elected by the holders of any series
of Undesignated Preferred Stock of the Corporation, shall be classified, with
respect to the term for which they severally hold office, into three classes, as
nearly equal in number as possible. The initial Class I 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
5
<PAGE>
term expires at that meeting shall be elected by a plurality of the votes cast
at such meeting and shall hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election. The
Directors elected to each class shall hold office until their successors are
duly elected and qualified or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Restated Certificate of Incorporation, the holders of any one
or more series of Undesignated Preferred Stock shall have the right, voting
separately as a series or together with holders of other such series, to elect
Directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Restated Certificate of Incorporation and any
certificate of designations applicable thereto, and such Directors so elected
shall not be divided into classes pursuant to this Article VI.3.
During any period when the holders of any series of Undesignated Preferred
Stock have the right to elect additional Directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues: (i) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions, and
(ii) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Undesignated Preferred Stock having such right to elect additional
Directors are divested of such right pursuant to the provisions of such stock,
the terms of office of all such additional Directors elected by the holders of
such stock, or elected to fill any vacancies resulting from the death,
resignation, disqualification or removal of such additional Directors, shall
automatically terminate and the total and authorized number of Directors of the
Corporation shall be reduced accordingly.
4. Vacancies. Subject to the rights, if any, of the holders of any
---------
series of Undesignated Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors
6
<PAGE>
shall determine the class or classes to which the increased or decreased number
of Directors shall be apportioned; provided, however, that no decrease in the
-------- -------
number of Directors shall shorten the term of any incumbent Director. In the
event of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board of
Directors until the vacancy is filled.
5. Removal. Subject to the rights, if any, of any series of Undesignated
-------
Preferred Stock to elect Directors and to remove any Director whom the holders
of any such stock have the right to elect, any Director (including persons
elected by Directors to fill vacancies in the Board of Directors) may be removed
from office (i) only with cause and (ii) only by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of such Director. At least thirty (30) days prior
to any meeting of stockholders at which it is proposed that any Director be
removed from office, written notice of such proposed removal shall be sent to
the Director whose removal will be considered at the meeting. For purposes of
this Restated Certificate of Incorporation, "cause," with respect to the removal
of any Director, shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission
of any action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
ARTICLE VII
-----------
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Restated Certificate of Incorporation
to authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
7
<PAGE>
ARTICLE VIII
------------
AMENDMENT OF BY-LAWS
--------------------
1. Amendment by Directors. Except as otherwise provided by law, the By-
----------------------
laws of the Corporation may be amended or repealed by the Board of Directors by
the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be
-------------------------
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least two-thirds of the total votes eligible to be cast
on such amendment or repeal by holders of voting stock, voting together as a
single class; provided, however, that if the Board of Directors recommends that
-------- -------
stockholders approve such amendment or repeal at such meeting of stockholders,
such amendment or repeal shall only require the affirmative vote of a majority
of the total votes eligible to be cast on such amendment or repeal by holders of
voting stock, voting together as a single class.
ARTICLE IX
----------
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
statute and this Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein, are granted subject to this reservation. No amendment
or repeal of this Restated Certificate of Incorporation shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required, and
in addition to any other vote of holders of voting stock that is required by
this Restated Certificate of Incorporation or by law, the affirmative vote of a
majority of the total votes eligible to be cast by holders of voting stock with
respect to such amendment or repeal, voting together as a single class, at a
duly constituted meeting of stockholders called expressly for such purpose shall
be required to amend or repeal any provisions of this Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than 80%
-------- -------
of the total votes eligible to be cast by holders of voting stock, voting
together as a single class, shall be required to amend or repeal any of the
provisions of Article V, Article VI, Article VII or Article IX of this Restated
Certificate of Incorporation.
8
<PAGE>
THIS RESTATED CERTIFICATE OF INCORPORATION is executed as of this ____ day
of _____, 1999.
ALBANY MOLECULAR RESEARCH, INC.
By:______________________________________
Name:
Title:
9
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF AMENDMENT
OF
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"), does hereby certify:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent dated __________, _____, in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware, duly and
unanimously adopted resolutions setting forth proposed amendments to the
Certificate of Incorporation of the Corporation, declaring such amendments to be
advisable and directing that such amendments be submitted to, and be considered
by, the sole stockholder of the Corporation for approval. The first such
resolution proposed to amend the Certificate of Incorporation of the Corporation
as follows:
RESOLVED: That the Corporation shall increase the number of shares of
common stock, par value $.01 per share ("Common Stock"), which it
shall have authority to issue from 10,000,000 shares of Common
Stock to 20,000,000 shares of Common Stock, and that the
introductory paragraph and Section B.1 of Article IV of the
Certificate of Incorporation of the Corporation be amended to
read respectively as follows:
"The total number of shares of capital stock which the
Corporation shall have authority to issue is Twenty Million One
Hundred Thousand (20,100,000) shares, of which (a) One Hundred
Thousand (100,000) shares shall be Series A Convertible Preferred
Stock, par value $.01 per share (the "Convertible Preferred
Stock"), and (b) Twenty Million (20,000,000) shares shall be
common stock, par value $.01 per share (the "Common Stock"). The
rights, preferences, voting powers and the qualifications,
limitations and restrictions on the authorized stock shall be as
follows:"
"1. Designation; Ranking. A total of 20,000,000 shares of the
--------------------
Corporation's common stock shall be designated as Common Stock,
$.01 par value per share (the "Common Stock")."
