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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25323
Albany Molecular Research, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 14-1742717
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
21 Corporate Circle, Albany, New York 12203
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (518) 464-0279
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on March 15, 2000 was approximately $545.3
million based upon the closing price per share of the Registrant's Common Stock
as reported on the Nasdaq National Market on March 15, 2000. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of March 15, 2000, there were 14,734,763 outstanding shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into Part III
of this Report on Form 10-K:
(1) The Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 31, 2000.
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ALBANY MOLECULAR RESEARCH, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
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Page No.
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Part I.
Item 1. Business.............................................. 2
Item 2. Properties............................................ 9
Item 3. Legal Proceedings..................................... 10
Item 4. Submission of Matters to a Vote of Security Holders... 10
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 10
Item 6. Selected Financial Data............................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk................................................. 25
Item 8. Financial Statements and Supplementary Data........... 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 49
Part III.
Item 10. Directors and Executive Officers of the Registrant.... 49
Item 11. Executive Compensation................................ 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................... 49
Item 13. Certain Relationships and Related Transactions........ 49
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.......................................... 49
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PART I
Item 1. Business.
Overview
We are a leading fully integrated provider of drug discovery and
development, chemistry research and manufacturing services to companies in the
pharmaceutical and biotechnology industries. We believe that we are the only
company providing contract chemistry services to customers across the entire
product development cycle from lead discovery to commercial manufacturing. We
offer services traditionally provided by chemistry divisions within
pharmaceutical and biotechnology companies, including drug discovery, medicinal
chemistry, chemical development, analytical chemistry services and small-scale
and pilot-plant manufacturing. Recently, we expanded our service offerings to
include commercial manufacturing through our strategic relationship with and
investment in Organichem Corporation. We have designed our services to permit
our customers to reduce overall drug development time and cost and to pursue
simultaneously a greater number of drug discovery and development opportunities.
In addition to our contract services, we also conduct proprietary research
and development to discover new lead compounds with commercial potential. We
anticipate that we would then license these compounds to third parties in return
for up-front service fees and milestone payments as well as recurring royalty
payments if these compounds are developed into new drugs successfully reaching
the market. In 1995, our proprietary research and development activities led to
the development and patenting of a substantially pure form of, and a
manufacturing process for, the active ingredient in the non-sedating
antihistamine marketed by Aventis as Allegra in the Americas and as Telfast
elsewhere. Pursuant to a licensing agreement with Aventis, we have earned $44.8
million in milestones and royalties through December 31, 1999 and are entitled
to receive ongoing royalties from Aventis based upon a percentage of sales of
the product. In addition, many of our discovery technology contracts provide for
us to receive licensing, milestone and royalty payments for discoveries which
lead to products that reach the market.
Service Offerings
Discovery Technologies
We have recently added discovery technologies to our service offerings to
expand our services for lead discovery and optimization. Our discovery
technologies services employ biocatalysis technology, which uses enzymes to
synthesize new compounds, and the creation of combinatorial chemistry libraries
using development and high throughput synthesis technology. Our development
technologies complement our medicinal chemistry services as additional methods
of developing and screening large numbers of compounds against drug targets to
generate new drug leads. These discovery technologies give us the capability to:
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Develop lead extensions from unsuccessful Phase II or Phase III clinical
trials,
Create libraries of potential lead compounds,
Improve chemical compounds for currently marketed drugs,
Widen patent coverage,
Improve solubility and/or bioavailability of drug compounds,
Identify active metabolites, and
Perform process research, consisting of the improvement or modification
of existing processes.
Our combinatorial chemistry library technology exists pursuant to the terms
of a technology transfer arrangement between us and Sphinx Pharmaceuticals, a
division of Eli Lilly and Company. Under that agreement, we have been granted a
non-exclusive license to use specified parts of this technology. We have agreed
to pay Sphinx royalties based upon the compensation received by us under
agreements with third parties for the use of this technology through December
2002. In addition, we are obligated to pay Sphinx ongoing royalties based upon
the sales of products comprising compounds discovered or developed by us using
this technology.
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. Our medicinal chemistry
group assists our customers in the pursuit of new drug leads as well as in lead
development and optimization using modern structure-based drug design. Our
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 us include:
Design and synthesis of potential lead compounds,
Design, modification and synthesis of lead compounds with improved potency,
selectivity and pharmacokinetics,
Development and synthesis of analogs of lead compounds to broaden patent
protection, and
Resynthesis and expansion of customers' chemistry libraries by employing
combinatorial and computational chemistry.
Chemical Development
Chemical development involves the scale up synthesis of a lead compound.
Processes developed for small scale production of a compound may not be suitable
for larger scale production because they may be uneconomic, environmentally
unacceptable or present safety concerns. Our chemical development scientists
design novel or improved methods and processes suitable for medium to large
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scale production. Our 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 us include:
Process research, consisting of the improvement or modification of existing
processes,
Discovery and development of new product methodologies to prepare products,
Process development and production of single-isomer molecules, and
Development of practical purification techniques.
Analytical Chemistry Services
Our analytical chemistry services include identity and purity testing,
method development and validation, and stability testing. We also provide
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. Our analytical services are designed to support our
customers' compliance with these guidelines. We typically provide these services
at several stages throughout the drug discovery, development and manufacturing
process starting with lead optimization. Analytical services provided by us
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,
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.
cGMP Manufacturing Services
We provide chemical synthesis and manufacturing services for our 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. Our
Albany facility has production facilities and quarantine and restricted access
storage necessary for conducting cGMP manufacturing in quantities sufficient for
conducting Phase I clinical trials (up to approximately 10 kilograms). Through
our strategic relationship with Organichem, our customers can also obtain
product quantities sufficient to conduct Phase II and Phase III clinical trials
(between 10 and 100 kilograms) as well as commercial product quantities (greater
than 100 kilograms).
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Proprietary Research and Development
We conduct proprietary research and development on promising drug
candidates utilizing our medicinal chemistry tools as well as our discovery
technologies, which consist of our biocatalysis technology and technology for
the development and high throughput screening of combinatorial libraries. We are
currently exploring opportunities for applying our discovery technologies to
promising drug candidates about which information is publicly available. In the
event that we discover promising drug targets, we anticipate that we would
license them to third parties in return for licensing, milestone and royalty
payments. We also seek to incorporate terms in our contract services agreements
with customers which provide for us to receive up-front service fees and
milestone payments for advancing new products as well as recurring royalty
payments for new drugs successfully reaching the market. In 1999, we spent $1.8
million on proprietary research and development.
Allegra/Telfast Licensing Agreement
Our proprietary research and development efforts to date have led to the
discovery of one product which has reached the market. We discovered a new
process to prepare a metabolite known as terfenadine carboxylic acid, or "TAM,"
in a purer form. The purer form of TAM is a non-sedating antihistamine known as
fexofenadine HCl, which is sold under the name Allegra in the Americas and as
Telfast elsewhere by Aventis. We have obtained several U.S. and foreign patents
relating to TAM and the process chemistry by which TAM is produced. Our issued
patents relating to TAM expire between 2013 and 2015.
In March 1995, we entered into a license agreement with Aventis. Under the
terms of the license agreement, we granted Aventis an exclusive, worldwide
license to any patents issued to us related to its original TAM patent
applications. Through December 31, 1999, we have earned $7.2 million in
milestone payments and $37.6 million in royalties under this license agreement.
Aventis is obligated under the license agreement to pay ongoing royalties to us
based upon sales of Allegra/Telfast. We are not entitled, however, to receive
any additional milestone payments under the license agreement. Sales of
Allegra/Telfast worldwide were approximately $780 million for the year ended
December 31, 1999.
Customers
Since our inception, we have conducted over 500 projects for more than
125 customers. Our customers include primarily pharmaceutical companies and
biotechnology companies and, to a limited extent, agricultural companies,
fine chemical companies and contract chemical manufacturers. Contract revenue
from DuPont Pharmaceuticals Company accounted for 11% of our aggregate net
contract revenue plus other operating revenue (including licensing fees,
milestones and royalties) for the year ended December 31, 1999. No other
customers accounted for more than 10% of our aggregate net contract revenue
plus other operating revenue (including licensing fees, milestones and
royalties) for the year ended December 31, 1999. For the year ended December
31, 1999, net contract revenue from our three largest customers respectively
represented approximately 22%, 10% and 10% of total net contract revenue
(excluding licensing fees, milestones and royalties).
Marketing
Our senior management and dedicated business development personnel are
primarily responsible for marketing our services. Because our customers are
typically highly skilled scientists, our use of technical experts in marketing
has allowed us to establish strong customer relationships. In addition to our
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internal marketing efforts, we also rely on the marketing efforts of
consultants, both in the United States and abroad. We market our 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 extensive
advertisements in scientific and trade journals. We also receive a significant
amount of business from customer referrals and through expansion of existing
contracts.
Historically, we have focused our marketing efforts in the eastern United
States and western Europe. Recently, we expanded our marketing efforts to
include the western United States and Japan. These efforts include increased
presence at trade shows in such areas, advertising in trade publications, visits
by senior management and business development personnel to potential customers
and the retention of independent marketing consultants.
Employees
We believe that the successful recruitment and retention of qualified
Ph.D., masters and bachelor level scientists is a key element in achieving our
strategic goals. We believe that as competitive pressures in the pharmaceutical
and biotechnology industries increase, the recruitment and retention of chemists
will become increasingly competitive. In order to meet this challenge, we
actively recruit scientists at colleges and universities, through third-party
recruitment firms and through contacts of our employees. We believe the
sophisticated chemistry performed in the course of our business will assist us
in attracting and retaining qualified scientists. As an incentive directed
toward the recruitment and retention of highly skilled scientists, we have a
program which provides that any scientist or scientists employed by us named as
an inventor on a patent not obtained in connection with a customer contract will
receive a percentage of any net licensing, milestone and royalty revenues
received by us with respect to the patent. Under this program, Thomas E.
D'Ambra, Ph.D., our Chairman and Chief Executive Officer, receives payments as
the sole inventor on the patents for fexofenadine HCl. Dr. D'Ambra received $2.1
million in payments for 1999 under this program. We offer competitive salaries
and benefits to our scientists.
Since January 1, 1999, we have added 114 additional employees, including 78
scientists. As of March 15, 2000, we had 256 employees, including 163 scientists
of whom 65% have Ph.D. degrees. None of our employees are covered by a
collective bargaining agreement. We consider our relations with our employees to
be good.
Competition
We face 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. We
compete 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 us. Smaller companies may also prove to be significant competitors,
particularly through arrangements with large corporate collaborators.
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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 our products and services, are developing or already possess in-house
technologies and services offered by us. Academic institutions, governmental
agencies and other research organizations are also conducting research in areas
in which we provide services either on their own or through collaborative
efforts.
We anticipate that we will face increased competition in the future as new
companies enter the market and advanced technologies become available. Our
services and expertise may be rendered obsolete or uneconomical by technological
advances or entirely different approaches developed by one or more of our
competitors. The existing approaches of our competitors or new approaches or
technologies developed by our competitors may be more effective than those
developed by us. We cannot assure you that our competitors will not develop more
effective or more affordable technologies or services thus rendering our
technologies and/or services obsolete, uncompetitive or uneconomical.
Patents and Proprietary Rights
Our success will depend, in part, on our ability to obtain and enforce
patents, protect trade secrets, obtain licenses to technology owned by third
parties when necessary, and conduct our 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. We cannot assure you 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 one of ours, we may have
to participate in interference proceedings declared by the PTO to determine
priority of invention, which could result in the loss of any opportunity to
secure patent protection for the inventions and the loss of any right to use the
inventions. Even if the eventual outcome is favorable to us, these proceedings
could result in substantial cost to us. 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. We cannot
assure you that in the event that any claims with respect to any of our 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 us to
lose exclusivity afforded by the disputed rights. If a third party is found to
have rights covering products or processes used by us, we could be forced to
cease using the technologies covered by such rights, could be subject to
significant liability to the third party, and could be required to license
technologies from the third party. Furthermore, even if our patents are
determined to be valid, enforceable, and broad in scope, we cannot assure you
that competitors will not be able to design around such patents and compete with
us and its licensees using the resulting alternative technology.
We have a policy of seeking patent protection for patentable aspects of its
proprietary technology. We own five United States patents, three New Zealand
patents and one Australian patent relating to fexofenadine HCl and certain
related manufacturing processes. Our United States issued patents expire between
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2013 and 2015 and New Zealand and Australian patents expire in 2014. Through
our merger with Enzymed, we acquired one United States patent relating to a
process of reacting enzymes in a non-aqueous solvent. This patent expires in
2012. We seek patent protection with respect to products and processes
developed in the course of our activities when we believe such protection is
in our best interest and when the cost of seeking such protection is not
inordinate. However, we cannot assure you that any patent application will be
filed, that any filed applications will result in issued patents or that any
issued patents will provide us 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 our patents.
We may also enter into collaborations or other arrangements with our
customers whereby we retain certain ownership rights or may be entitled to
receive milestones and royalties with respect to proprietary technology
developed by us during the contract period. However, many of our contracts with
our customers provide that ownership of proprietary technology developed by us
in the course of work performed under the contract is vested in the customer,
with us retaining little or no ownership interest.
We also rely upon trade secrets and proprietary know-how for certain
unpatented aspects of our technology. To protect such information, we require
all employees, consultants and licensees to enter into confidentiality
agreements limiting the disclosure and use of such information. We cannot assure
you that these agreements provide meaningful protection or that they will not be
breached, that we would have adequate remedies for any such breach, or that our
trade secrets, proprietary know-how, and technological advances will not
otherwise become known to others. In addition, we cannot assure you that,
despite precautions taken by us, others have not and will not obtain access to
our proprietary technology. Further, we cannot assure you that third parties
will not independently develop substantially equivalent or better technology.
Government Regulation
Although the sale of our services is not subject to significant government
regulation, the manufacture, transportation and storage of our products are
subject to certain laws and regulations. However, our future profitability is
indirectly dependent on the sales of pharmaceuticals and other products
developed by our customers. 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 one of our
customers. The nature and the extent to which such regulation may apply to our
customers will vary depending on the nature of any such pharmaceutical products.
Virtually all pharmaceutical products developed by our 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 IND
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Application that the FDA must review before human clinical trials of an
investigational drug can start. In order to commercialize any products, we or
our 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, we or our 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 we cannot assure you 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, we 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. Our facilities are
subject to scheduled periodic regulatory inspections to ensure compliance with
cGMP requirements. Failure on our part 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 we had materially
violated cGMP requirements could result in additional regulatory sanctions and,
in severe cases, could result in a mandated closing of our facilities which
would materially and adversely affect our business, financial condition and
results of operations.
Our research and development processes involve the controlled use of
hazardous materials. We are 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 we believe that our
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, we could be held liable
for any damages that result and any such liability could exceed our resources.
In addition, we cannot assure you that we will not be required to incur
significant costs to comply with environmental laws and regulations in the
future.
Item 2. Properties.
The Company leases a two-story 90,500 square foot facility in Albany, New
York. The lease for this facility expires on November 30, 2007, although we have
an option to renew this lease for an additional ten years. The lease also
provides us with an option to purchase the building within the next two years
for $3.5 million towards which we have made a $1.0 million non-refundable
deposit. Our Albany facility has eight medicinal chemistry, four chemical
development and two analytical laboratories, four dedicated cGMP manufacturing
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suites, four segregated cGMP dryer rooms, three analytical instrumentation
rooms, and two areas for stability chambers. We also lease approximately
40,000-square feet of laboratory facilities in Rensselaer, New York. The lease
for these laboratories expires November 30, 2007, although we may renew the
lease for eight additional five-year periods at our option. Our Rensselaer
facility has three medicinal chemistry, one combinatorial chemistry and three
chemical development laboratories.