<PAGE>
SECOND: The second resolution proposed to amend the Certificate of
Incorporation of the Corporation as follows:
RESOLVED: That Section A.3 of Article IV of the Certificate of
Incorporation of the Corporation be amended to read as follows:
"3. Dividends. When and as the Board of Directors declares a
---------
dividend payment on the Corporation's Common Stock, the Board of
Directors shall also declare a dividend on the Convertible
Preferred Stock, such that each share of Convertible Preferred
Stock shall receive 9/20 of the dividend paid on each share of
Common Stock."
THIRD: The third resolution proposed to amend the Certificate of
Incorporation of the Corporation as follows:
RESOLVED: That clause (a) of Section A.5 of Article IV of the Certificate
of Incorporation of the Corporation be amended to read as
follows:
"(a) Any holder of Convertible Preferred Stock may at any time
convert all or any portion of the Convertible Preferred Stock
(including any fraction of a share) held by such holder into a
number of shares of the Corporation's Common Stock computed by
dividing the number of shares of Convertible Preferred Stock to
be converted by 2.22222."
FOURTH: The fourth resolution proposed to amend the Certificate of
Incorporation of the Corporation as follows:
RESOLVED: That clause (4) in the third paragraph of Section A.6 of Article
IV of the Certificate of Incorporation of the Corporation be
amended to read as follows:
"(4) Are, or may be converted to, not more than 2,250,000
shares of Common Stock and which are issued pursuant to any stock
incentive plan to any employee."
FIFTH: That thereafter, pursuant to resolutions by the Board of Directors,
the sole stockholder of the Corporation duly approved said proposed amendments
by written consent dated __________, _____, in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware.
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed, under penalties of
perjury, by Thomas E. D'Ambra, Ph.D., its Chairman of the Board and Chief
Executive Officer, this _____ day of __________, _____.
ALBANY MOLECULAR RESEARCH, INC.
By: _________________________________
Thomas E. D'Ambra, Ph.D.
Chairman of the Board and
Chief Executive Officer
<PAGE>
Exhibit 10.2
ALBANY MOLECULAR RESEARCH, INC.
1998 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Albany Molecular Research, Inc. 1998 Stock
Option and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage
and enable the officers, employees, directors, consultants, advisors, and other
key persons of Albany Molecular Research, Inc. (the "Company") and its
Subsidiaries (as defined below) upon whose judgment, initiative and efforts the
Company largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock
Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 17.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2(a).
"Covered Employee" means an employee who is a "Covered Employee" within the
meaning of Section 162(m) of the Code.
"Deferred Stock Award" means Awards granted pursuant to Section 8.
"Dividend Equivalent Right" means Awards granted pursuant to Section 12.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 19.
<PAGE>
"Fair Market Value" of the Stock on any given date means (i) if the Stock
is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), NASDAQ National System or a national
securities exchange, the determination shall be made by reference to market
quotations. If there are no market quotations for such date, the determination
shall be made by reference to the last date preceding such date for which there
are market quotations, or (ii) if the Stock is not publicly traded on a
securities exchange or traded in the over-the-counter market or, if traded or
quoted, there are no transactions or quotations within the last ten trading days
or trading has been halted for extraordinary reasons, the Fair Market Value on
any given date shall be determined in good faith by the Committee with reference
to the rules and principles of valuation set forth in Section 20.2031-2 of the
Treasury Regulations. Notwithstanding the foregoing, the Fair Market Value of
the Stock on the first day of the Company's Initial Public Offering shall be the
initial public price as set forth in the final prospectus for such Initial
Public Offering.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is neither an
employee or officer of the Company or any Subsidiary.
"Initial Public Offering" means the first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Stock to the public.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Cycle" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a participant's right to and the payment of a Performance
Share Award, Restricted Stock Award or Deferred Stock Award.
"Performance Share Award" means any Award granted pursuant to Section 10.
"Restricted Stock Award" means any Award granted pursuant to Section 7.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
2
<PAGE>
"Stock Appreciation Rights" means any Award granted pursuant to Section 6.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 9.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
---------------------------------------------------------
PARTICIPANTS AND DETERMINE AWARDS
---------------------------------
(a) Committee. The Plan shall be administered by the Board of Directors of
---------
the Company, or at the discretion of the Board, by a committee of the Board
comprised, except as contemplated by Section 2(c), of not less than two
Independent Directors (in either case, the "Administrator").
(b) Powers of Administrator. The Administrator shall have the power and
-----------------------
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers, employees, Independent Directors,
consultants and key persons of the Company and its Subsidiaries to whom
Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights, or any
combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award and/or to include provisions in Awards
providing for such acceleration;
3
<PAGE>
(vi) to impose any limitations on Awards granted under the Plan,
including limitations on transfers, repurchase provisions and the like and
to exercise repurchase rights or obligations;
(vii) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(viii)to determine at any time whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting interest (at rates determined by the Administrator) or
dividends or deemed dividends on such deferrals; and
(ix) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
---------------------------------------
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. Any such delegation by the Administrator
shall include a limitation as to the amount of Awards that may be granted during
the period of the delegation and shall contain guidelines as to the
determination of the exercise price of any Stock Option or Stock Appreciation
Right, the conversion ratio or price of other Awards and the vesting criteria.
The Administrator may revoke or amend the terms of a delegation at any time but
such action shall not invalidate any prior actions of the Administrator's
delegate or delegates that were consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved and
--------------
available for issuance under the Plan shall be such aggregate number of shares
of Stock as does not exceed the sum of (i) 1,379,771 shares; plus (ii) as of
each June 30 and December 31, an additional positive number equal to fifteen
percent (15%) of the shares of Stock issued by the Company during the six-month
period then ended; provided, however, that the maximum
4
<PAGE>
number of shares of Stock for which Incentive Stock Options may be granted under
the Plan shall not exceed 1,379,771 shares. For purposes of the foregoing
limitations, the shares of Stock underlying any Awards which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. Subject to such overall
limitation, shares of Stock may be issued up to such maximum number pursuant to
any type or types of Award; provided, however, that Stock Options or Stock
Appreciation Rights with respect to no more than 200,000 shares of Stock may be
granted to any one individual participant during any calendar year period. The
shares available for issuance under the Plan may be authorized but unissued
shares of Stock or shares of Stock reacquired by the Company. Upon the exercise
of a Stock Appreciation Right settled in shares of Stock, the right to purchase
an equal number of shares of Stock covered by a related Stock Option, if any,
shall be deemed to have been surrendered and will no longer be exercisable, and
said number of shares of Stock shall no longer be available under the Plan.
(b) Recapitalizations. If, through or as a result of any merger,
-----------------
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock as a class are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company or any successor
company, or additional shares or new or different shares or other securities of
the Company or any successor Company or other non-cash assets are distributed
with respect to such shares of Stock or other securities, the Administrator
shall make an appropriate or proportionate adjustment in (i) the maximum number
of shares reserved for issuance under the Plan, (ii) the number of Stock Options
or Stock Appreciation Rights that can be granted to any one individual
participant, (iii) the number and kind of shares or other securities subject to
any then outstanding Awards under the Plan, and (iv) the price for each share
subject to any then outstanding Stock Options, Stock Appreciation Rights or
other Awards under the Plan, without changing the aggregate exercise price
(i.e., the exercise price multiplied by the number of shares) as to which such
Stock Options, Stock Appreciation Rights or other Awards remain exercisable.
The adjustment by the Administrator shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan resulting from any
such adjustment, but the Administrator in its discretion may make a cash payment
in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the participant, if it would constitute a modification, extension
or renewal of the Option within the meaning of Section 424(h) of the Code.
5
<PAGE>
(c) Mergers and Other Transactions. In the case of and subject to the
------------------------------
consummation of (i) the dissolution or liquidation of the Company, (ii) the sale
of all or substantially all of the assets of the Company on a consolidated basis
to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the holders of the Company's outstanding voting power
immediately prior to such transaction do not own a majority of the outstanding
voting power of the surviving or resulting entity immediately upon completion of
such transaction, (iv) the sale of all of the Stock of the Company to an
unrelated person or entity or (v) any other transaction in which the owners of
the Company's outstanding voting power prior to such transaction do not own at
least a majority of the outstanding voting power of the relevant entity after
the transaction (in each case, a "Covered Transaction"), all Options and Stock
Appreciation Rights that are not exercisable shall become fully exercisable and
all other Awards with conditions and restrictions relating solely to the passage
of time and continued employment shall become fully vested, except as the
Administrator may otherwise specify with respect to particular Awards. Upon the
consummation of the Covered Transaction, the Plan and all outstanding Awards
granted hereunder shall terminate, unless provision is made in connection with
the Covered Transaction for the assumption of Awards heretofore granted, or the
substitution of such Awards with new Awards of the successor entity or parent
thereof, with appropriate adjustment as to the number and kind of shares and, if
appropriate, the per share exercise prices, as provided in Section 3(b) above.
In the event of such termination, each optionee shall be permitted, within a
specified period of time determined by the Administrator prior to consummation
of the Covered Transaction, to exercise all outstanding Options and Stock
Appreciation Rights held by such optionee, including those that are not then
exercisable, subject to the consummation of the Covered Transaction.
(d) Substitute Awards. The Administrator may grant Awards under the Plan
-----------------
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances. Any substitute Awards granted under
this Plan shall not count against the share limitation set forth in Section
3(a).
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such officers and other employees,
Independent Directors, consultants, advisors and other key persons (including
prospective employees) of the Company and its Subsidiaries who are responsible
for or contribute to the management, growth or profitability of the Company and
its Subsidiaries as are selected from time to time by the Administrator, in its
sole discretion.
6
<PAGE>
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be pursuant to a stock option
agreement which shall be in such form as the Administrator may from time to time
approve. Option agreements need not be identical.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. Non-Qualified Stock Options
may be granted to officers, employees, Independent Directors, advisors,
consultants and other key persons of the Company and its Subsidiaries. To the
extent that any Option does not qualify as an Incentive Stock Option, it shall
be deemed a Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after August 26,
2008.
(a) Terms of Stock Options. Stock Options granted under the Plan shall be
----------------------
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable.
(i) Exercise Price. The exercise price per share for the Stock
--------------
covered by a Stock Option shall be determined by the Administrator at the
time of grant but shall not be less than 100 percent of the Fair Market
Value on the date of grant in the case of Incentive Stock Options, or 85%
of the Fair Market Value on the date of grant, in the case of Non-Qualified
Stock Options (other than options granted in lieu of cash compensation).