We have signed a letter of intent with respect to a ten-year lease for an
additional 10,900-square foot facility adjacent to our Rensselaer, New York
facility. This facility is currently under renovation and is planned to be
occupied during the first quarter of 2001. We may renew the lease for eight
additional five-year periods at our option.
In 1999, we had total operating lease costs of $768,000.
Item 3. Legal Proceedings.
From time to time, we may be involved in various claims and legal
proceedings arising in the ordinary course of our business. We are not currently
a party to any such claims or proceedings which, if decided adversely against
us, would either individually or in the aggregate have a material adverse effect
on our business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of the fiscal
year covered by this report to a vote of security holders through solicitation
of proxies or otherwise.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. The Common Stock of the Company has been traded on the
Nasdaq National Market ("Nasdaq") since the Company's initial public offering on
February 4, 1999 and currently trades under the symbol "AMRI." The following
table sets forth the high and low closing prices for the Company's Common Stock
as reported by the Nasdaq National Market for the periods indicated:
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Period High Low
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Year Ended December 31, 1999
First Quarter (from February 4 through March 31, 1999) $ 25.00 $ 19.50
Second Quarter $ 31.00 $ 22.00
Third Quarter $ 36.50 $ 20.50
Fourth Quarter $ 31.75 $ 23.00
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(b) Holders. The number of record holders of the Company's Common Stock as of
March 15, 2000 was approximately 189. We believe that the number of beneficial
owners of our Common Stock at that date was substantially greater.
(c) Dividends. We have not declared any cash dividends on our Common
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Stock since our inception in 1991. We currently intend to retain our earnings
for future growth and, therefore, do not anticipate paying cash dividends in the
foreseeable future. Under Delaware law, we are permitted to pay dividends only
out of our surplus, or, if there is no surplus, out of our net profits. Although
our current bank credit facility permits us to pay cash dividends, subject to
certain limitations, the payment of cash dividends may be prohibited under
agreements governing debt which we may incur in the future.
(d) Recent Sales of Unregistered Securities; Use of Proceeds from Registered
Securities.
(a) Recent Sale of Unregistered Securities. Set forth in chronological
order below is information regarding the number of unregistered shares of
capital stock issued by us during the quarter ended December 31, 1999.
Further included is the consideration, if any, received by us for such
shares, and information relating to the section of the Securities Act of
1933, as amended (the "Securities Act"), or rule of the Commission under
which exemption from registration was claimed.
1. In connection with the merger of EnzyMed, Inc. with and into the
Company which was consummated on October 19, 1999, the Company issued
726,056 shares of Common Stock to the EnzyMed stockholders in partial
consideration for their shares of EnzyMed preferred and common stock.
Such shares of Common Stock were issued in reliance on an exemption
from registration under Section 4(2) of the Securities Act and the
rules and regulations promulgated thereunder. Pursuant to
information obtained by the Company in connection with the merger, the
Company believes that it may rely on such exemption.
2. In October 1999, the Company issued 168,875 shares of Common Stock
upon the exercise of outstanding stock options under the Company's
1992 Stock Option Plan for an aggregate exercise price of $26,703 to
employees of the Company in reliance upon the exemption from
registration under Rule 701 promulgated under the Securities Act.
3. In November 1999, the Company issued 8,257 shares of Common Stock
upon the exercise of outstanding stock options under the Company's
1992 Stock Option Plan for an aggregate exercise price of $4,541 to
employees of the Company in reliance upon the exemption from
registration under Rule 701 promulgated under the Securities Act.
(b) Use of Proceeds from Registered Securities.
(1) The effective date of the Securities Act registration statement for which
the use of proceeds information is being disclosed was February 3, 1999, and the
Commission file number assigned to the registration statement is 333-58795.
(2) The offering commenced as of February 4, 1999.
(3) The offering did not terminate before any securities were sold.
(4)(i) As of the date of the filing of this report, the offering has
terminated and 2,815,000 of the securities registered were sold.
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(ii) The names of the managing underwriters were ING Baring Furman Selz LLC
and Hambrecht & Quist LLC.
(iii) The Company's Common Stock, par value $0.01 per share, was the class of
securities registered.
(iv) The Company registered 2,875,000 shares of its Common Stock (which
includes 375,000 solely to cover over-allotments), having an aggregate price of
the offering amount registered of $57.5 million. As of the date of the filing of
this report, 2,815,000 of the total shares registered have been sold at an
aggregate offering price of $56.3 million.
(v) From February 4, 1999 to the date hereof, the amount of expenses incurred
by the Company in connection with the issuance and distribution of the
securities totaled $4.9 million, which consisted of direct payments of: (i) $0.8
million in legal, accounting and printing fees; (ii) $3.9 million in
underwriters discount, fees and commissions; and (iii) $0.2 million in
miscellaneous expenses. No payments for such expenses were made to (i) any of
the Company's directors, officers, general partners or their associates, (ii)
any person(s) owning 10% or more of any class of equity securities of the
Company or (iii) the Company's affiliates.
(vi) The net offering proceeds to the Company after deducting our total
expenses was $51.4 million.
(vii) We used the net proceeds as follows: (i) approximately $7.9 million was
used to repay indebtedness incurred in connection with the repurchase by the
Company on October 28, 1998 of a total of 1,131,903 shares of Common Stock from
our 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"); (ii) approximately $5.0 million was used to repay the Company's
outstanding indebtedness under its existing credit facility with Fleet Bank,
N.A., including fees and accrued and unpaid interest; and (iii) approximately
$30 million was used for the purchase of common stock and convertible
subordinated debentures of Organichem Corporation. Other than in connection with
the Share Repurchase, no such payments were made to (i) any of our directors,
officers, general partners or their associates, (ii) any person(s) owning 10% or
more of any class of equity securities of the Company or (iii) our Company's
affiliates.
(viii) The uses of proceeds described do not represent a material change in
the use of proceeds described in our prospectus.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net contract revenue............... $2,984 $ 5,499 $ 8,209 $13,649 $22,027
Cost of contract revenue........... 1,373 3,052 4,430 7,733 12,491
------ ------- ------- ------- -------
Gross profit from contract
revenue........................... 1,611 2,447 3,779 5,916 9,536
Licensing fees, milestones and
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
royalties, net.................... -- 900 2,278 17,823 19,312
Operating expenses:
Research and development........... 579 813 1,520 1,782 1,827
Selling, general and
administrative.................... 1,324 1,786 2,881 5,109 6,873
------ ------- ------- ------- -------
Total operating expenses......... 1,903 2,599 4,401 6,891 8,700
------ ------- ------- ------- -------
Income (loss) from operations...... (292) 748 1,656 16,848 20,148
Other income (expense):
Interest income (expense), net..... 98 25 40 37 2,000
Equity in (net loss) of unconsolidated
affiliate.......................... -- -- -- -- (98)
Other non-operating income
(expense), net.................... 6 20 (28) (36) (81)
------ ------- ------- ------- -------
Total other income (expense)..... 104 45 12 1 1,821
------ ------- ------- ------- -------
Income (loss) before income taxes.. (188) 793 1,668 16,849 21,969
Income tax (benefit) expense....... (239) 244 373 6,352 8,195
------ ------- ------- ------- -------
Net income......................... $ 51 $ 549 $ 1,295 $10,497 $13,774
====== ======= ======= ======= =======
Basic earnings per share........... $ -- $ 0.05 $ 0.11 $ 0.93 $ 1.02
Diluted earnings per share......... $ -- $ 0.05 $ 0.10 $ 0.82 $ 0.93
Weighted average common shares
outstanding, basic................ 10,701 11,185 11,335 11,348 13,566
Weighted average common shares
outstanding, diluted.............. 11,525 12,139 12,409 12,773 14,817
Consolidated Balance Sheet Data:
Cash and cash equivalents.......... $1,079 $ 2,942 $ 2,582 $ 5,320 $ 2,672
Investment securities, available-
for-sale.......................... 1,913 1,735 1,950 2,027 21,172
Working capital.................... 3,145 4,588 5,542 9,142 34,432
Total assets....................... 6,838 11,326 13,548 32,630 88,242
Long-term debt, less current
maturities........................ 748 2,375 1,776 13,349 168
Total stockholders' equity......... $4,897 $ 7,456 $ 9,799 $12,824 $82,920
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion of the results of our operations and financial
condition should be read in conjunction with the accompanying Consolidated
Financial Statements and the Notes thereto included within this report. This
Form 10-K contains "forward-looking statements" within the meaning of Section
27A of the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company's actual results could differ
materially from those projected in the forward-looking statements and therefore,
prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the factors set forth under "Risk Factors and Certain Factors
Affecting Forward-Looking Statements," the discussion set forth below and the
matters set forth in this Form 10-K generally.
Overview
13
<PAGE>
We were founded in 1991 with the mission to provide a broad range of
chemistry services throughout the drug discovery and development process. As our
customers' needs have expanded and contract chemistry research has increased, we
have expanded our service offerings and physical facilities. In January 1994, we
added our first cGMP manufacturing facility and in May 1996, we added analytical
chemistry services. We completed a 60,000 square foot expansion of our Albany,
New York facility in January 1999. We have begun an expansion of our operations
at our Rensselaer, New York site. This expansion will accommodate additional
medicinal chemistry and chemical development laboratories.
Recent Acquisitions. In October 1999, we completed a merger with
EnzyMed, Inc., a provider of combinatorial biocatalysis discovery services in
which the former stockholders of EnzyMed received shares of our stock valued
at $20.6 million. The merger was accounted for as a pooling-of-interests.
EnzyMed provided us with a combinatorial biocatalysis platform for drug
discovery technology. The acquired technology uses enzymes and microbial
systems to produce new synthetic transformations of compounds. This
technology also produces greater diversity of novel compounds suitable for
lead discovery and optimization.
In December 1999, we made an investment in Organichem Corporation, a
Delaware corporation. Organichem was formed through a management buyout of
the Nycomed Amersham, plc chemical manufacturing facility located in
Rensselaer, New York. We acquired shares of common stock of Organichem,
representing 37.5% of Organichem, for an aggregate purchase price of $15.0
million. We also lent $15.0 million to Organichem in the form of a
convertible subordinated debenture. The debenture is convertible at our
option in 2003 into a number of shares sufficient to give us 75% ownership of
Organichem. We can, at that time, acquire the remaining 25% of Organichem for
a price to be determinable based upon Organichem's financial performance,
which can be between $15.0 million and $30.0 million payable in cash or a
combination of cash and stock at our option. In addition, the other holders
of ownership interests in Organichem have the right to require us to purchase
their ownership interests in Organichem in 2004 based on price calculated
using a predetermined formula.
In February 2000, we purchased American Advanced Organics, a provider of
rapid scale-up manufacturing services, for approximately $2.3 million in cash
and stock. An additional $800,000 in the aggregate may be paid out in 2000 and
2001 based on the financial performance of AAO.
Net contract revenue
Our net contract revenue consists primarily of fees earned under
contracts with third-party customers, net of our reimbursed expenses.
Reimbursed expenses consist of laboratory supplies, chemicals and other costs
reimbursed by our customers and, in accordance with industry practice, are
netted against gross contract revenue. Reimbursed expenses vary from contract
to contract. Accordingly, we view net contract revenue as our primary measure
of revenue growth rather than licensing fees and royalties, which are
dependent upon our licensee's sales.
In general, we provide services to our customers on the following basis:
- a full-time equivalent basis that establishes the number of full-time
equivalents contracted for a project, the duration of the contract period,
14
<PAGE>
the fixed price per full-time equivalent, plus an allowance for out-of-pocket
expenses which may or may not be incorporated in the full-time equivalent rate,
- a time and materials basis under which we charge our customers based on
an hourly rate plus out-of-pocket expenses, or
- to a limited extent, a fixed price basis.
Typically, our full-time equivalent contracts have six month to indefinite
time periods and our time and materials contracts have three to twelve month
periods. Fixed price contracts are entered into for much shorter periods of
time, generally two to six months. Because our fixed price contracts relate to
projects that are generally limited in scope and are of short duration, we have
not historically experienced any material cost overruns under these contracts.
Full-time equivalent and time and materials contracts provide for annual
adjustments in billing rates for the scientists assigned to the contract.
Generally, our contracts may be terminated by the customer upon 30 days' to
one-years' prior notice. We recognize 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.
Licensing fees, milestones and royalties, net
Net licensing fees, milestones and royalties consist of licensing fees,
milestones and royalties net of technology incentive award expense incurred
under our Technology Development Incentive Plan. We maintain 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 a percentage of the net revenue earned by us relating
to patented technology with respect to which the eligible participant is named
as an inventor.
We earn royalties from Aventis under a license agreement based on sales of
fexofenadine HCl, marketed as Allegra in the Americas and as Telfast elsewhere.
Although we entered into the license agreement with Aventis in 1995, we 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 our patents and the
resolution of related patent interference claims. In 1998, we received $3.7
million in non-recurring milestone payments and $4.4 million in royalties
related to prior periods. Royalty payments are due within 45 days after the end
of a calendar quarter and determined based on such quarter's sales. Under our
Technology Development Incentive Plan, Thomas E. D'Ambra, our Chairman and Chief
Executive Officer, receives payments as the sole inventor on the patents for
fexofenadine HCl equal to 10% of the total payments received by us.
Many of our contracts for discovery technology services contain provisions
for licensing, milestone and royalty payments should our proprietary technology,
including enzymes, microbial manipulation and combinatorial chemistry, lead to
the discovery of new products which reach the market. To date, we have not
received any milestone or royalty payments under these arrangements, other than
from Aventis.
Research and development
Research and development expense consists of payments in connection with
collaborations with academic institutions, compensation and benefits for
15
<PAGE>
scientific personnel for work performed on proprietary research projects and
costs of supplies and chemicals related thereto.
Selling, general and administrative expense
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.
Other income (expense)
Other income consists of interest income, interest expense, our equity
in the net income or loss from our unconsolidated affiliate Organichem,
realized gains or losses on sales of investment securities, and other
non-operating income net of interest expense and non-operating expenses.
Results of Operations
The following table sets forth, for the periods indicated, selected
consolidated statement of operations data for the periods indicated as a
percentage of net contract revenue:
<TABLE>
Year ended December 31,
-----------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net contract revenue 100.0% 100.0% 100.0%
Cost of contract revenue 54.0 56.7 56.7
----- ----- -----
Gross profit from contract revenue 46.0 43.3 43.3
Licensing fees, milestones and royalties, net 27.8 130.6 87.7
Operating expenses:
Research and development 18.5 13.1 8.3
Selling, general and administrative 35.1 37.4 31.2
----- ----- -----
Total operating expenses 53.6 50.5 39.5
Income from operations 20.2 123.4 91.5
Other income (expense):
Interest income (expense), net 0.4 0.3 9.1
Equity in net loss of unconsolidated affiliate 0.0 0.0 (0.4)
Other non-operating income (expense), net (0.3) (0.3) (0.3)
----- ----- -----
Total other income (expense), net 0.1 0.0 8.2
Income before income tax expense 20.3 123.4 99.7
Income tax expense 4.5 46.5 37.2
Net income 15.8% 76.9% 62.5%
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net contract revenue. Net contract revenue increased 61.8% to $22.0 million
in 1999 from $13.6 million in 1998. The increase was due principally to the
performance of a greater number of projects under contract primarily for
16
<PAGE>
medicinal and chemical development services, which were enabled through an
increase in the number of scientific staff to 148 at December 31, 1999 from 101
at December 31, 1998.