If an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10 percent of the
combined voting power of all classes of stock of the Company or any parent
or subsidiary corporation and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock Option shall be not less
than 110 percent of the Fair Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by
-----------
the Administrator, but no Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the term of such option
shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
---------------------------------------
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after the
grant date; provided, however, that Stock Options granted in lieu of cash
compensation shall be exercisable in full as of the
7
<PAGE>
grant date. The Administrator may at any time accelerate the exercisability
of all or any portion of any Stock Option. An optionee shall have the
rights of a stockholder only as to shares acquired upon the exercise of a
Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or
------------------
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods to the extent provided in the
Option Award Agreement; provided, however, that the methods set forth in
subsections (B) and (C) below shall become available only after the closing
of the Initial Public Offering:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of shares
of Stock that have been purchased by the optionee on the open market
or that have been beneficially owned by the optionee for at least six
months, and are not then subject to restrictions under any Company
plan, if permitted by the Administrator in its discretion; such
surrendered shares shall be valued at Fair Market Value on the
exercise date;
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company to pay the purchase price; provided that in the event
the optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a promissory note
if the Board has expressly authorized the loan of funds to the optionee for
the purpose of enabling or assisting the optionee to effect the exercise of
his Stock Option; provided that at least so much of the exercise price as
represents the par value of the Stock shall be paid other than with a
promissory note.
Payment instruments will be received subject to collection. The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws. In the event an
optionee chooses to pay the purchase price by previously-owned shares of
stock through the attestation
8
<PAGE>
method described in Section 5(a)(iv)(B), the number of shares of Stock
transferred to the optionee upon the exercise of the Stock Option shall be
net of the number of shares attested to.
(v) Termination. Unless otherwise provided in the option agreement
-----------
or determined by the Administrator, upon the optionee's termination of
employment (or other business relationship) with the Company and its
Subsidiaries, the optionee's rights in his Stock Options shall
automatically terminate.
(vi) Annual Limit on Incentive Stock Options. To the extent required
---------------------------------------
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time by an optionee during
any calendar year shall not exceed $100,000. To the extent that any Stock
Option exceeds this limit, it shall constitute a Non-Qualified Stock
Option.
(b) Reload Options. At the discretion of the Administrator, Options
--------------
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with the same expiration
date as the original Option being exercised, and with such other terms as the
Administrator may provide) to purchase that number of shares of Stock equal to
the sum of (i) the number delivered to exercise the original Option and (ii) the
number withheld to satisfy tax liabilities, with an Option term equal to the
remainder of the original Option term unless the Administrator otherwise
determines in the Award agreement for the original Option grant.
(c) Non-transferability of Options. No Stock Option shall be transferable
------------------------------
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee, or by the optionee's legal representative or
guardian in the event of the optionee's incapacity. Notwithstanding the
foregoing, the Administrator, in its sole discretion, may provide in the Award
agreement regarding a given Option that the optionee may transfer, without
consideration for the transfer, his Non-Qualified Stock Options to members of
his immediate family, to trusts for the benefit of such family members, to
partnerships in which such family members are the only partners; provided,
however, that the transferee agrees in writing to be bound by the terms and
conditions of this Plan and the applicable Option Agreement.
SECTION 6. STOCK APPRECIATION RIGHTS
-------------------------
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
-----------------------------------
Award entitling the recipient to receive an amount in cash or shares of Stock or
a combination thereof having a value equal to the excess of the Fair Market
Value of the Stock on the date of exercise
9
<PAGE>
over the exercise price per Stock Appreciation Right set by the Administrator at
the time of grant, which price shall be determined by the Administrator in its
sole discretion (or over the option exercise price per share, if the Stock
Appreciation Right was granted in tandem with a Stock Option) multiplied by the
number of shares of Stock with respect to which the Stock Appreciation Right
shall have been exercised, with the Administrator having the right to determine
the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation
-----------------------------------------------
Rights may be granted by the Administrator in tandem with, or independently of,
any Stock Option granted pursuant to Section 5 of the Plan. In the case of a
Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option,
such Stock Appreciation Right may be granted either at or after the time of the
grant of such Option. In the case of a Stock Appreciation Right granted in
tandem with an Incentive Stock Option, such Stock Appreciation Right may be
granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
-------------------------------------------------
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Administrator, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options shall be
exercisable at such time or times and to the extent that the related Stock
Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the applicable
portion of any related Option shall be surrendered.
(iii) All Stock Appreciation Rights shall be exercisable during the
participant's lifetime only by the participant or the participant's legal
representative.
SECTION 7. RESTRICTED STOCK AWARDS
-----------------------
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
---------------------------------
Award entitling the recipient to acquire, at par value or such other purchase
price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives. The grant of a Restricted Stock Award is
contingent on the participant executing the Restricted Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and participants.
10
<PAGE>
(b) Rights as a Stockholder. Upon execution of a written instrument
-----------------------
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 7(d) below, and the participant shall be
required, as a condition of the grant, to deliver to the Company a stock power
endorsed in blank.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred,
------------
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the Restricted Stock agreement. If a participant's employment (or
other business relationship) with the Company and its Subsidiaries terminates
for any reason, or upon such other events as may be stated in the Restricted
Stock agreement, the Company or its assigns shall have the right to repurchase
Restricted Stock that has not vested at the time of termination at its original
purchase price, from the participant or the participant's legal representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
---------------------------
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the non-
transferability of the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be deemed "vested." Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's rights in any
shares of Restricted Stock that have not vested shall automatically terminate
upon the participant's termination of employment (or other business
relationship) with the Company and its Subsidiaries and such shares shall be
subject to the Company's right of repurchase as provided in Section 7(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock
----------------------------------------------
agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Restricted Stock.