Gross profit. Gross profit increased 61.0% to $9.5 million in 1999 from
$5.9 million in 1998. 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 8.4% to $19.3 million in 1999 from $17.8
million in 1998. As a result of the February 1998 United States Patent &
Trademark Office ("PTO") decision, we met all prerequisites of the licensing
agreement with Aventis and recognized and received in the first three months of
1998 milestone payments and royalties on all sales of fexofenadine HCl in the
United States from November 26, 1996, the date of patent issuance, through
December 31, 1997. We recognized $21.4 million in royalties on sales of
fexofenadine HCl for 1999, reduced by $2.1 million paid under our Technology
Development Incentive Plan. Our milestones and royalties from fexofenadine HCl
for 1998 include $3.7 million in non-recurring milestone payments and $4.4
million in royalties related to prior periods and, as a result, such milestone
payments and royalties may not be indicative of future amounts earned under the
license agreement with Aventis. In particular, no further milestone payments are
required under the agreement.
Research and development. Research and development expense remained
constant at $1.8 million in 1999 and 1998.
Selling, general and administrative. Selling, general and administrative
expense increased 35.3% to $6.9 million in 1999 from $5.1 million in 1998 and
represented 31.4% of net contract revenue in 1999 compared to 37.5% in 1998.
The increased expense was due principally to transaction expenses related to
our merger with EnzyMed as well as a general increase in administrative and
marketing staff to support the expansion of our operations, increased
expenses for recruitment of scientists, increased rent expense related to the
ongoing expansion of our Albany facility and expenses related to being a
publicly traded entity.
Total other income (expense), net. Total net other income was $1.8
million in 1999. This was comprised of $2.0 million in interest income, net
of interest expense, a $98,000 loss from our unconsolidated affiliate,
Organichem, and $81,000 of other non-operating expense. Our investment in
Organichem was completed in December 1999. As a result, we expect that our
investment in Organichem will have a more substantial effect on our total
other income in future periods.
Income tax expense. Income tax expense increased to $8.2 million in 1999
from $6.4 million in 1998. The dollar increase in income tax expense was
attributable to an increase in taxable income generated by us, although the
effective tax rate on our net income remained consistent between periods at 37%.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net contract revenue. Net contract revenue increased 66.3% to $13.6 million
in 1998 from $8.2 million in 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 101 at December 31, 1998 from 55
at December 31, 1997.
17
<PAGE>
Gross profit. Gross profit increased 55.3% to $5.9 million in 1998 from
$3.8 million in 1997. Gross profit remained relatively constant as a percentage
of net contract revenue.
Licensing fees, milestones and royalties, net. Net licensing fees,
milestones and royalties increased 682.4% to $17.8 million in 1998 from $2.3
million in 1997. As a result of the February 1998 PTO decision, we met all
prerequisites of the licensing agreement with Aventis and recognized and
received in the first three months of 1998 milestone payments and royalties
on all sales of fexofenadine HCl in the United States from November 26, 1996,
the date of patent issuance, through December 31, 1997. We recognized $19.6
million in milestones and royalties on all worldwide sales of fexofenadine
HCl for 1998. All licensing fees, milestones and royalties associated with
the Aventis license are subject to the Technology Development Incentive Plan.
Our milestones and royalties from fexofenadine HCl for 1998 include $3.7
million in non-recurring milestone payments and $4.4 million in royalties
related to prior periods and, as a result, such milestone payments and
royalties may not be indicative of future amounts earned under the license
agreement with Aventis. In particular, no further milestone payments are
required under the agreement.
Research and development. Research and development expense increased 20.0%
to $1.8 million in 1998 from $1.5 million in 1997. The increase was due
primarily to expenses related to biological assay study agreements with third
parties pertaining to two of our proprietary research programs which commenced
in February 1997 and July 1997, respectively.
Selling, general and administrative. Selling, general and administrative
expense increased 82.1% to $5.1 million in 1998 from $2.8 million in 1997 and
represented 37.4% of net contract revenue in 1998 compared to 35.1% in 1997. The
increase was due to a general increase in administrative and marketing staff to
support the expansion of our operations, increased expenses for recruitment of
scientists, increased rent expense related to the ongoing expansion our Albany
facility and a one-time expense of $200,000 incurred in early 1998 as a result
of partial reimbursement to our landlord for expenses incurred by the landlord
in relocating other tenants in order to facilitate our Albany, New York
expansion.
Income tax expense. Income tax expense increased to $6.3 million in 1998
from $0.4 million in 1997. The effective rate was 37.7% in 1998 and 22.4% in
1997. The increase in income tax expense was primarily a result of the
increase in contract revenue, 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, an increase in the minimum
effective federal rate from 34% to 35% due to the fact that our taxable
income was in excess of $10.0 million for 1998, and utilization of net
operating losses generated by EnzyMed.
Liquidity and Capital Resources
We have funded our business through cash flows from operations, proceeds
from borrowings and the issuance of equity securities. During the years ended
December 31, 1999, 1998 and 1997, we generated $13.0 million, $10.2 million and
$381,000, respectively, in cash flow from operations and raised $500,000 and
$7.0 million in borrowings during the years ended December 31, 1999 and 1998,
respectively. We had no additional borrowings during 1997. The increase in our
cash flows for the years ended December 31, 1999 and 1998 were principally due
to an increase in net licensing fees, milestones and royalties.
18
<PAGE>
During the years ended December 31, 1999, 1998 and 1997, total capital
expenditures were $2.7 million, $11.6 million and $910,000, respectively.
Capital expenditures were incurred predominantly in connection with the our
expansion of service offerings (computational chemistry and analytical services)
in 1997, and in connection with our 1998 facilities expansions. In January 1999,
we completed our most recent phase of expansion at our location in Albany, New
York. The expansion has added 60,000 square feet to our existing 30,500 square
feet of laboratory and administrative space. The expansion costs were
approximately $11.0 million.
For the year ended December 31, 1999, we generated $38.5 million from
financing activities, consisting of $51.4 million from our February 1999
initial public offering of 2,815,000 shares of common stock, net of $12.9
million of the proceeds used to repay outstanding long-term debt. During the
year ended December 31, 1999, we also used $40.5 million to purchase
additional investment securities. In order to raise cash for our purchase of
an equity interest and convertible subordinated debenture in Organichem, we
sold $21.2 million of investment securities during 1999. The 37.5% equity
investment in Organichem on December 21, 1999 used approximately $15.1
million in cash, while the purchase of the subordinated debenture in
Organichem used approximately $15.0 million in cash. In addition, we used
$2.2 million from operating cash flow to pay outstanding debt.
Our working capital was $34.4 million at December 31, 1999, compared to
$9.1 million at December 31, 1998, and $5.5 million at December 31, 1997. The
increase in our working capital for the years ended December 31, 1999 and
1998 was primarily attributable to the milestones and royalties earned from
our license agreement with Aventis, less the associated technology incentive
compensation expense. Of the $19.6 million in milestones and royalties we
earned under the license agreement during the year ended December 31, 1998,
$3.7 million constituted non-recurring milestone payments and $4.4 million
constituted royalties relating to prior periods. While we will continue to
receive quarterly royalty payments under the Aventis license agreement, no
additional milestone payments are due under the agreement. In addition,
future royalties under the agreement are dependent upon future sales of
fexofenadine HCl. We do not participate in the manufacture, marketing or sale
of fexofenadine HCl by Aventis and rely entirely on the efforts of Aventis to
manufacture, market and sell this product. There can be no assurance that
Aventis will continue to be successful in marketing and selling fexofenadine
HCl, that fexofenadine HCl will continue to receive market acceptance or that
we will continue to receive royalties from Aventis 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 our working capital,
liquidity and capital resources.
We have available a bank credit facility to supplement our liquidity needs.
The bank credit facility consists of a $25 million, three-year, revolving line
of credit, which converts thereafter into a five-year term loan. The bank credit
facility expires in June 2006. Amounts outstanding under the bank credit
facility bear interest at variable rates which are based upon, at our option,
the lender's prime rate or LIBOR. As of December 31, 1999, we had no outstanding
indebtedness under our credit facility. The interest rate on the credit facility
at December 31, 1999 was 6.99% per annum. The bank credit facility restricts or
prohibits us from incurring indebtedness, incurring liens, disposing of assets
and requires us to maintain certain financial ratios on an ongoing basis. The
bank credit facility is secured by a lien on substantially all of our assets,
19
<PAGE>
other than our patents, and the assignment of the right to receive royalty
payments from Aventis under the license agreement.
We used $5.0 million of the net proceeds from our initial public offering
to repay our outstanding indebtedness under the bank credit facility. On October
28, 1998, we paid $2.0 million in cash from borrowings under the bank credit
facility and issued $7.9 million in promissory notes in connection with our
repurchase of a total of 1,131,903 shares of common stock from our former chief
financial officer and a trust for the benefit of his family. We repaid the
outstanding principal balance under the promissory notes out of the net proceeds
of our initial public offering. We also used $30.1 million of the net proceeds
of the initial public offering for our equity investment in and purchase of a
subordinated debenture from Organichem.
Risk Factors and Certain Factors Affecting Forward-Looking Statements
The following factors should be considered carefully in addition to the
other information in this Form 10-K. Except as mentioned above and except for
the historical information contained herein, the discussion contained in this
Form 10-K contains "forward-looking statements" that involve risk and
uncertainties within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. The Company's actual results could differ
materially from those discussed in this Form 10-K. Important factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere herein.
We may not be able to recruit and retain the highly skilled employees that we
need.
Our future growth and profitability depends upon the research and work of
our highly skilled employees, such as our scientists, and their ability to keep
pace with changes in drug discovery and development technologies. If we cannot
recruit and retain scientists and other highly skilled employees, we will not be
able to continue our existing services and will not be able to expand the
services we offer to our customers. We believe that there is a shortage of
scientists and we compete vigorously with pharmaceutical firms, biotechnology
firms, contract research firms, and academic and research institutions to
recruit scientists.
Pharmaceutical and biotechnology companies may discontinue or decrease their
usage of our services.
We depend on pharmaceutical and biotechnology companies that use our
services for a large portion of our revenues. Although pharmaceutical and
biotechnology companies are generally growing and there is a trend among
pharmaceutical and biotechnology companies to outsource drug research and
development functions, this trend may not continue. If pharmaceutical and
biotechnology companies discontinue or decrease their usage of our services, our
revenues and earnings could be lower than we expect and our revenues may not
grow at historical rates or at all.
Our revenues may decrease if we lose any one of our major customers.
In 1999, we earned approximately 42% of our contract revenues providing
services to three major customers. Many of our major customers may cancel their
contracts with thirty to ninety days notice for a variety of reasons, many of
20
<PAGE>
which are out of our control. If any one of our major customers cancels its
contract with us, our contract revenues may decrease.
The royalties we earn on Allegra may decrease.
We have several patents on a pure form of, and manufacturing process
for, the drug fexofenadine HCl, which is the active ingredient in a
non-sedating antihistamine marketed and sold by Aventis under a license from
us. The product is marketed in the Americas under the brand name Allegra and
in the rest of the world under the brand name Telfast. For the year ended
December 31, 1999, our revenues from the license were $21.4 million, which
was approximately 49% of our total revenues. However, Allegra sales may
decrease for a variety of reasons, including the introduction of a superior
drug into the marketplace or the discovery of unintended side effects from
the use of Allegra. If Allegra sales decrease due to these or any other
factors, our revenues from the license agreement will decrease. Because we
have very few costs associated with the Allegra license, any decrease in our
revenues from the license agreement for Allegra would have a
disproportionately adverse effect on our results of operations.
We may be unsuccessful in producing proprietary technology even though we intend
to expend time and money on our research and development efforts.
We intend to expend time and money on research and development with the
intention of producing proprietary technologies in order to patent and then
license it to other companies. However, we may not be successful in producing
any valuable technology. To the extent we are unable to produce technology that
we can license, we may not receive any revenues related to our research and
development efforts.
We may lose valuable intellectual property if we are unable to protect it.
Some of our most valuable assets include patents and trade secrets.
Part of our business is developing technologies that we patent and then license
to other companies. However, some technologies that we develop may already be
patented by other companies. For this and other reasons, we may not be able to
obtain patents for each new technology that we develop. Even if we are able to
obtain patents, the patents may not sufficiently protect our interest in the
technology. Similarly, we may not be able to protect our trade secrets by
keeping them confidential. Additionally, efforts to protect our patents and
trade secrets may be costly and time consuming to pursue. To the extent we are
unable to protect intellectual property, our investment in those technologies
will not yield the benefits that we expected.
We may not be able to license technologies that we need to conduct our business.
In addition to the technologies that we develop, we also rely on
technologies developed by other companies that we license. We may not be able to
license technologies that we need in the future or we may be unable to license
such technologies on a commercially reasonable basis. Our inability to license
the technologies that we need could result in increased costs and, therefore,
reduced profits, or the inability to engage in certain activities that require
those technologies.
Our failure to manage our expansion may adversely affect us.
21
<PAGE>
Our business has expanded rapidly in the past several years.
However, we cannot assure you that our business will continue to expand.
Expansion places increased stress on our financial, managerial and human
resources. As we expand, we will need to recruit and retain additional highly
skilled scientists and technicians. Expansion of our facilities may lead to
increased expenses and may divert management attention away from operations.
Future acquisitions may disrupt our business and distract our management.
We may engage in acquisitions and strategic relationships. We may not
be able to identify suitable acquisition candidates and, if we do identify
suitable candidates, we may not be able to make such acquisitions on
commercially acceptable terms or at all. If we acquire another company, we may
not be able to successfully integrate the acquired business into our existing
business in a timely and non-disruptive manner. We may have to devote a
significant amount of time and management and financial resources to do so. Even
with this investment of management and financial resources, an acquisition may
not produce the revenues, earnings or business synergies that we anticipated. If
we fail to integrate the acquired business effectively or if key employees of
that business leave, the anticipated benefits of the acquisition would be
jeopardized. The time, capital, management and other resources spent on an
acquisition that fails to meet our expectations could cause our business and
financial condition to be materially and adversely affected. In addition, from
an accounting perspective, acquisitions can involve non-recurring charges and
amortization of significant amounts of goodwill that could adversely affect our
results of operations.
We may not be able to realize the benefits of recent acquisitions and strategic
investments.
In October 1999, we merged with EnzyMed, Inc., a provider of
combinatorial biocatalysis discovery services based in Iowa. In February 2000,
we acquired American Advanced Organics, Inc., a contract manufacturer of gram to
multi-kilogram lots of novel compounds, pharmaceutical intermediates, and test
drug substances. We may not be able to successfully integrate either of these
acquisitions with our other operations and the transactions may not be as
beneficial to us as we expect. In addition to these acquisitions, we made a $30
million strategic investment in Organichem Corporation in December 1999 to
facilitate a management buy-out of a chemical manufacturing facility from
Nycomed Amersham, plc. If Organichem fails to perform as we expect, our
investment may not yield adequate returns or we may lose our investment. In
addition, the other equity holders of Organichem have the right to require us to
purchase their interests in Organichem based on a predetermined formula. We may
be required to purchase these interests at a price which is higher than the fair
market value of these interests at the time of purchase, which would negatively
impact our financial condition.
We may lose one or more of our key employees.
Our business is highly dependent on our senior management and
scientific staff, including:
Dr. Thomas E. D'Ambra, our Chairman and Chief Executive Officer;
Dr. Donald E. Kuhla, our President and Chief Operating Officer; and
David P. Waldek, our Chief Financial Officer and Treasurer.
Although we have employment agreements with the individuals listed above, we do
not have employment agreements with all of our key employees. Additionally, the
22
<PAGE>
loss of any of our other key employees, including our scientists, may have an
adverse effect on our business.
The royalties we earn on Allegra may be affected by the seasonal nature of
allergies.
Allergic reactions to plants, pollens and other airborne allergens
occur only during the spring and summer seasons. Therefore, we expect the demand
for Allegra to be lower during other times of the year. Because Allegra sales
change seasonally based on the demand for allergy medicines, our
quarter-to-quarter revenues will experience fluctuations.
We face increased competition.