SECTION 8. DEFERRED STOCK AWARDS
---------------------
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award
-------------------------------
of phantom stock units to a participant, subject to restrictions and conditions
as the Administrator may determine at the time of grant. Conditions may be
based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and objectives. The grant of a
Deferred Stock Award is contingent on the participant executing the Deferred
Stock Award agreement. The terms and conditions of each such agreement shall be
determined by the Administrator, and such terms and conditions may differ among
individual
11
<PAGE>
Awards and participants. At the end of the deferral period, the Deferred Stock
Award, to the extent vested, shall be paid to the participant in the form of
shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation. The
-----------------------------------------------------------------
Administrator may, in its sole discretion, permit a participant to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such participant in the form of a Deferred Stock Award. Any such
election shall be made in writing and shall be delivered to the Company no later
than the date specified by the Administrator and in accordance with rules and
procedures established by the Administrator. The Administrator shall have the
sole right to determine whether and under what circumstances to permit such
elections and to impose such limitations and other terms and conditions thereon
as the Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a participant
-----------------------
shall have no rights as a stockholder; provided, however, that the participant
may be credited with Dividend Equivalent Rights with respect to the phantom
stock units underlying his Deferred Stock Award, subject to such terms and
conditions as the Administrator may determine.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 15 below, in writing after
the Award agreement is issued, a participant's right in all Deferred Stock
Awards that have not vested shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
SECTION 9. UNRESTRICTED STOCK AWARDS
-------------------------
The Administrator may, in its sole discretion, grant (or sell at a purchase
price determined by the Administrator) an Unrestricted Stock Award to any
participant, pursuant to which such participant may receive shares of Stock free
of any vesting restrictions ("Unrestricted Stock") under the Plan. Unrestricted
Stock Awards may be granted or sold as described in the preceding sentence in
respect of past services or other valid consideration, or in lieu of any cash
compensation due to such individual.
SECTION 10. PERFORMANCE SHARE AWARDS
------------------------
(a) Nature of Performance Share Awards. A Performance Share Award is an
----------------------------------
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan. The Administrator in its sole discretion shall determine
whether and to whom Performance Share Awards shall be made, the performance
goals applicable under each such Award, the periods during which
12
<PAGE>
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Shares; provided, however, that the
Administrator may rely on the performance goals and other standards applicable
to other performance unit plans of the Company in setting the standards for
Performance Share Awards under the Plan.
(b) Restrictions on Transfer. Performance Share Awards and all rights with
------------------------
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Stockholder. A participant receiving a Performance Share
-----------------------
Award shall have the rights of a stockholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the Performance Share agreement (or in a performance plan adopted
by the Administrator).
(d) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 15 below, in writing after
the Award agreement is issued, a participant's rights in all Performance Share
Awards shall automatically terminate upon the participant's termination of
employment (or business relationship) with the Company and its Subsidiaries for
any reason.
(e) Acceleration, Waiver, Etc. At any time prior to the participant's
--------------------------
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 15, amend any or all of the goals, restrictions or
conditions imposed under any Performance Share Award.
SECTION 11. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
---------------------------------------------
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code and the regulations promulgated thereunder (a
"Performance-based Award"), such Award shall comply with the provisions set
forth below:
(a) Performance Criteria. The performance criteria used in performance
--------------------
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's return on equity,
assets, capital or investment; (ii) pre-tax or after-tax profit levels of the
Company or any Subsidiary, a division, an operating unit or a business segment
of the Company, or any combination of the foregoing; (iii) cash flow, funds from
operations or similar measure; (iv) total shareholder return; (v) changes in the
market price of the Stock; (vi) sales or market share; or (vii) earnings per
share.
13
<PAGE>
(b) Grant of Performance-based Awards. With respect to each Performance-
---------------------------------
based Award granted to a Covered Employee, the Administrator shall select,
within the first 90 days of a Performance Cycle (or, if shorter, within the
maximum period allowed under Section 162(m) of the Code) the performance
criteria for such grant, and the achievement targets with respect to each
performance criterion (including a threshold level of performance below which no
amount will become payable with respect to such Award). Each Performance-based
Award will specify the amount payable, or the formula for determining the amount
payable, upon achievement of the various applicable performance targets. The
performance criteria established by the Administrator may be (but need not be)
different for each Performance Cycle and different goals may be applicable to
Performance-based Awards to different Covered Employees.
(c) Payment of Performance-based Awards. Following the completion of a
-----------------------------------
Performance Cycle, the Administrator shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Administrator shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) Maximum Award Payable. The maximum Performance-based Award payable to
---------------------
any one Covered Employee under the Plan for a Performance Cycle is 200,000
Shares (subject to adjustment as provided in Section 3(b) hereof).
SECTION 12. DIVIDEND EQUIVALENT RIGHTS
--------------------------
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award
--------------------------
entitling the recipient to receive credits based on cash dividends that would
have been paid on the shares of Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares had been issued to and held
by the recipient. A Dividend Equivalent Right may be granted as a component of
another Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend equivalents
credited to the holder of a Dividend Equivalent Right may be paid currently or
may be deemed to be reinvested in additional shares of Stock, which may
thereafter accrue additional equivalents. Any such reinvestment shall be at
Fair Market Value on the date of reinvestment or such other price as may then
apply under a dividend reinvestment plan sponsored by the Company, if any.
Dividend Equivalent Rights may be settled in cash or shares of Stock or a
combination thereof, in a single installment or installments. A Dividend
Equivalent Right granted as a component of another Award may provide that such
Dividend Equivalent Right shall be settled upon exercise, settlement, or payment
of, or lapse of restrictions on, such other award, and that such Dividend
Equivalent Right shall expire or be forfeited or annulled under the same
conditions as such other award. A Dividend Equivalent
14
<PAGE>
Right granted as a component of another Award may also contain terms and
conditions different from such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled in
--------------------
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
(c) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 15 below, in writing after
the Award agreement is issued, a participant's rights in all Dividend Equivalent
Rights or interest equivalents shall automatically terminate upon the
participant's termination of employment (or cessation of business relationship)
with the Company and its Subsidiaries for any reason.
SECTION 13. TAX WITHHOLDING
---------------
(a) Payment by Participant. Each participant shall, no later than the date
----------------------
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant. The Company's obligation to deliver stock certificates
to any participant is subject to and conditioned on tax obligations being
satisfied by the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
----------------
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, (ii) transferring to the Company shares of
Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due,
or (iii) in a combination of (i) and (ii).
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
--------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
15
<PAGE>
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Administrator
otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award (or
provide substitute Awards at the same or reduced exercise or purchase price or
with no exercise or purchase price in a manner not inconsistent with the terms
of the Plan), but such price, if any, must satisfy the requirements which would
apply to the substitute or amended Award if it were then initially granted under
this Plan for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's written consent. If and to the extent determined by
the Administrator to be required by the Code to ensure that Incentive Stock
Options granted under the Plan are qualified under Section 422 of the Code to
ensure that compensation earned under Awards qualifies as performance-based
compensation under Section 162(m) of the Code, Plan amendments shall be subject
to approval by the Company stockholders who are eligible to vote at a meeting of
stockholders.
SECTION 16. STATUS OF PLAN
--------------
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 17. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 17:
(a) Except as otherwise provided in the applicable Award agreement, each
outstanding Stock Option and Stock Appreciation Right shall automatically become
fully exercisable.
(b) Except as otherwise provided in the applicable Award Agreement,
conditions and restrictions on each outstanding Restricted Stock Award, Deferred
Stock Award and Performance Share Award which relate solely to the passage of
time and continued employment will be removed. Performance or other conditions
(other than conditions and
16
<PAGE>
restrictions relating solely to the passage of time and continued employment)
will continue to apply unless otherwise provided in the applicable Award
Agreement.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "Person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries and other
than Thomas E. D'Ambra, Ph.D.), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Act) of
such person, shall become the "beneficial owner" (as such term is defined
in Rule 13d-3 under the Act), directly or indirectly, of securities of the
Company representing 25 percent or more of the combined voting power of the
Company's then outstanding securities having the right to vote in an
election of the Company's Board of Directors ("Voting Securities") (in such
case other than as a result of an acquisition of securities directly from
the Company); or
(ii) 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 (A) a vote of at least a majority of the Incumbent
Directors or (B) a vote of at least a majority of the Incumbent Directors
who are members of a nominating committee comprised, in the majority, of
Incumbent Directors; but provided further, that any such person whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of members of the Board of
Directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened contest
or solicitation, shall not be considered an Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly,
shares representing in the aggregate more than 50 percent of the voting
shares of the corporation issuing cash or securities in the consolidation
or merger (or of its ultimate parent corporation, if any), (B) any sale,
lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all
or substantially all of the assets of the Company or (C) any plan or
proposal for the liquidation or dissolution of the Company.
17
<PAGE>
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person to 25 percent or
more of the combined voting power of all then outstanding Voting Securities;
provided, however, that if any person referred to in this sentence shall
thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
SECTION 18. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The Administrator
---------------------------------------------------
may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to participants
------------------------------
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under
---------------------------
the Plan shall be subject to the Company's insider trading policy, as in effect
from time to time.
SECTION 19. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the shares present or represented by proxy and entitled to vote at a meeting
of stockholders at which a quorum is present. Subject to such approval by the
stockholders and to the
18
<PAGE>
requirement that no Stock may be issued hereunder prior to such approval, Stock
Options and other Awards may be granted hereunder on and after the adoption of
this Plan by the Board.
SECTION 20. GOVERNING LAW
-------------
This Plan and all Awards and actions taken thereunder shall be governed by,
and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles, except to the extent such law is
preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS: November 30, 1998
DATE APPROVED BY STOCKHOLDERS: November 30, 1998
19
<PAGE>
EXHIBIT 10.4
ALBANY MOLECULAR RESEARCH, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Albany Molecular Research, Inc. 1998 Employee Stock
Purchase Plan ("the Plan") is to provide eligible employees of Albany Molecular
Research, Inc. (the "Company") and its subsidiaries with opportunities to
purchase shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). Three hundred thousand (300,000) shares of Common Stock in the
aggregate have been approved and reserved for this purpose. The Plan is
intended to constitute an "employee stock purchase plan" within the meaning of
Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and shall be interpreted in accordance with that intent.
1. Administration. The Plan will be administered by the Company's Board
--------------
of Directors (the "Board") or by a committee appointed by the Board for such
purpose (the "Committee"). The Board or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
No member of the Board or the Committee shall be liable for any action or
determination with respect to the Plan or any option granted hereunder.
2. Offerings. The Company will make one or more offerings to eligible
---------
employees to purchase the Common Stock under the Plan ("Offerings"). The
initial Offering will begin on July 1, 1999 and will end on December 31, 1999.
Thereafter, an Offering will begin on the first business day occurring on or
after each January 1 and July 1 and will end on the last business day occurring
on or before the following June 30 and December 31, respectively. The Committee
may, in its discretion, choose an Offering period of six months or less for each
of the Offerings and choose a different Offering period for each Offering.