We compete directly with the in-house research departments of
pharmaceutical companies and biotechnology companies, as well as combinatorial
chemistry companies, contract research companies, and research and academic
institutions. Many of our competitors have greater financial and other resources
than us. As new companies enter the market and as more advanced technologies
become available, we expect to face increased competition. In the future, any
one of our competitors may develop technological advances that render the
services that we provide obsolete. While we plan to develop technologies which
will give us competitive advantages, our competitors plan to do the same. We may
not be able to develop the technologies we need to successfully compete in the
future and our competitors may be able to develop such technologies before we
do. Consequently, we may not be able to successfully compete in the future.
We may be held liable for harm caused by drugs that we develop and test.
We develop, test and, to a limited extent, manufacture drugs that are
used by humans. If any one of the drugs that we test, develop or manufacture
harms people, we may be required to pay damages to those persons. Although we
carry product liability insurance, we may be required to pay damages in excess
of the amounts of our insurance coverage. Damages awarded in a products
liability action could be substantial and could have a negative impact on our
financial condition.
We may be liable for contamination or other harm caused by hazardous materials
that we use.
Our research and development processes involve the use of hazardous
materials. We are subject to federal, state and local regulation governing the
use, manufacture, handling, storage and disposal of hazardous materials. We
cannot completely eliminate the risk of contamination or injury resulting from
hazardous materials and we may incur liability as a result of any contamination
or injury. We may also incur expenses relating to compliance with environmental
laws. Such expenses or liability could have a significant negative impact on our
financial condition.
If we fail to meet strict regulatory requirements, we could be required to pay
fines or even close our facilities.
All facilities and manufacturing techniques used to manufacture drugs
in the United States must conform to standards that are established by the
federal Food and Drug Administration. The FDA conducts scheduled periodic
inspections of our facilities to monitor our compliance with regulatory
standards. If the
23
<PAGE>
FDA finds that we fail to comply with the appropriate regulatory standards, they
may impose fines on us or, if the FDA determines that our non-compliance is
severe, they may close our facilities. Any adverse action by the FDA would have
a negative impact on our operations.
Our operations may be interrupted by the occurrence of a natural disaster or
other catastrophic event at our facilities in Albany.
We depend on our laboratories and equipment for the continued operation
of our business. Our research and development operations and all administrative
functions are primarily conducted at our facilities in Albany and Rensselaer,
New York. Although we have contingency plans in effect for natural disasters or
other catastrophic events, catastrophic events could still disrupt our
operations. Even though we carry business interruption insurance policies, we
may suffer losses as a result of business interruptions that exceed the coverage
available under our insurance policies. Any natural disaster or catastrophic
event in the Albany area could have a significant negative impact on our
operations.
Health care reform could reduce the prices pharmaceutical and biotechnology
companies can charge for drugs they sell which, in turn, could reduce the
amounts that they have available to retain our services.
We depend on contracts with pharmaceutical and biotechnology companies
for most of our revenues. We therefore depend upon the ability of pharmaceutical
and biotechnology companies to earn enough on the drugs they market to devote
substantial resources to the research and development of new drugs. We expect
that politicians and others may try to enact laws which would limit the prices
pharmaceutical and biotechnology companies can charge for the drugs they market.
Such laws may have the effect of reducing the resources that pharmaceutical and
biotechnology companies can devote to the research and development of new drugs.
If pharmaceutical and biotechnology companies decrease the resources they devote
to the research and development of new drugs, the amount of services that we
perform, and therefore our revenues, could be reduced.
The ability of our stockholders to control our policies and affect a change of
control of our company is limited, which may not be in our stockholders' best
interests.
There are provisions in our certificate of incorporation and bylaws
which may discourage a third party from making a proposal to acquire us, even if
some of our stockholders might consider the proposal to be in their best
interests. These provisions include the following:
Our certificate of incorporation provides for three classes of
directors with the term of office of one class expiring each year, commonly
referred to as a "staggered board." By preventing stockholders from voting on
the election of more than one class of directors at any annual meeting of
stockholders, this provision may have the effect of keeping the current members
of our board of directors in control for a longer period of time than
stockholders may desire.
Our certificate of incorporation authorizes our board of directors to
issue shares of preferred stock without stockholder approval and to establish
the preferences and rights of any preferred stock issued, which would allow the
board to issue one or more classes or series of preferred stock that could
discourage or delay a tender offer or change in control.
24
<PAGE>
Additionally, we are subject to Section 203 of the Delaware General
Corporation Law, which, in general, imposes restrictions upon acquirors of 15%
or more of our stock.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
25
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Albany Molecular Research, Inc.:
We have audited the accompanying consolidated financial statements of
Albany Molecular Research, Inc. and subsidiary as listed in the accompanying
index on pages 49 and 50. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Albany
Molecular Research, Inc. and subsidiary at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG LLP
Albany, New York
February 4, 2000
26
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
---------------- ---------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 5,319,872 $ 2,672,848
Short-term investment .............................................................. -- 1,000,000
Accounts receivable (net of allowance for doubtful accounts of $0
and $110,000 at December 31, 1998 and 1999, respectively) .......................... 2,875,898 4,221,745
Current installment of notes receivable - related party ............................ 20,000 20,000
Royalty income receivable .......................................................... 3,256,498 5,382,200
Investment securities, available-for-sale .......................................... 2,026,620 21,172,131
Inventory .......................................................................... 575,526 1,116,312
Unbilled services .................................................................. 105,036 76,140
Income tax prepayments ............................................................. 517,840 3,079,551
Prepaid expenses and other current assets .......................................... 901,587 845,082
------------ ------------
Total current assets ............................................................. 15,598,877 39,586,009
------------ ------------
Property and equipment, net ........................................................... 14,866,298 15,879,404
------------ ------------
Other assets:
Patents and patent application costs ............................................... 326,142 331,912
Notes receivable, excluding current installment - related party .................... 60,000 40,000
Deferred income taxes .............................................................. 1,639,188 1,328,818
Equity investment in unconsolidated affiliate ...................................... -- 15,032,826
Convertible subordinated debenture from unconsolidated affiliate ................... -- 15,000,000
Other assets ..................................................................... 139,143 1,042,770
------------ ------------
Total other assets ............................................................... 2,164,473 32,776,326
------------ ------------
Total assets ..................................................................... $ 32,629,648 $ 88,241,739
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................................................... $ 1,501,033 $ 803,527
Unearned income .................................................................... 1,748,358 1,480,020
Customer deposits .................................................................. 182,293 278,292
Accrued compensation ............................................................... 986,496 1,947,703
Accrued expenses ................................................................... 451,493 557,262
Current installments of long-term debt ............................................. 1,587,168 86,953
------------ ------------
Total current liabilities ........................................................ 6,456,841 5,153,757
Long-term liabilities:
Long-term debt, excluding current installments ..................................... 13,348,672 167,515
------------ ------------
Total liabilities ................................................................ 19,805,513 5,321,272
------------ ------------
Commitments and contingencies (Notes 3, 9, 10, 11 and 12)
Stockholders' equity:
Preferred stock, $0.01 par value, authorized 1,000,000 shares, issued
and outstanding 100,000 shares in 1998 and 0 shares in 1999 ..................... 1,000 --
Common stock, $0.01 par value, authorized 50,000,000 shares; issued
11,771,584 shares in 1998 and 14,593,559 in 1999; outstanding
10,639,681 in 1998 and 14,593,559 in 1999 ........................................ 117,715 145,935
Additional paid-in capital ......................................................... 10,758,376 57,073,484
Retained earnings .................................................................. 11,941,947 25,716,331
Accumulated other comprehensive income (loss) ...................................... 66,457 (15,283)
------------ ------------
22,885,495 82,920,467
Treasury stock, at cost ............................................................ (10,061,360) --
------------ ------------
Total stockholders' equity ....................................................... 12,824,135 82,920,467
------------ ------------
Total liabilities and stockholders' equity ......................................... $ 32,629,648 $ 88,241,739
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1998 1999
----------------- --------------- --------------
<S> <C> <C> <C>
Contract revenue ................................ $ 8,910,011 $ 14,308,220 $ 23,383,615
Reimbursed expenses ............................. (701,034) (658,875) (1,356,796)
------------ ------------ ------------
Net contract revenue ............................ 8,208,977 13,649,345 22,026,819
Cost of contract revenue ........................ 4,430,016 7,733,504 12,491,213
------------ ------------ ------------
Gross profit from contract revenue .............. 3,778,961 5,915,841 9,535,606
------------ ------------ ------------
Other operating revenue:
Non-recurring licensing fees, milestones and
royalties..................................... 2,500,000 8,068,921 --
Recurring royalties .......................... 30,871 11,575,931 21,444,037
Technology incentive award ................... (253,093) (1,821,628) (2,131,839)
------------ ------------ ------------
Other operating revenue, net ............... 2,277,778 17,823,224 19,312,198
------------ ------------ ------------
Operating expenses:
Research and development ..................... 1,520,038 1,782,294 1,827,477
Selling, general and administrative .......... 2,881,059 5,109,002 6,872,734
------------ ------------ ------------
Total operating expenses ................... 4,401,097 6,891,296 8,700,211
------------ ------------ ------------
Income from operations .......................... 1,655,642 16,847,769 20,147,593
------------ ------------ ------------
Other income (expense):
Equity in net loss of unconsolidated
affiliate .................................... -- -- (98,025)
Interest expense ............................. (175,969) (381,821) (158,169)
Interest income .............................. 216,121 419,398 2,158,248
Realized loss on sale of investment securities -- -- (65,794)
Other non-operating expense, net ............. (27,537) (36,555) (14,357)
------------ ------------ ------------
Total other income (expense), net ......... 12,615 1,022 1,821,903
------------ ------------ ------------
Income before income tax expense ................ 1,668,257 16,848,791 21,969,496
Income tax expense .............................. 372,941 6,351,338 8,195,112
------------ ------------ ------------
Net income ...................................... $ 1,295,316 $ 10,497,453 $ 13,774,384
============ ============ ============
Earnings per common share:
Basic ........................................... $ 0.11 $ 0.93 $ 1.02
============ ============ ============
Diluted ......................................... $ 0.10 $ 0.82 $ 0.93
============ ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Common Stock
-----------------------
Number $0.01 Additional
Preferred of Par Paid-in Retained
Stock Shares Value Capital Earnings
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996, as
previously reported...........................$ 1,000 10,755,327 $ 107,553 $ 2,584,152 $ 1,694,164
EnzyMed pooling of interests .................. -- 573,517 5,735 4,584,661 (1,544,986)
------------------------------------------------------------------------------------
Balances at December 31, 1996, as
restated ...................................... 1,000 11,328,844 113,288 7,168,813 149,178
Comprehensive income:
Net income .................................... -- -- -- -- 1,295,316
Unrealized gain on investment
securities, available-for-sale,
net of tax of $20,572 ......................... -- -- -- -- --
Total comprehensive income ....................
Issuance of common stock in
connection with stock option
plan .......................................... -- 15,440 154 24,484 --
Sale of common stock, net of
issuance expenses of $7,770 ................... -- 40,594 406 991,824 --
------------------------------------------------------------------------------------
Balances at December 31, 1997 ................. 1,000 11,384,878 113,848 8,185,121 1,444,494
Comprehensive income:
Net income .................................... -- -- -- 10,497,453
Unrealized gain on investment
securities, available-for-sale,
net of tax of $7,968 .......................... -- -- -- -- --
Total comprehensive income ....................
Purchase of 1,131,903 shares
for treasury stock ............................ -- -- -- --
Issuance of common stock in
connection with stock option
plan .......................................... -- 298,158 2,981 187,748 --
</TABLE>
<TABLE>
Accumulated
Other Comprehensive
Comprehensive Treasury Income
Income (Loss) tock Total (Loss)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996, as
previously reported........................... $ 23,645 $ -- $ 4,410,514
EnzyMed pooling of interests ................. -- -- 3,045,410
----------------------------------------------------
Balances at December 31, 1996, as
restated ..................................... 23,645 -- 7,455,924
Comprehensive income:
Net income ................................... -- -- 1,295,316 $ 1,295,316
Unrealized gain on investment
securities, available-for-sale,
net of tax of $20,572 ........................ 30,858 -- 30,858 30,858
------------
Total comprehensive income ................... $ 1,326,174
Issuance of common stock in ============
connection with stock option
plan ......................................... -- -- 24,638
Sale of common stock, net of
issuance expenses of $7,770 .................. -- -- 992,230
----------------------------------------------------
Balances at December 31, 1997 ................ 54,503 -- 9,798,966
Comprehensive income:
Net income ................................... -- -- 10,497,453 $ 10,497,453
Unrealized gain on investment
securities, available-for-sale,
net of tax of $7,968 ......................... 11,954 -- 11,954 11,954
Total comprehensive income ................... $ 10,509,407
Purchase of 1,131,903 shares
for treasury stock ........................... -- (10,061,360) (10,061,360)
Issuance of common stock in
connection with stock option
plan ......................................... -- -- 190,729
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Number $0.01 Additional
Preferred of Par Paid-in Retained
Stock Shares Value Capital Earnings
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax benefit from exercise of
stock options ................................. -- -- 742,576 --
Sale of common stock, net of
issuance expenses of $6,182 ................... -- 88,548 886 1,642,931 --
----- ---------- ------- ---------- ----------
Balances at December 31, 1998 ................. 1,000 11,771,584 117,715 10,758,376 11,941,947
Comprehensive income:
Net income .................................... -- -- -- 13,774,384
Unrealized loss on investment
securities, available-for-sale,
net of tax benefit of $54,492 ................. -- -- -- -- --
Total comprehensive income ....................