<PAGE>
3. Eligibility. All employees of the Company (including employees who
-----------
are also directors of the Company) and all employees of each Designated
Subsidiary (as defined in Section 11) are eligible to participate in any one or
more of the Offerings under the Plan, provided that as of the first day of the
applicable Offering (the "Offering Date") they are customarily employed by the
Company or a Designated Subsidiary for more than twenty (20) hours a week.
4. Participation. An employee eligible on any Offering Date may
-------------
participate in such Offering by submitting an enrollment form to his or her
appropriate payroll location at least fifteen (15) business days before the
Offering Date (or by such other deadline as shall be established for the
Offering). The form will (a) state a whole percentage to be deducted from such
employee's Compensation (as defined in Section 11) per pay period, (b) authorize
the purchase of Common Stock for such employee in each Offering in accordance
with the terms of the Plan and (c) specify the exact name or names in which
shares of Common Stock purchased for such employee are to be issued pursuant to
Section 10. An employee who does not enroll in accordance with these procedures
will be deemed to have waived the right to participate. Unless an employee
files a new enrollment form or withdraws from the Plan, such employee's
deductions and purchases will continue at the same percentage of Compensation
for future Offerings, provided such employee remains eligible. Notwithstanding
the foregoing, participation in the Plan will neither be permitted nor be denied
contrary to the requirements of the Code.
2
<PAGE>
5. Employee Contributions. Each eligible employee may authorize payroll
----------------------
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his or her Compensation for each pay period. The Company will maintain book
accounts showing the amount of payroll deductions made by each participating
employee for each Offering. No interest will accrue or be paid on payroll
deductions.
6. Deduction Changes. An employee may not increase his or her payroll
-----------------
deduction during any Offering, but may decrease his or her payroll deduction for
the remainder of the Offering. An employee may also terminate his or her
payroll deduction for the remainder of the Offering, either with or without
withdrawing from the Offering under Section 7. To reduce or terminate his or
her payroll deduction (without withdrawing from the Offering), an employee must
submit a new enrollment form at least fifteen (15) business days (or such
shorter period as shall be established) before the payroll date on which the
change becomes effective. Subject to the requirements of Sections 4 and 5, an
employee may either increase or decrease his or her payroll deduction with
respect to the next Offering by filing a new enrollment form at least fifteen
(15) business days before the next Offering Date (or by such other deadline as
shall be established for the Offering).
7. Withdrawal. An employee may withdraw from participation in the Plan
----------
by delivering a written notice of withdrawal to his or her appropriate payroll
location. The employee's withdrawal will be effective as of the next business
day. Following an employee's withdrawal, the Company will promptly refund such
employee's entire account balance under the Plan (after payment for any Common
Stock purchased before the effective date of withdrawal). Partial withdrawals
are not permitted. The employee may not begin participation
3
<PAGE>
again during the remainder of the Offering, but may enroll in a subsequent
Offering in accordance with Section 4.
8. Grant of Options. On each Offering Date, the Company will grant to
----------------
each eligible employee who is then a participant in the Plan an option
("Option") to purchase on the last day of such Offering (the "Exercise Date"),
at the Option Price hereinafter provided for, a maximum of one thousand (1,000)
shares of Common Stock reserved for the purposes of the Plan, or such other
maximum number of shares as shall have been established by the Board or the
Committee in advance of the offering. The purchase price for each share
purchased under such Option (the "Option Price") will be 85% of the Fair Market
Value of the Common Stock on the Offering Date or the Exercise Date, whichever
is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any
Parent or Subsidiary (as defined in Section 11). For purposes of the preceding
sentence, the attribution rules of Section 424(d) of the Code shall apply in
determining the stock ownership of an employee, and all stock which the employee
has a contractual right to purchase shall be treated as stock owned by the
employee. In addition, no employee may be granted an Option which permits his
or her rights to purchase stock under the Plan, and any other employee stock
purchase plan of the Company and its Parents and Subsidiaries, to accrue at a
rate which exceeds $25,000 of the fair market value of such stock (determined on
the option grant date or dates) for each calendar year in which the Option is
4
<PAGE>
outstanding at any time. The purpose of the limitation in the preceding sentence
is to comply with Section 423(b)(8) of the Code.
9. Exercise of Option and Purchase of Shares. Each employee who
-----------------------------------------
continues to be a participant in the Plan on the Exercise Date shall be deemed
to have exercised his or her Option on such date and shall acquire from the
Company such number of whole shares of Common Stock reserved for the purpose of
the Plan as his or her accumulated payroll deductions on such date will purchase
at the Option Price, subject to any other limitations contained in the Plan.
Any amount remaining in an employee's account at the end of an Offering solely
by reason of the inability to purchase a fractional share will be carried
forward to the next Offering; any other balance remaining in an employee's
account at the end of an Offering will be refunded to the employee promptly.
10. Issuance of Certificates. Certificates representing shares of Common
------------------------
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or in the name of a broker authorized by the
employee to be his or her nominee for such purpose.
11. Definitions.
-----------
The term "Compensation" means the amount of total cash compensation, prior
to salary reduction pursuant to either Section 125 or 401(k) of the Code,
including base pay, overtime, commissions and bonuses, but excluding allowances
and reimbursements for expenses such as relocation allowances or travel
expenses, income or gains on the exercise of Company stock options, and similar
items.
5
<PAGE>
The term "Designated Subsidiary" means any present or future Subsidiary (as
defined below) that has been designated by the Board or the Committee to
participate in the Plan. The Board or the Committee may so designate any
Subsidiary, or revoke any such designation, at any time and from time to time,
either before or after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means (i) if the Common
Stock is admitted to trading on a national securities exchange or the National
Association of Securities Dealers National Market System, the closing price
reported for the Common Stock on such exchange or system for such date or, if no
sales were reported for such date, for the last date preceding such date for
which a sale was reported, or (ii) if clause (i) does not apply but the Common
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the average of the highest bid and lowest
asked prices of the Common Stock reported on NASDAQ for such date or, if no bid
and asked prices were reported for such date, for the last day preceding such
date for which such prices were reported.
The term "Parent" means a "parent corporation" with respect to the Company,
as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. Rights on Termination of Employment. If a participating employee's
-----------------------------------
employment terminates for any reason before the Exercise Date for any Offering,
no payroll deduction will be taken from any pay due and owing to such employee
and the balance in such employee's account will be paid to such employee or, in
the case of death, to such employee's
6
<PAGE>
designated beneficiary as if such employee had withdrawn from the Plan under
Section 7. An employee will be deemed to have terminated employment, for this
purpose, if the corporation that employs such employee, having been a Designated
Subsidiary, ceases to be a Subsidiary, or if such employee is transferred to any
corporation other than the Company or a Designated Subsidiary.
13. Special Rules. Notwithstanding anything herein to the contrary, the
-------------
Board or the Committee may adopt special rules applicable to the employees of a
particular Designated Subsidiary, whenever the Board or the Committee determines
that such rules are necessary or appropriate for the implementation of the Plan
in a jurisdiction where such Designated Subsidiary has employees; provided that
such rules are consistent with the requirements of Section 423(b) of the Code.
Such special rules may include (by way of example, but not by way of limitation)
the establishment of a method for employees of a given Designated Subsidiary to
fund the purchase of shares other than by payroll deduction, if the payroll
deduction method is prohibited by local law or is otherwise impracticable. Any
special rules established pursuant to this Section 13 shall, to the extent
possible, result in the employees subject to such rules having substantially the
same rights as other participants in the Plan.
14. Optionees Not Stockholders. Neither the granting of an Option to an
--------------------------
employee nor the deductions from his or her pay shall constitute such employee a
holder of the shares of Common Stock covered by an Option under the Plan until
such shares have been purchased by and issued to such employee.
7
<PAGE>
15. Rights Not Transferable. Rights under the Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
16. Application of Funds. All funds received or held by the Company under
--------------------
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
17. Adjustment in Case of Changes Affecting Common Stock. In the event of
----------------------------------------------------
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for the Plan, and the
share limitation set forth in Section 8, shall be increased proportionately, and
such other adjustment shall be made as may be deemed equitable by the Board or
the Committee. In the event of any other change affecting the Common Stock,
such adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
18. Amendment of the Plan. The Board or the Committee may at any time,
---------------------
and from time to time, amend the Plan in any respect, except that without the
approval, within twelve (12) months of such Board or Committee action, by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, no amendment
shall be made increasing the number of shares approved for the Plan or making
any other change that would require stockholder approval in order for the Plan,
as amended, to qualify as an "employee stock purchase plan" under Section 423(b)
of the Code.
8
<PAGE>
19. Insufficient Shares. If the total number of shares of Common Stock
-------------------
that would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
20. Termination of the Plan. The Plan may be terminated at any time by
-----------------------
the Board or the Committee. Upon termination of the Plan, all amounts in the
accounts of participating employees shall be promptly refunded.
21. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver Common Stock under the Plan is subject to obtaining all governmental
approvals required in connection with the authorization, issuance, or sale of
such stock.
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
------------------
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Tax Withholding. Participation in the Plan is subject to any required
---------------
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
9
<PAGE>
24. Notification Upon Sale of Shares. Each employee agrees, by entering
--------------------------------
the Plan, to give the Company prompt notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
25. Effective Date and Approval of Stockholders. The Plan shall take
-------------------------------------------
effect on the first day of the Company's initial public offering, subject to
approval by the holders of a majority of the shares of stock of the Company
present or represented and entitled to vote at a meeting of stockholders, which
approval must occur within twelve (12) months of the adoption of the Plan by the
Board.
10
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the ____ day of
______________, _____, 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); and provided further that if the Company
-------- -------
(or any of its successors) elects not to renew this Agreement at any time during
the one year following a Change in Control (as defined in Section 6(g)), the
provisions of Section 6(g) shall apply. 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 Chief Executive Officer of the Company 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 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 Board of Directors of the
Company, shall serve as an
<PAGE>
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
-----------------
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. 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
2
<PAGE>
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 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;
3
<PAGE>
(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 Chief Executive Officer which are consistent with the
terms and conditions of this Agreement or shall have deliberately, wilfully,
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.
4
<PAGE>
(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 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
5
<PAGE>
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) or the Company elects not to renew this Agreement in accordance
with Section 2, 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 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
6
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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;
(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
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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 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
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"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 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.
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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.
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 an
10
<PAGE>
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: Chief Executive Officer
To the Executive:
Donald E. Kuhla, Ph.D.
----------------------------
----------------------------
----------------------------
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.
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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, together with that certain Employee
----------------
Innovation, Proprietary Information and Post-Employment Activity Agreement
executed by the Employee, constitute the entire agreement between the parties
concerning the subjects hereof and thereof and supersede all prior
understandings and agreements between the parties relating to the subject matter
hereof and thereof.
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]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
ALBANY MOLECULAR RESEARCH, INC.
By:
---------------------------------
Name:
Title:
EXECUTIVE:
------------------------------------
Donald E. Kuhla, Ph.D.
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EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Albany Molecular Research, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Albany, New York
January 7, 1999