Conversion of 100,000 shares of preferred stock
. ............................................. (1,000) 45,000 450 550
Issuance of common stock in
connection with stock option
plan .......................................... -- 1,093,871 10,939 1,800,995 --
Tax benefit from exercise of
stock options ................................. -- -- -- 3,204,075
Sale of 1,683,097 shares of
common stock and reissuance of
1,131,903 shares of treasury
stock, net of issuance
expenses of $971,321 .......................... -- 1,683,097 16,831 41,309,488 --
Balances at December 31, 1999 ................. $-- 14,593,552 $ 145,935 $ 57,073,484 $ 25,716,331
</TABLE>
<TABLE>
Accumulated
Other Comprehensive
Comprehensive Treasury Income
Income (Loss tock Total (Loss)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax benefit from exercise of
stock options ................................. -- -- 742,576
Sale of common stock, net of
issuance expenses of $6,182 ................... -- -- 1,643,817
Balances at December 31, 1998 ................. 66,457 (10,061,360) 12,824,135
Comprehensive income:
Net income .................................... -- -- 13,774,384 $ 13,774,384
Unrealized loss on investment
securities, available-for-sale,
net of tax benefit of $54,492 ................. (81,740) -- (81,740) (81,740)
------------
Total comprehensive income .................... $ 13,692,644
============
Conversion of 100,000 shares of preferred stock
. ............................................. -- -- -- --
Issuance of common stock in
connection with stock option
plan .......................................... -- -- 1,811,934
Tax benefit from exercise of
stock options ................................. -- -- 3,204,075
Sale of 1,683,097 shares of
common stock and reissuance of
1,131,903 shares of treasury
stock, net of issuance
expenses of $971,321 .......................... -- 10,061,360 51,387,679
---------- ------------ ----------- ------------
Balances at December 31, 1999 ................. $ (15,283) $ -- $82,920,467
========== ============ =========== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended December 31,
-------------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating Activities:
Net income....................................... $ 1,295,316 $ 10,497,453 $ 13,774,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 780,582 1,170,631 1,825,179
Net realized loss on sale of investment securities -- -- 65,794
Net loss on sale of assets.................... 9,398 44,005 --
Provision for doubtful accounts............... 114,000 (30,000) 165,208
Equity in net loss of unconsolidated affiliate -- -- 98,025
Provision for deferred taxes.................. (613,919) (394,787) 364,862
Forgiven principal on notes receivable-related
party......................................... -- 20,000 20,000
Change in operating assets and liabilities:
Increase in accounts receivable............... (1,233,543) (895,301) (1,511,052)
Increase in royalty income receivable......... -- (3,256,498) (2,125,702)
Increase in inventory......................... (51,581) (257,737) (540,786)
Decrease in unbilled services................. 9,300 87,786 28,896
Decrease (increase) in income taxes........... (651,061) 261,121 642,364
Decrease (increase) in prepaid expenses and other
current assets................................ (103,511) (360,148) 56,505
Increase (decrease) in accounts payable....... 576,970 560,751 (697,506)
Increase (decrease) in accrued compensation and
accrued expenses.............................. 2,932 1,413,106 1,066,976
Increase (decrease) in customer deposits...... 37,293 (20,000) 95,999
Increase (decrease) in unearned income........ 209,131 1,391,350 (268,338)
----------------- ----------------- -----------------
Net cash provided by operating activities........ 381,307 10,231,732 13,060,808
----------------- ----------------- -----------------
Investing Activities:
Purchases of investment securities............ (163,217) (57,151) (40,530,676)
Proceeds from sales of investment securities.. -- -- 21,183,139
Purchase of equity investment in unconsolidated
affiliate..................................... -- -- (15,130,851)
Purchase of convertible subordinated debenture
from unconsolidated affiliate................. -- -- (15,000,000)
Purchases of property and equipment........... (910,244) (11,614,526) (2,720,981)
Proceeds from sale of equipment............... 4,265 12,625 --
Purchase of customer list..................... -- (18,000) --
Payments for patent application and other related
costs......................................... (80,509) (201,272) (26,704)
Payment for lease deposit..................... -- -- (1,000,000)
Net increase in short-term investment......... -- -- (1,000,000)
----------------- ----------------- -----------------
Net cash used in investing activities......... (1,149,705) (11,878,324) (54,226,073)
----------------- ----------------- -----------------
Financing Activities:
Principal payments on long-term debt.......... (604,683) (2,223,708) (15,181,489)
Principal payments under capital lease obligations (3,550) (1,256) --
Proceeds from borrowings under long-term debt. -- 7,000,000 500,117
Payment to acquire treasury shares............ -- (2,125,520) --
Proceeds from sale of common stock............ 1,016,868 1,734,546 53,199,613
----------------- ----------------- -----------------
Net cash provided by financing activities........ 408,635 4,384,062 38,518,241
----------------- ----------------- -----------------
Increase (decrease) in cash and cash equivalents. (359,763) 2,737,470 (2,647,024)
Cash and cash equivalents at beginning of year... 2,942,165 2,582,402 5,319,872
----------------- ----------------- -----------------
Cash and cash equivalents at end of year......... $ 2,582,402 $ 5,319,872 $ 2,672,848
================= ================= =================
Supplemental disclosure of non-cash investing and
financing activities:
Purchase of treasury stock through issuance
of long-term debt........................... $ -- $ 7,935,840 $ --
Common stock issued for purchase of
customer list............................... $ -- $ 100,000 $ --
Common stock issued for relocation incentive.. $ -- $ 200,000 $ --
Increase (decrease) in net unrealized gain on
securities available-for sale, net of tax... $ 30,858 $ 11,954 $ (81,740)
Tax benefit from exercise of stock options.... $ -- $ 742,576 $ 3,204,075
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................... $ 175,969 $ 381,821 $ 158,169
Income taxes................................ $ 1,637,921 $ 6,209,012 $ 7,187,885
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
1. Summary of Significant Accounting Policies
Nature of Business:
Albany Molecular Research, Inc. (the "Company") is an integrated
provider of drug discovery and development, chemistry research and
manufacturing services to companies in the pharmaceutical and biotechnology
industries. The Company offers services traditionally provided by chemistry
divisions within pharmaceutical and biotechnology companies, including drug
discovery, medicinal chemistry, chemical development, analytical chemistry
services and small-scale and pilot plant manufacture. The Company also
conducts proprietary research and development which may lead to the Company
receiving up-front service fees and milestone payments for advancing new
products as well as royalties for new drugs successfully reaching the market.
The Company's objective is to be the leading provider of comprehensive
contract chemistry services to the pharmaceutical and biotechnology
industries.
On October 19, 1999, the Company completed a merger with EnzyMed, Inc.
("EnzyMed"), an Iowa-based provider of combinatorial biocatalysis discovery
services. Utilizing its proprietary combinatorial biocatalysis technology,
EnzyMed specializes in the discovery, optimization, and derivatization of
pharmaceutical and agrochemical lead compounds. EnzyMed's proprietary technology
employs enzymatic and microbial transformations of core structures to create
novel derivatives, which otherwise might not be accessible via traditional
chemical syntheses, for screening and development in an iterative fashion. This
technology has its most immediate application in the pharmaceutical, animal
health, and agrochemical industries. See note 2 for discussion of the Company's
acquisition of EnzyMed.
On December 21, 1999, the Company completed a $30 million strategic
investment in Organichem Corporation (formerly known as Nycomed Inc.
- - -Rensselaer, a division of Nycomed, Inc.). Organichem Corporation operates a
chemical manufacturing facility in Rensselaer, New York, and performs
large-scale manufacturing of pharmaceutical intermediates and active
ingredients. See note 3 for discussion of the Company's equity and other
investments in Organichem Corporation.
Basis of Presentation:
The consolidated financial statements include the accounts of Albany
Molecular Research, Inc. and its wholly-owned subsidiary, Albany Molecular
Research Export, Inc. All intercompany balances and transactions have been
eliminated during consolidation. The Company's 37.5% investment in Organichem
Corporation (see note 3) is accounted for using the equity method of accounting.
The Company's merger with EnzyMed on October 19, 1999 has been accounted
for as a pooling of interests as further discussed in note 2. Accordingly,
all prior period consolidated financial statements have been restated to
include the results of operations, financial position and cash flows of
EnzyMed. Information presenting common stock, employee stock plans and per
share data has been restated on an equivalent share basis.
It is the Company's policy to reclassify prior year consolidated financial
statements to conform to the current year presentation.
32
<PAGE>
Revenue Recognition:
The Company recognizes net revenue from its full-time equivalent and
time and materials contracts on a per diem basis as work is performed and
fixed fee type contracts on a percentage-of-completion basis. In general,
contract 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 performed.
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.
Cash Equivalents and Short-Term Investment:
Cash equivalents of $4,356,006 and $2,668,442 at December 31, 1998 and 1999
consisted of money market accounts and overnight deposits. For purposes of the
consolidated statements of cash flows, the Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
The Company's short-term investment at December 31, 1999 consisted of a
certificate of deposit which matures on June 26, 2000.
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 research and production process.
Investment Securities:
The Company accounts for its investment securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Investment securities
consist of state and political subdivision obligations, corporate debt
obligations, and bond mutual funds, with the Company holding all of these
securities as available-for-sale.
Unrealized holding gains and losses, net of related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of stockholders' 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.
Property and Equipment:
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs are expensed as costs are incurred.
Depreciation is determined using the straight-line method over the
estimated useful lives of the individual assets. Accelerated methods of
depreciation have been used for income tax purposes.
The Company provides for depreciation of property and equipment over the
following estimated useful lives:
33
<PAGE>
<TABLE>
<S> <C>
Laboratory equipment and fixtures.............. 7-18 years
Office equipment............................... 3-7 years
Leasehold improvements......................... 18 years
</TABLE>
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.
Accumulated amortization at December 31, 1998 and 1999 was $0 and $18,000,
respectively.
Licensing Rights:
Licensing costs are accumulated and amortized once the license agreement is
executed. 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 written off in the period the licensing rights are
canceled or are determined not to provide future benefits.
Accumulated amortization at December 31, 1998 and 1999 was $8,838 and
$11,784, respectively.
Research and Development:
Research and development costs are charged to operations when incurred and
are included in operating expenses.
Income Taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years 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.
Comprehensive Income:
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on investment securities, available-for-sale, and is
presented in the Consolidated Statements of Stockholders' Equity and
Comprehensive Income. SFAS No. 130 requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's financial
position or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of SFAS No. 130.
Stock-Based Compensation:
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, in accounting for
its fixed plan stock options. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price.
34
<PAGE>
Earnings per Share:
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the Company (such
as stock options).
The following tables provide calculations of basic and diluted earnings per
share calculations:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1998
----------------------------------------- -------------------------------------------
Weighted Per Weighted
Average Share Average Per Share
Net Income Shares Amount Net Income Shares Amount
------------- ----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share. $ 1,295,316 11,335,133 $ 0.11 $10,497,453 11,347,786 $ 0.93
========= ============
Dilutive effect of stock
options................... -- 1,029,259 -- 1,380,614
Dilutive effect of
assumed preferred stock
conversion................ -- 45,000 -- 45,000
------------- ----------- ------------ -----------
Diluted earnings per
share..................... $ 1,295,316 12,409,392 $ 0.10 $10,497,453 12,773,400 $ 0.82
============= =========== ========= ============ =========== ============
</TABLE>
<TABLE>
Year Ended December 31, 1999
------------------------------------------------------------
Weighted Per Share
Net Income Average Shares Amount
-------------------- ---------------- --------------
<S> <C> <C> <C>
Basic earnings per share...................... $ 13,774,384 13,565,960 $ 1.02
=============
Dilutive effect of stock options.............. -- 1,251,133 --
-------------------- ----------------
Diluted earnings per share.................... $ 13,774,384 14,817,093 $ 0.93
==================== ================ ==============
</TABLE>
Use of Management Estimates:
The preparation of consolidated 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.
Recent Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 has subsequently been amended by SFAS No. 137,
issued in June 1999, which delays the effective date for implementation of SFAS
No. 133 until fiscal quarters of fiscal years beginning after June 15, 2000.
Management does not anticipate that the adoption of SFAS No. 133 will have a
material effect on the Company's consolidated financial statements because the
Company does not presently utilize derivative investments or engage in hedging
activities.
2. BUSINESS COMBINATION
On October 19, 1999, the Company completed a merger with EnzyMed by
exchanging 726,056 shares of its common stock for all of the common stock of
EnzyMed. Each share of EnzyMed was exchanged for .1623841
35
<PAGE>
of one share of the Company's common stock. In addition, outstanding EnzyMed
stock options were converted, at the same exchange ratio, into options to
purchase 79,647 shares of the Company's common stock pursuant to the terms of
EnzyMed's stock option plan.
The merger has been accounted for as a pooling of interests and,
accordingly, all prior period consolidated financial statements have been
restated to include the combined results of operations, financial position and
cash flows of EnzyMed. The following information presents certain data
pertaining to the statements of operations of the separate companies for the
periods preceding the merger and for the year ended December 31, 1999 as if the
companies had operated separately for the entire year:
<TABLE>
Year Ended December 31,
---------------------------------------------------------------------
1997 1998 1999
------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Net contract revenue:
As previously reported $ 8,104,032 $ 13,397,621 $ 21,184,316
EnzyMed 104,945 251,724 842,503
------------------- ---------------------- ---------------------
Combined $ 8,208,977 $ 13,649,345 $ 22,026,819
=================== ====================== =====================
Net income (loss):
As previously reported $ 2,189,215 $ 11,444,637 $ 14,974,868
EnzyMed (893,899) (947,184) (1,200,484)
------------------- ---------------------- ---------------------
Combined $ 1,295,316 $ 10,497,453 $ 13,774,384
=================== ====================== =====================
</TABLE>
There were no material transactions between the Company and EnzyMed prior
to the merger. The effects of conforming EnzyMed's accounting policies to those
of the Company were not material.
3. Investment in Organichem
(a) Stock Purchase Agreement
On December 21, 1999, the Company completed an equity method
investment in Organichem Corporation ("Organichem"), pursuant to a Stock
Purchase Agreement and purchased convertible subordinated debentures of
Organichem pursuant to a Debenture Purchase Agreement. Under the terms of
the Stock Purchase Agreement, the Company acquired 600 shares of common
stock of Organichem, representing 37.5% of Organichem's outstanding common
stock, for an aggregate purchase price of $15,130,851, which included
direct costs of $130,851 attributable to the Organichem equity investment.
The Company has recorded its investment using the equity method of
accounting and, accordingly, has reduced its investment by recording the
Company's proportionate share of Organichem's loss, as adjusted for
intercompany interest, for the period since the initial investment through
December 31, 1999, and by amortizing the excess cost of its investment in
the common stock over the underlying equity in the net assets of
Organichem.
The acquisition cost exceeded the Company's share of the underlying
equity in net assets of Organichem by $9,375,000, which is being amortized
over a period of 25 years. Accumulated amortization at December 31, 1999
was $10,275. During the year ended December 31, 1999, the Company recorded
$98,025 as its share of Organichem's loss. As Organichem is privately held,
the market value of this investment is not readily determinable.
The Stock Purchase Agreement also incorporates a Put/Call Agreement
among the Company, Organichem and its stockholders that permits the Company
to purchase, at the Company's option, all of the outstanding shares of
common stock of Organichem within 90 days subsequent to the year ending
December 31, 2002. The purchase price is to be determined based on
Organichem's earnings before
36
<PAGE>
interest, taxes, depreciation and amortization ("EBITDA"), as defined in
the Put/Call Agreement, for the year ending December 31, 2002, with a
minimum and maximum specified purchase price of $15 million and $30
million, respectively. In the event that the Company does not exercise its
call option, Organichem stockholders may require the Company to purchase
all of the outstanding shares of common stock of Organichem within 60 days
subsequent to the year ending December 31, 2003. The purchase price under
the put option is to be determined consistent with that specified under the
above call option, with the exception that the EBITDA, as defined, shall be
based on Organichem's results for the year ending December 31, 2003.
Summarized financial information of Organichem as of December 21,
1999, prior to any investment by the Company, is as follows:
<TABLE>
<S> <C>
Current assets $ 29,921,000
Property, plant and equipment, net 52,122,000
---------------------
Total assets $ 82,043,000
=====================
Current liabilities $ 4,930,000
Other liabilities 2,553,000
Total equity 74,560,000
---------------------
Total liabilities and equity $ 82,043,000
=====================
</TABLE>
During the period from December 21, 1999 (date of initial investment)
through December 31, 1999, Organichem had no net sales or gross profit
since this period corresponded with the company's annual plant-wide
shut-down. Organichem incurred certain operating expenses during this
period and its loss from continuing operations and net loss for the period
ended December 31, 1999 was approximately $431,000 and $259,000,
respectively.
(b) Debenture Purchase Agreement
Under the terms of the Debenture Purchase Agreement, the Company
purchased convertible subordinated debentures ("Debentures") for an
aggregate purchase price of $15,000,000. The Debentures mature on December
21, 2005 and may be converted into 37.5% of the outstanding common stock of
Organichem, on a fully diluted basis.
The Debentures bear interest, payable semi-annually, on the unpaid
principal amount at margins over specified fixed or variable London
Interbank Offer Rate ("LIBOR") as provided for within the Company's
credit agreement with Organichem (9.375% at December 31, 1999). The
interest payable under the Debentures through December 21, 2000 shall be
added to the principal of the Debenture, with semi-annual cash interest
payments to begin subsequent to December 21, 2000, provided that
Organichem is in compliance with the financial covenants of its credit
agreement. In addition, pursuant to the terms of the Debenture Purchase
Agreement, the Company and Organichem have agreed that in the event that
either the aforementioned put or call options are exercised, 62.5% of
the accrued interest not paid by Organichem as of the date of the put or
call exercise shall be applied to reduce the purchase price as
determined under the Put/Call Agreement.
The Debentures are convertible, at the Company's option, at any time
after the earliest of (i) December 21, 2002; (ii) notification by
Organichem to the Company that Organichem intends to repay the Debenture
prior to its maturity; or (iii) the occurrence of an event of default as
defined in the Debenture Purchase Agreement.
4. Investment Securities, Available-for-Sale
The amortized cost, gross unrealized gains, gross unrealized losses and
fair value for available-for-sale investment securities by major security type
were as follows:
37
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Holding Gains Holding Losses
-------------- ----------------- ---------------- -------------
<S> <C> <C> <C> <C>
Obligations of states and political
subdivisions............................. $ 1,671,577 $ 109,033 $ -- $1,780,610
Corporate debt obligations............... 158,073 2,200 (472) 159,801
Bond mutual funds ....................... 86,209 -- -- 86,209
-------------- ----------------- ---------------- -------------
$ 1,915,859 $ 111,233 $ (472) $2,026,620
============== ================= ================ =============
December 31, 1999
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Value
Cost Holding Gains Holding Losses
-------------- --------------- ---------------- --------------
Obligations of states and political
subdivisions............................. $ 1,674,209 $ 30,909 $ (3,841) $ 1,701,278
Corporate debt obligations............... 19,441,152 1,049 (59,966) 19,382,235
Bond mutual funds........................ 88,618 -- -- 88,618
-------------- ----------------- ---------------- --------------
$ 21,203,979 $ 31,958 $ (63,807) $ 21,172,131
============== ================= ================ ==============
</TABLE>
Proceeds from the sales of available-for-sale investment securities were
$21,183,139 for 1999, resulting in realized losses of $65,794. There were no
sales of available-for-sale investment securities during 1997 or 1998.
Maturities of corporate debt obligations and obligations of states and
political subdivisions classified as available-for-sale at December 31, 1999
were as follows:
<TABLE>
<CAPTION>
Amortized Cost Fair Value
----------------------- ------------------------
<S> <C> <C>
Due less than one year................................. $ 12,561,796 $ 12,536,860
Due after one year through five years ................. 7,632,491 7,608,946
Due after five years through ten years ................ 719,586 731,098
Due after ten years.................................... 201,488 206,610
----------------------- ---------------------
$ 21,115,361 $ 21,083,513
======================= =====================
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1998 1999
--------------------- --------------------
<S> <C> <C>
Laboratory equipment and fixtures................................. $ 10,667,145 $ 12,636,433
Office equipment.................................................. 2,068,782 2,473,750
Leasehold improvements............................................ 4,019,378 4,614,531
Construction-in-progress.......................................... 615,571 367,144
--------------------- --------------------
17,370,876 20,091,858
Less accumulated depreciation..................................... (2,504,578) (4,212,454)
--------------------- --------------------
$ 14,866,298 $ 15,879,404
===================== ====================
</TABLE>
Depreciation expense of property and equipment was $776,740, $1,127,719 and
$1,707,876 for the years ended December 31, 1997, 1998 and 1999, respectively.
38
<PAGE>
6. Long-Term Debt
On June 30, 1998, the Company entered into a revolving line of credit
agreement ("Credit Agreement") with a bank enabling the Company to borrow up to
$15 million on a revolving basis. On February 8, 1999, the Credit Agreement was
amended to increase the amount available under the line of credit to $25
million. The initial proceeds of the revolving line of credit were used to
refinance an existing debt facility with another bank and for general corporate
purposes.
The Credit Agreement provides for an initial draw period in the form of a
revolving line of credit from the date of the note through June 30, 2001. At
that date, the outstanding principal balance, if any, will be converted to a
term loan. The term loan will be repayable in sixty equal monthly installments
plus any accrued interest through June 30, 2006. The interest rates on the
outstanding borrowings are paid monthly and are at either the bank's prime rate
less 2% or LIBOR plus .5%, at the Company's option. Any outstanding borrowings
under the Credit Agreement are secured by a general lien on all assets except
certain patents as defined in the Credit Agreement.
The Credit Agreement provides for various covenants, including requirements
for the Company to maintain defined financial ratios and the prohibition against
any additional debt, other than in the normal course of business, exceeding
$500,000 in the aggregate, at any time.
The Company had outstanding indebtedness of $7 million and borrowing
availability of $8 million under the Credit Agreement as of December 31, 1998.
At December 31, 1999, the Company had no outstanding indebtedness and borrowing
availability of $25 million under the Credit Agreement.
Long-term debt is comprised as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1999
------------------- --------------------
<S> <C> <C>
Revolving line of credit facility (the interest rate on the line of
credit was 5.55% at December 31, 1998)............................ $ 7,000,000 $ --
Note payable to former chief financial officer, due in annual
installments of $1,587,168 through October 2003, plus interest due
quarterly at the prime rate (7.75% at December 31, 1998) (see note
8)................................................................ 7,935,840 --
Note payable to equipment financing company in monthly installments of
$5,230 through May 2002, plus interest
at 14.3%.......................................................... -- 132,007
Note payable to equipment financing company in monthly installments of
$4,653 through July 2002, plus interest
at 15.1%.......................................................... -- 122,461
------------------- --------------------
14,935,840 254,468
Less current portion................................................. 1,587,168 86,953
------------------- --------------------
$ 13,348,672 $ 167,515
=================== ====================
The aggregate maturities of long-term debt subsequent to December 31,
1999 are as follows:
2000........................................................................................... $ 86,953
2001........................................................................................... 100,588
2002........................................................................................... 66,927
------------------
$ 254,468
==================
</TABLE>
39
<PAGE>
7. Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Current:
Federal............................................. $ 916,288 $ 6,363,149 $ 6,879,916
State............................................... 70,572 382,976 950,334
---------------- ---------------- ----------------
986,860 6,746,125 7,830,250
---------------- ---------------- ----------------
Deferred:
Federal............................................. (439,994) (529,881) 155,322
State............................................... (173,925) 135,094 209,540
---------------- ---------------- ----------------
(613,919) (394,787) 364,862
---------------- ---------------- ----------------
$ 372,941 $ 6,351,338 $ 8,195,112
================ ================ ================
</TABLE>
The differences between income tax expense and income taxes computed using
a Federal statutory rate of 34% for the year ended December 31, 1997, and 35%
for the years ended December 31, 1998 and 1999, were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1997 1998 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
Pre-tax income at statutory rate................... $ 567,207 $ 5,897,077 $ 7,689,324
Increase (reduction) in taxes resulting from:
Tax-free interest income........................ (30,171) (31,330) (102,093)
State taxes, net of Federal benefit............. (68,213) 336,746 753,918
Research and experimentation credit............. (64,000) (70,000) --
Other, net...................................... (31,882) 218,845 (146,037)
----------------- ----------------- ------------------
$ 372,941 $ 6,351,338 $ 8,195,112
================= ================= ==================
</TABLE>
The tax effects of temporary differences giving rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1999
------------------- ------------------
<S> <C> <C>
Deferred tax assets:
Non-deductible accruals $ 32,349 $ 76,072
Non-deductible amortization 8,962 40,743
Non-deductible lease costs 73,169 66,660
Inventory -- 11,568
State tax credits 61,000 --
Research and experimentation credit carryforwards 174,000 174,000
Net operating loss carryforwards 1,964,000 2,488,474
------------------- ------------------
Total gross deferred tax assets 2,313,480 2,857,517
Less valuation allowance -- --
------------------- ------------------
Deferred tax assets 2,313,480 2,857,517
Deferred tax liabilities:
Property and equipment depreciation differences
(accelerated depreciation for tax purposes) (629,988) (1,538,887)
------------------- ------------------
Net deferred tax asset $ 1,683,492 $ 1,318,630
=================== ==================
</TABLE>
40
<PAGE>
The preceding table does not include the deferred tax liability of
$44,304 at December 31, 1998 and deferred tax asset of $10,188 at December
31, 1999, associated with the Company's unrealized gain (loss) on investment
securities, available-for-sale, discussed in note 4.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and the taxable income in
the two previous tax years to which tax loss carryback can be applied.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, taxable income in the carryback period and tax
planning strategies in making this assessment. Based upon the level of projected
future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of those deductible differences. The amount of the deferred
tax asset considered realizable could be reduced if estimates of future taxable
income during the carryforward period are reduced.
8. STOCKHOLDERS' EQUITY
On November 30, 1998, the Board of Directors approved a 3-for-2 split of
the Company's common stock to shareholders of record effective on that date. All
shares and per share information included in the accompanying consolidated
financial statements has been restated to reflect the 3-for-2 stock split.
On January 29, 1999, in connection with the filing of the registration
statement with the Securities and Exchange Commission for the Company's initial
public offering of common stock, the Company effected a reincorporation by
merger. Through the reincorporation, each share of outstanding common stock of
Albany Molecular Research, Inc. (incorporated in New York) was exchanged for
1-1/2 shares of common stock of a new company, Albany Molecular Research, Inc.
(incorporated in Delaware). All share and per share information included in the
accompanying consolidated financial statements has been restated to reflect the
reincorporation by merger.
On October 28, 1998, the Company entered into a severance agreement with
its former chief financial officer ("Former CFO"). 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 $10.0
million. In total, the Company repurchased 1,131,903 shares of common stock.
These treasury shares, along with 1,683,097 of shares not previously issued,
were sold during the Company's February 1999 initial public offering.
On February 4, 1999, in connection with the Company's initial public
offering of common stock, the Company converted 100,000 shares of its
outstanding preferred stock in a ratio of twenty (20) preferred shares to
nine (9) common shares. For purposes of diluted earnings per share for the
years ended December 31, 1998 and 1997, all preferred shares were assumed
converted to their common stock equivalents.
On February 4, 1999, the Company completed the initial public offering
of its common stock by issuing 2,815,000 shares, 315,000 of which were issued
pursuant to an underwriters' over-allotment provision, at a price of $20.00
per share. Prior to the offering, there was no public market for the
Company's common stock. The net proceeds of the offering, after deducting
applicable direct offering costs of $971,321, were $51,387,679. The net
proceeds were used by the Company to repay outstanding indebtedness under the
revolving line of credit agreement, certain promissory notes issued in
connection with the Company's repurchase of 1,131,903 shares of common stock
from the Former CFO and the equity investment in and purchase of the
convertible subordinated debentures from Organichem.
The Company's 1998 Employee Stock Purchase Plan (the "Plan") was adopted
during August 1998. Up to 300,000 shares of common stock may be issued under the
Plan, which is administered by the Compensation Committee of the Board of
Directors. It established two stock offering periods per calendar year, the
first beginning on January 1st and ending on June 30th, and the second beginning
on July 1st and ending December 31st. All employees who work more than 20 hours
per week are eligible for participation in the Plan. Employees who
41
<PAGE>
are deemed to own greater than 5% of the combined voting power of all classes of
stock of the Company are not eligible for participation in the Plan.
During each offering, an employee may purchase shares under the Plan by
authorizing payroll deductions up to 10% of their cash compensation during the
offering period. The maximum number of shares to be issued to any single
employee during an offering period is limited to 1,000. At the end of the
offering period, the accumulated payroll deductions will be used to purchase
common stock on the last business day of the offering 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. During the offering period ended December
31, 1999, which was the only offering period undertaken during 1999, the Company
issued 4,195 shares of common stock at an average price of $25.61 to
participants in the Plan.
The Company has a Stock Option Plan, through which the Company may issue
incentive stock options or non-qualified stock options. Incentive stock
options granted to employees may not be granted at prices less than 100
percent of the fair market value of the Company's common stock 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. Incentive stock options generally vest over five years, with a 60%
vesting occurring at the end of the third anniversary of the grant date.
Non-qualified stock option vesting terms are established at the date of
grant, but shall have a duration of not more than ten years.
Following is a summary of the status of stock option programs during 1997,
1998 and 1999:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------
1997 1998 1999
--------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 1,712,057 $1.33 2,128,134 $1.76 2,015,792 $2.62
Granted 456,554 3.40 247,183 7.67 165,603 20.00
Exercised (16,987) 0.41 (296,674) 0.61 (1,085,172) 1.65
Forfeited (23,490) 3.02 (62,851) 2.74 (4,827) 13.02
------------- ------------- --------------
Outstanding, end of year 2,128,134 $1.76 2,015,792 $2.62 1,091,396 $6.17
============= ===== ============ ===== ============== =====
Options exercisable,
end of year 1,631,753 1,407,833 418,776
========= ========= =======
Weighted-average fair value
of options granted during
the year $0.85 $1.88 $8.50
===== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1999:
42
<PAGE>
<TABLE>
Outstanding Options Exercisable Options
--------------------------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Range of Option Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- - ---------------------------------------- -------------- ----------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$0.11-0.14.......................... 44,587 3.8 years $0.13 44,587 $0.13
0.55................................ 53,776 3.9 years 0.55 53,776 0.55
1.12................................ 90,000 5.5 years 1.12 90,000 1.12
1.83-2.47........................... 116,509 5.9 years 2.04 105,259 2.05
2.98-3.60........................... 387,325 7.5 years 3.29 26,625 3.07
4.91-5.79........................... 88,029 8.1 years 5.45 54,279 5.79
8.88................................ 159,750 8.6 years 8.88 41,250 8.88
20.00-29.25......................... 145,420 9.0 years 20.69 3,000 20.50
30.03-31.13......................... 6,000 5.3 years 30.18 -- --
-------------- --------------
1,091,396 418,776
============== ==============
</TABLE>
The following are the shares of common stock reserved for issuance and the
related exercise prices at December 31, 1999:
<TABLE>
Exercise
Number of Price per
Shares Share
--------------- ---------------
<S> <C> <C>
Employee Stock Option Plans 1,091,396 $0.11-$31.13
Employee Stock Purchase Plan 4,195 $25.61
---------------
Shares reserved for issuance 1,095,591
===============
</TABLE>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", in accounting for its stock option plan and, since the exercise
price of stock options granted under the Company's stock option plans is not
less than the market price of the underlying stock on the date of grant, no
compensation cost has been recognized for such grants. Under SFAS No. 123,
"Accounting for Stock Based Compensation," compensation cost for stock option
grants would be based on the fair value at the grant date, and the resulting
compensation expense would be shown as an expense on the consolidated statements
of operations. Had compensation cost for these plans been determined consistent
with SFAS No. 123, the Company's net income and earnings per share for the years
ended December 31, 1997, 1998, and 1999 would have been reduced to the following
pro-forma amounts:
<TABLE>
1997 1998 1999
----------------- ----------------- ---------------
Net income:
<S> <C> <C> <C>
As reported................................................. $ 1,295,316 $ 10,497,453 $13,774,384
Pro forma................................................... $ 1,226,422 $ 10,383,990 $13,469,052
Earnings per share:
Basic as reported........................................... $ 0.11 $ 0.93 $ 1.02
Basic pro forma............................................. $ 0.11 $ 0.92 $ 0.99
Diluted as reported......................................... $ 0.10 $ 0.82 $ 0.93
Diluted pro forma........................................... $ 0.10 $ 0.81 $ 0.91
</TABLE>
The per share weighted-average fair value of stock options granted is
determined using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1997, 1998 and 1999: (i) no dividend
yield for all years; (ii) zero expected volatility for 1997 and 1998, and 48%
volatility for 1999; (iii) risk-free interest rates of 5.69%, 4.45%, and 5.04%
for 1997, 1998 and 1999, respectively; and (iv) expected lives of
43
<PAGE>
five years for the incentive options and four years for the non-qualified
options for 1997 and 1998, and expected lives of four years for all options in
1999.
9. 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 $10,000 per annum in 1998 and 1999. 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. There were no discretionary profit sharing contributions for
the years ended December 31, 1997, 1998 and 1999. Employer matching
contributions vest at a rate of 20% per year beginning after 2 years of
participation in the plan. Employer matching contributions were $21,000, $60,000
and $151,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
10. LEASE COMMITMENTS
The Company leases both facilities and equipment used in its operations
and classifies those leases as operating leases following the provisions of
SFAS No. 13, "Accounting for Leases."
The Company has a long-term operating lease for its Albany, New York 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 $30,000. The lease contains a ten-year renewal option at the
option of the Company, with six months' prior notice. The Company currently
holds an option to purchase the property for $3.5 million in November 2002.
During the year ended December 31, 1999, the Company reserved the purchase
option on the facility with a $1 million deposit, which is included in other
assets in the accompanying consolidated balance sheet. The Company is
responsible for paying the cost of utilities, operating costs, and increases in
property taxes.
The Company leases three additional laboratory facilities under separate
agreements with non-related parties. The lease agreements expire in July 2000,
November 2009, and December 2010, with monthly rental rates of $5,000, $26,000
and $7,000, respectively. The Company also leases various office equipment items
with terms ranging from three to five years.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1999
are as follows:
<TABLE>
Year ending December 31 Related Party Other Total
- - ----------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
2000 $358,642 $531,777 $890,419
2001 358,642 588,730 947,372
2002 358,642 626,598 985,240
2003 275,286 586,650 861,936
2004 275,286 503,601 778,887
Thereafter 802,918 2,682,652 3,485,570
-------------- --------------- ---------------
Total minimum future lease payments $2,429,416 $5,520,008 $7,949,424
============== =============== ===============
</TABLE>
Rental expense amounted to approximately $268,000, $593,000, and $768,000
during the years ended December 31, 1997, 1998 and 1999, respectively. Included
within rent expense was approximately $189,000, $413,000 and $373,000 that was
paid to the aforementioned related party of the Company during the years ended
December 31, 1997, 1998, and 1999, respectively.
44
<PAGE>
11. RELATED PARTY TRANSACTIONS
a. Technology Development Incentive Plan
In 1993, the Company adopted a Technology Development Incentive Plan
to provide a method to stimulate and encourage novel innovative technology
development. To be eligible to participate, the individual must be an
employee of the Company and must be the inventor or co-inventor of novel
technology that results in new revenues generated for, or by, the Company.
Eligible participants will share in awards based on ten percent (10%) of
the "Net Technology Revenue," as defined by the Plan.
In 1997, 1998 and 1999, 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. The amounts awarded and included in the consolidated statements of
operations for the years ended December 31, 1997, 1998 and 1999 are
$253,093, $1,821,628, and $2,131,839, respectively. Included in accrued
compensation in the accompanying consolidated balance sheets at December
31, 1998 and 1999 are unpaid Technology Development Incentive Compensation
awards of $385,650 and $538,220, respectively.
b. Lease Agreement
As described in note 10, the Company currently has a long-term
operating lease for its Albany, New York office and laboratory facilities
with a shareholder of the Company. In the opinion of management, the
transactions with the shareholder were entered into at the fair market
value of the property being leased.
c. Notes Receivable
During January 1998, the Company issued notes receivable to two senior
officers of the Company totaling $100,000. The notes receivable and accrued
interest will not be repaid to the Company provided the officers remain in
the employ of the Company. If employment is terminated within the five-year
period ending December 31, 2002, a pro-rata portion of the principal and
interest shall be repaid to the Company.
d. Note Payable
In connection with the departure of the Company's former chief
financial officer in 1998, the Company repurchased 1,131,903 shares of
common stock for an aggregate purchase price of $9,935,840 of which
$2,000,000 was paid in cash. The remaining $7,935,840 of the purchase price
was in the form of a note payable (see note 6). This note was repaid in
February 1999 utilizing proceeds from the Company's initial public
offering.
12. 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 part of Aventis,
S.A.("Aventis"). Under the terms of the Stock Purchase Agreement, the Company
sold 1,627,231 shares of the Company's common stock to Aventis for $2.0
million. Under the terms of the License Agreement, the Company granted
Aventis 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 non-sedating antihistamine fexofenadine HCl, marketed as a
prescription medicine by Aventis, under the brand names "Allegra" in the
Americas and "Telfast" in the rest of the world. In return for the license,
Aventis 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:
45
<PAGE>
- Issuance of a U.S. "Intermediate Process Claim";
- Issuance of a U.S. "Process Manufacturing Claim";
- Issuance of an ex-U.S. "Process Manufacturing Claim";
- Issuance of a U.S. "Substantially Pure Claim"; and
- Issuance of an ex-U.S. "Substantially Pure Claim".
In October 1996, the Company was awarded a patent in Australia that
satisfied the ex-U.S. "Process Manufacturing Claim" milestone. In accordance
with the terms of the Agreement, the Company received a milestone payment and
will receive a royalty on all sales of fexofenadine HCl in that country. Aventis
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,
Aventis 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 is entitled to receive royalties on all subsequent sales
of fexofenadine HCl (Allegra) in the United States through the respective patent
expiration in 2013.
On 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 Aventis. In May 1997, the PTO Board of Patent
Appeals and Interferences rendered a decision that the Company was first to make
the invention. Under the terms of the Agreement, no milestones or royalties are
due to the Company until a patent is issued. Under the procedures of the PTO, a
patent is not issued until the PTO publishes it. The patent was published in May
1998. Upon the patent publication, the Company was entitled to and did receive
the milestone payment for a U.S. "Process Manufacturing Claim." Additionally,
the Company is entitled to receive a royalty on worldwide sales of fexofenadine
HCl (Allegra and Telfast) from the date of patent issuance until expiration of
the patent in 2015.
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 (Telfast) in that country.
Substantially all of the Company's other operating revenue is derived from
milestones and royalties related to its patented fexofenadine HCl technology.
46
<PAGE>
13. CONCENTRATION OF BUSINESS
For the years ended December 31, 1997, 1998 and 1999, net contract revenue
from the Company's three largest customers represented approximately 29%, 11%
and 9% for 1997, 15%, 14% and 12% for 1998, and 22%, 10% and 10% for 1999, of
total net contract revenue for such years, respectively. In the majority of
circumstances, there are agreements in force with these entities that guarantee
the Company's continued involvement in present research projects. However, there
regularly exists the possibility that the Company will have no further
association with these entities once these projects conclude.
Net contract revenue by country, based on the location of the customer, and
expressed as a percentage of total net contract revenue, during 1997, 1998 and
1999 follows:
<TABLE>
Year Ended December 31,
-----------------------------------------------
1997 1998 1999
-------------- ------------- -------------
<S> <C> <C> <C>
United States............................................ 71% 86% 89%
Sweden................................................... 29% 14% 10%
Other countries.......................................... -- -- 1%
-------------- ------------- -------------
Total 100% 100% 100%
============== ============= =============
</TABLE>
All significant long-lived assets of the Company are located within the
United States.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About 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, the estimates presented are
not necessarily indicative of the amounts that the Company could realize in
current market exchanges.
The Company is estimating its fair value disclosures for financial
instruments using the following methods and assumptions:
Cash, cash equivalents and short-term investments, receivables, and
accounts payable: the carrying amounts reported in the consolidated balance
sheets approximate their fair value because of the short maturities of these
instruments.
Investment securities, available-for-sale: As disclosed in Note 4,
investment securities, available-for-sale are estimated based on quoted market
prices at the balance sheet date.
Equity investment in unconsolidated affiliate and subordinated debenture
bond from unconsolidated affiliate: The fair value of the Organichem investment
is not readily determinable as the company is privately held. At December 31,
1999, management estimates that the fair value of the convertible subordinated
debenture from Organichem approximates the carrying value of $15,000,000.
Long-term Debt: The carrying value of long-term debt was approximately
$14,936,000 and $254,000 at December 31, 1998 and 1999, respectively. Management
estimates that the fair value of long-term debt was approximately $14,936,000
and $263,000 at December 31, 1998 and 1999, respectively, based upon interest
rates available to the Company for issuance of similar debt with similar terms
and remaining maturities.
47
<PAGE>
15. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following tables present unaudited consolidated financial data, as
restated to reflect the EnzyMed merger discussed in Note 2, for each quarter of
1998 and 1999:
<TABLE>
<CAPTION>
1998 First Quarter Second Quarter Third Quarter Fourth Quarter
---- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net contract revenue.................. $2,955,508 $3,153,668 $3,722,725 $3,817,444
Gross profit.......................... 1,368,597 1,368,444 1,606,940 1,571,860
Milestones and royalties, net......... 7,288,741 3,959,246 2,964,464 3,610,773
Income from operations................ 7,008,742 3,739,466 2,882,628 3,216,933
Net income............................ 4,340,759 2,525,459 1,743,681 1,887,553
Net income per share:
Basic............................ $ 0.38 $ 0.22 $ 0.15 $ 0.17
Diluted.......................... $ 0.34 $ 0.20 $ 0.13 $ 0.15
<CAPTION>
1999 First Quarter Second Quarter Third Quarter Fourth Quarter
---- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net contract revenue.................. $4,587,010 $5,144,514 $5,641,167 $6,654,128
Gross Profit.......................... 1,985,203 2,216,999 2,403,641 2,929,764
Milestones and royalties, net......... 3,768,662 5,272,682 5,262,980 5,007,874
Income from operations................ 3,877,945 5,457,221 5,534,107 5,278,321
Net income............................ 2,580,180 3,711,536 3,815,252 3,667,416
Net income per share:
Basic............................ $ 0.21 $ 0.27 $ 0.28 $ 0.25
Diluted.......................... $ 0.19 $ 0.25 $ 0.25 $ 0.24
</TABLE>
16. SUBSEQUENT EVENT
On February 4, 2000, the Company announced its acquisition of American
Advanced Organics, Inc. (AAO) of Syracuse, New York, for approximately $2.3
million in cash and common stock of the Company. In addition to the $2.3 million
purchase price, the former AAO stockholders may also receive up to $800,000 in
future payments based upon AAO's financial performance, operating as a division
of the Company, in 2000 and 2001. The transaction was accounted for as a
purchase business combination.
48
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information appearing under the captions "Directors and Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on May 31, 2000 is incorporated herein by reference.
Item 11. Executive Compensation.
The information appearing under the captions "Executive Compensation-Summary
Compensation, -Compensation Committee Interlocks and Insider Participation, and
- - -Agreements with Named Executive Officers," and "Directors and Executive
Officers-The Board of Directors and its Committees" in the Company's
definitive proxy statement relating to the Annual Meeting of Stockholders to be
held on May 31, 2000 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information appearing under the caption "Principal and Management
Stockholders" in the Company's definitive proxy statement relating to the
Annual Meeting of Stockholders to be held on May 31, 2000 is incorporated herein
by reference.
Item 13. Certain Relationships And Related Transactions.
The information appearing under the caption "Certain Transactions" in the
Company's definitive proxy statement relating to the Annual Meeting of
Stockholders to be held on May 31, 2000 is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
(1) Financial Statements
The consolidated financial statements and notes are listed under Part II, Item
8, Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements.
(a) Consolidated balance sheets at December 31, 1998 and 1999.
(b) Consolidated statements of operations for the years ended December 31,
1997, 1998 and 1999.
(c) Consolidated statements of stockholders' equity and comprehensive
income for the years ended
49
<PAGE>
December 31, 1997, 1998 and 1999.
(d) Consolidated statements of cash flows for the Years Ended December 31,
1997, 1998 and 1999.
(e) Notes to consolidated financial statements.
(2) Financial Statement Schedules
The following financial schedule of Albany Molecular Research, Inc. is
included in this annual report on Form 10-K.
Page
Number
------
Schedule II --Valuation and Qualifying Accounts 52
Schedules other than that which is listed above have been omitted since they
are either not required, are not applicable, or the required information is
shown in the consolidated financial statements or related notes.
(3) Exhibits
Exhibits are as set forth in the "Index to Exhibits" which follows the Notes
to the Consolidated Financial Statements and immediately precedes the exhibits
filed.
(b) Reports on Form 8-K.
On November 2, 1999, the Company filed a Current Report on Form 8-K in
connection with the merger between the Company and EnzyMed, Inc.
On December 23, 1999, the Company filed a Current Report on Form 8-K to report
30 days of combined financial results for the Company and EnzyMed, Inc.
following the merger.
(c) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the
Exhibits listed in the attached Exhibit Index on pages 47 and 48 of this Annual
Report.
(d) Financial Statement Schedules.
The Company hereby files as part of this Annual Report on Form 10-K the
financial statement schedule listed in Item 14(a)(2) set forth above.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Albany Molecular Research, Inc.
/s/ Thomas E. D'Ambra, Ph.D.
By: _________________________________
Thomas E. D'Ambra, Ph.D.
Chairman of the Board, Chief
Executive Officer and Director
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Thomas E. D'Ambra, Ph.D. Chairman of the Board, March 30, 2000
- - -------------------------------------- Chief Executive Officer
Thomas E. D'Ambra, Ph.D. and Director (Principal
Executive Officer)
/s/ David P. Waldek Chief Financial Officer March 30, 2000
- - -------------------------------------- and Treasurer (Principal
David P. Waldek Financial and Accounting
Officer)
/s/ Donald E. Kuhla, Ph.D. President, Chief Operating March 30, 2000
- - -------------------------------------- Officer and Secretary and
Donald E. Kuhla, Ph.D. Director
/s/ Chester J. Opalka Vice President, Laboratory March 30, 2000
- - -------------------------------------- Operations and Director
Chester J. Opalka
Director March __, 1999
- - --------------------------------------
Anthony M. Tartaglia, M.D.
/s/ Frank W. Haydu, III Director March 30, 1999
- - --------------------------------------
Frank W. Haydu, III
/s/ Kevin O'Connor Director March 30, 2000
- - --------------------------------------
Kevin O'Connor
</TABLE>
51
<PAGE>
ALBANY MOLECULAR RESEARCH, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS Years Ended
December 31, 1997, December 31, 1998 and December 31, 1999
<TABLE>
<CAPTION>
Balance at Charged to Charged to Deductions
Beginning Cost and Other Charged to Balance at
Description of Period Expenses Accounts Reserves End of Period
----------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
1997 $ -- $ 30,000 $-- $ -- $ 30,000
1998 30,000 (30,000) -- -- --
1999 $ -- $165,208 $-- $(55,208) $110,000
Note receivable
reserve
1997 $ -- $ 84,000 $-- $ -- $ 84,000
1998 84,000 -- -- -- 84,000
1999 $84,000 $ -- $-- $ -- $ 84,000
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit No. Description
- - ---------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of September 8, 1999, by
and between the Company and EnzyMed, Inc. (excluding schedules
and exhibits which the Company agrees to furnish to
supplementally to the Commission) (incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on Form
8-K dated October 19, 1999, File No. 000-25323).
2.2 Stock Purchase Agreement dated as of December 21, 1999 by and
among the Company, Organichem Corporation and the other parties
named therein (incorporated herein by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated December 21, 1999,
File No. 000-25323).
2.3 Debenture Purchase Agreement, dated as of December 21, 1999, by and
among the Company and Organichem Corporation (incorporated herein
by reference to Exhibit 2.2 to the Company's Current Report on Form
8-K/A dated December 21, 1999 and filed on January 5, 2000, File
No. 000-25323).
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, File No. 000-25323).
3.2 Amended and Restated By-Laws of the Company (incorporated herein
by reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, File No.
000-25323).
4.1 Specimen certificate for shares of Common Stock, $0.01 par value,
of the Company (incorporated herein by reference to Exhibit 4.1
to Amendment No. 3 to the Company's Registration Statement on
Form S-1 (File No. 333-58795)).
10.1 Lease dated as of October 9, 1992, as amended, by and between
the Company and Hoffman Enterprises (incorporated herein by
reference to Exhibit 10.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (File No. 333-58795)).
10.2 1998 Stock Option and Incentive Plan of the Company (incorporated
herein by reference to Exhibit 10.2 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (File No.
333-58795)).
10.3 Amended and Restated 1992 Stock Option Plan of the Company (incorporated
herein by reference to Exhibit 10.3 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 333-58795)).
10.4 1998 Employee Stock Purchase Plan of the Company (incorporated
herein by reference to Exhibit 10.4 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 (File No.
333-58795)).
10.5 Form of Indemnification Agreement between the Company and each of
its directors (incorporated herein by reference to Exhibit 10.5
to Amendment No. 2 to the Company's Registration Statement on
Form S-1 (File No. 333-58795)).
10.6 License Agreement dated March 15, 1995 by and between the Company
and Marion Merrell Dow Inc. (now Aventis, S.A.) (excluding
certain portions which have been omitted as indicated based upon
an order for confidential treatment, but which have been filed
separately with the Commission) (incorporated herein by reference
to Exhibit 10.7 to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (File No. 333-58795)).
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
10.7 Principles of Cooperation Between Albany Molecular Research and
Cambrex Corporation dated February 1, 1997 by and between the
Company and Cambrex Corporation (excluding certain portions which
have been omitted as indicated based upon an order for
confidential treatment, but which have been filed separately with
the Commission) (incorporated herein by reference to Exhibit 10.8
to Amendment No. 3 to the Company's Registration Statement on
Form S-1 (File No. 333-58795)).
10.8 Agreement dated December 16, 1997 by and between the Company and
Eli Lilly and Company (excluding certain portions which have been
omitted as indicated based upon an order for confidential
treatment, but which have been filed separately with the
Commission) (incorporated herein by reference to Exhibit 10.9 to
Amendment No. 3 to the Company's Registration Statement on Form
S-1 (File No. 333-58795)).
10.9 Technology Development Incentive Plan (incorporated herein by
reference to Exhibit 10.10 to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 333-58795)).
10.10 Employment Agreement between the Company and Thomas E. D'Ambra,
Ph.D. (incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 000-25323).
10.11 Employment Agreement between the Company and Harold Meckler,
Ph.D. (incorporated herein by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 000-25323).
10.12 Employment Agreement between the Company and Michael P. Trova,
Ph.D. (incorporated herein by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 000-25323).
10.13 Form of Employee Innovation, Proprietary Information and
Post-Employment Activity Agreement between the Company and each
of its executive officers (incorporated herein by reference
to Exhibit 10.14 to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (File No. 333-58795)).
10.14 Letter Agreement between the Company and Harold M. Armstrong, Jr.
(incorporated herein by reference to Exhibit 10.15 to Amendment
No. 3 to the Company's Registration Statement on Form S-1 (File
No. 333-58795)).
10.15 Employment Agreement between the Company and Donald E. Kuhla,
Ph.D. (incorporated herein by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 000-25323).
</TABLE>
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<TABLE>
<S> <C>
10.16 Employment Agreement between the Company and Lawrence D. Jones,
Ph.D. (incorporated herein by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 000-25323).
10.17 Employment Agreement between the Company and David P. Waldek
(incorporated herein by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998, File No. 000-25323).
10.18 Employment Agreement between the Company and James J. Grates
(filed herewith).
10.19 Loan Agreement, dated as of June 29, 1998, by and between the
Company and Fleet National Bank (filed herewith).
10.20 Amendment to Agreements, dated as of February 8, 1999, by and
between the Company and Fleet National Bank (filed herewith).
10.21 Restated and Revised Lease Agreement, dated as of December 1, 1999,
between the University at Albany Foundation and the Company (filed
herewith).
21.1 Subsidiaries of the Company (incorporated herein by reference to
Exhibit 21.1 to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (File No. 333-58795)).
23.1 Consent of KPMG LLP (filed herewith).
27.1 Financial Data Schedule for the 12 months ended December 31, 1998
(filed herewith).
27.2 Financial Data Schedule for the 3 months ended March 31, 1999
(filed herewith).
27.3 Financial Data Schedule for the 6 months ended June 30, 1999
(filed herewith).
27.4 Financial Data Schedule for the 9 months ended September 30, 1999
(filed herewith).
27.5 Financial Data Schedule for the 12 months ended December 31, 1999
(filed herewith).
</TABLE>
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Exhibit 10.18
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 3rd of November
1998, by and between Albany Molecular Research, Inc., a Delaware corporation
(the "Company"), and James J. Grates (the "Employee").
WHEREAS, the Employee is a key employee of the Company; and
WHEREAS, the parties hereto desire to assure that the Employee's knowledge
and familiarity with the business of the Company will continue to be available
to the Company after the date hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Employment. Subject to the provisions of Section 6, the Company hereby
employs the Employee and the Employee accepts such employment upon the terms and
conditions hereinafter set forth.
2. Term of Employment. The term of the Employee's employment pursuant to
this Agreement shall commence on and as of the date hereof (the "Effective
Date") and shall remain in effect for a period of three (3) years from the
Effective Date (the "Term"). The Term shall be renewed automatically for periods
of one (1) year (each a "Renewal Term") commencing at the third anniversary of
the Effective Date and on each subsequent anniversary thereafter, unless notice
that this Agreement will not be extended is given by either the Employee or the
Company not less than sixty (60) days prior to the expiration of the Tenn (as
extended by any Renewal Term); provided that if the Company elects not to extend
this Agreement for any reason, the Employee shall receive the payments set forth
in Section 6(e). The period during which the Employee serves as an employee of
the Company in accordance with and subject to the provisions of this Agreement
is referred to in this Agreement as the "Term of Employment."
3. Capacity.
(a) Duties. During the Term of Employment, the Employee shall report
directly to the Chairman and Chief Executive Officer and (i) shall serve as an
Employee of the Company with the title Director Human Resources, (ii) shall
perform such duties and responsibilities as may be reasonably determined by, the
Chairman and Chief Executive Officer consistent with the Employee's title and
position, duties and responsibilities as an Employee of the Company as of the
Effective Date; provided that such duties and responsibilities shall be within
the general area of the Employee's experience and skills, and (iii) shall render
all services incident to the foregoing.
<PAGE>
(b) Extent of Service. The Employee agrees to diligently serve the
interests of the Company and shall devote substantially all of his working time,
attention, skill and energies to the advancement of the interests of the Company
and its subsidiaries and affiliates and the performance of his duties and
responsibilities hereunder; provided that nothing in this Agreement shall be
construed as preventing the Employee from (i) investing the Employee's assets in
any entity in a manner not prohibited by Section 7 and in such form or manner as
shall not require any material activities on the Employee's part in connection
with the operations or affairs of the entities in which such investments are
made, or (ii) engaging in religious, charitable or other community or non-profit
activities that do not impair the Employee's ability to fulfill the Employee's
duties and responsibilities under this Agreement.
4. Compensation.
(a) Salary. During the Term of Employment, the Company shall pay the
Employee a salary (the "Base Salary") at an annual rate as shall be determined
from time to time by the Board of Directors of the Company or the Compensation
Committee of the Board of Directors consistent with the general policies and
practices of the Company and subject to periodic review in accordance with the
policies and practices of the Company; provided, however, that in no event shall
such rate per annum be less than $72,450.00. Such salary shall be subject to
withholding under applicable law and shall be payable in periodic installments
in accordance with the Company's usual practice for its senior Employees, as in
effect from time to time.
(b) Bonus. Commencing on the first annual compensation determination
date established by the Company during the Term of Employment and on each such
date thereafter, the Company shall review the performance of the Company and of
the Employee during the prior year, and the Company may provide the Employee
with additional compensation as a bonus in accordance with any bonus plan then
in effect from time to time for senior Employees of the Company. Any such bonus
plan shall have such terms as may be established in the sole discretion of the
Board of Directors of the Company or the Compensation Committee of the Board of
Directors.
5. Benefits.
(a) Regular Benefits. During the Tenn of Employment, the Employee
shall be entitled to participate in any and all medical, dental, pension and
life insurance plans, disability income plans and other employee benefit plans
as in effect from time to time for senior Employees of the Company. Such
participation shall be subject to (i) the terms of the applicable plan
documents, (ii) generally applicable policies of the Company and (iii) the
discretion of the Board of Directors of the Company or the administrative or
other committee provided for in, or contemplated by, such plan. Compliance with
this Section 5(a) shall in no way create or be deemed to create any obligation,
express or implied, on the part of the Company or any subsidiary or affiliate of
the Company with respect to the continuation of any benefit or other plan or
arrangement maintained as of or prior to the Effective Date or the
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<PAGE>
creation and maintenance of any particular benefit or other plan or arrangement
at any time after the Effective Date.
(b) Reimbursement of Expenses. The Company shall promptly reimburse
the Employee for all reasonable business expenses incurred by the Employee
during the Tenn of Employment in accordance with the Company's practices for
senior Employees of the Company, as in effect from time to time.
(c) Vacation. During the Tenn of Employment, the Employee shall
receive at least three (3) weeks paid vacation annually or such greater amount
as is in accordance with the Company's practices for senior Employees of the
Company, as in effect from time to time.
6. Termination of Employment. Notwithstanding the provisions of Section 2,
the Employee's employment under this Agreement shall terminate under the
following circumstances set forth in this Section 6.
For purposes of this Agreement, "Date of Termination" means (i) if the
Employee's employment is terminated by his death as provided in Section 6(c),
the date of his death; (ii) if the Employee's employment is terminated due to
his permanent disability as provided in Section 6(c), the date on which notice
of termination is given; (iii) if the Employee's employment is terminated under
Section 6(e), sixty (60) days after the date on which notice of termination is
given; and (iv) if the Employee's employment is terminated under Section 6(f),
the date on which the applicable cure period expires.
(a) Mutual Consent. The Employee's employment under this Agreement
may be terminated at any time by the mutual consent of the Employee and the
Company on such terms as both parties shall mutually agree.
(b) Termination by the Company for Cause. The Employee's employment
under this Agreement may be terminated by the Company for "cause" at any time
upon written notice to the Employee without further liability on the part of the
Company. For purposes of this Agreement, a termination shall be for "cause" if:
(i) the Employee shall commit an act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company or any of its
subsidiaries or affiliates or shall be convicted by a court of competent
jurisdiction or shall plead guilty or nolo contenders to any felony or any crime
involving moral turpitude;
(ii) the Employee shall commit a material breach of any of the
covenants, terms or provisions of Section 7 or 8 hereof which breach has not
been cured within fifteen, (15) days after delivery to the Employee by the
Company of written notice thereof;
(iii) the Employee shall commit a material breach of any of
the covenants, terms or provisions hereof (other than pursuant to Section 7 or 8
hereof) which
3
<PAGE>
breach has not been remedied within thirty (30) days after delivery to the
Employee by the Company of written notice thereof; or
(iv) the Employee shall have disobeyed reasonable written
instructions from the Chairman and Chief Executive Officer, or other appropriate
person which are consistent with the terms and conditions of this Agreement or
shall have deliberately, willfully, substantially and continuously failed to
perform the Employee's duties hereunder, after written notice and under
circumstances effectively constituting a voluntary resignation of the Employee's
position with the Company.
Upon termination for cause as provided in this Section 6(b), (A) all
obligations of the Company under this Agreement shall thereupon immediately
terminate other than any obligations with respect to earned but unpaid Base
Salary and (B) the Company shall have any and all rights and remedies under this
Agreement and applicable law.
(c) Death, Disability. The Employee's employment under this
Agreement may be terminated by the Company upon the earlier of death or
permanent disability (as defined below) of the Employee continuing for a period
of one hundred eighty (180) days. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to (i) earned but
unpaid salary through the Date of Termination; provided that Base Salary
payments as provided by Section 4(a) shall continue to be made to the Employee
(or his estate) through the Term (as extended by any Renewal Term) but only if
and to the extent payments to the Employee or his estate under any applicable
disability or life insurance policy is less than the amount the Employee would
otherwise receive as Base Salary hereunder, (ii) Bonus payments with respect to
the calendar year within which such termination occurred on the basis of and to
the extent contemplated in any bonus plan then in effect with respect to senior
Employee officers of the Company, pro-rated on the basis of the number of days
of the Employee's actual employment hereunder during such calendar year through
the Date of Termination, and (iii) in the case of permanent disability,
continuation at the Company's expense of health insurance benefits (medical and
dental) until the first anniversary of the Date of Termination to the extent
permitted under the Employee's group health insurance policy. As used herein,
the term "permanent disability" or "permanently disabled" means the inability of
the Employee, by reason of injury, illness or other similar cause, to perform a
major part of his duties and responsibilities in connection with the conduct of
the business and affairs of the Company. The Company shall provide written
notice to the Employee of the termination of his employment hereunder due to
permanent disability.
(d) Voluntary Termination by the Employee. At any time during the
Term of Employment, the Employee may terminate his employment under this
Agreement upon sixty (60) days' prior written notice to the Company. Upon
termination by the Employee as provided in this Section 6(d), all obligations of
the Company under this Agreement shall thereupon immediately terminate other
than any obligations with respect to earned but unpaid Base Salary.
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<PAGE>
(e) Termination by the Company Without Cause. The Company may
terminate the Employee's employment under this Agreement at any time without
"cause" (as defined in Section 6(b)) by the Company upon sixty (60) days' prior
written notice to the Employee. Upon any such termination of the Employee's
employment, all obligations of the Company under this Agreement shall thereupon
immediately terminate other than any obligations with respect to earned but
unpaid Base Salary and bonus under Section 4. In addition, subject to the
Employee signing a general release of claims in a form and manner satisfactory
to the Company, the Company shall continue to pay the Employee his Base Salary
at the rate then in effect pursuant to Section 4(a) for a period of one (1) year
from the Date of Termination and shall pay to the Employee in monthly
installments over such one year period, an amount equal to the Employee's cash
bonus, if any, received in respect of the immediately preceding year pursuant to
Section 4(b).
(f) Termination by the Employee upon Company Breach. The Employee
shall have the right to terminate his employment hereunder upon written notice
to the Company in the event of (i) a material adverse change or diminution in
the nature or scope of the powers, functions, titles, duties or responsibilities
of the Employee that is adverse to the Employee or (ii) a breach by the Company
of any of its material obligations hereunder, in each case after the Employee
has given written notice to the Company specifying such default by the Company
and giving the Company a reasonable time, not less than thirty (30) days, to
conform its performance to its obligations hereunder. The failure of the
Employee to give notice of any of the foregoing events shall not under any
circumstances constitute a waiver of the Employee's right to terminate his
employment and receive the amounts payable under this Section 6(f). Upon any
such termination of the Employee's employment, all obligations of the Company
under this Agreement shall thereupon immediately terminate other than any
obligations with respect to earned but unpaid Base Salary and bonus under
Section 4. In addition, subject to the Employee signing a general release of
claims in a form and manner satisfactory to the Company, the Company shall
continue to pay the Employee his Base Salary at the rate then in effect pursuant
to Section 4(a) for a period of one (1) year from the Date of Termination and
shall pay to the Employee in monthly installments over such one-year period, an
amount equal to the Employee's cash bonus, if any, received in respect of the
immediately preceding year pursuant to Section 4(b).
(g) Termination Pursuant to a Change of Control. If there is a
Change of Control, as defined below, during the Term of Employment, the
provisions of this Section 6(g) shall apply and shall continue to apply
throughout the remainder of the Term (as extended by any Renewal Term). If,
within one (1) year following a Change of Control, the Employee's employment is
terminated by the Company without cause (in accordance with Section 6(e) above)
or by the Employee for "Good Reason" (as defined in Section 6(g)(ii) below), the
Company shall pay to the Employee (or the Employee's estate, if applicable) a
lump sum amount equal to one (1) time the sum of (x) the Employee's Base Salary
at the rate then in effect pursuant to Section 4(a), plus (y) an amount equal to
the Employee's cash bonus, if any, received in respect of the immediately
preceding year pursuant to Section 4(b).
5
<PAGE>
(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 (500/o) of the voting
shares of the corporation issuing cash or securities in the consolidation or
merger (or of its ultimate parent corporation, if any), (2) any sale, lease,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or substantially
all of the assets of the Company or (3) any plan or proposal for the liquidation
or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (A) solely as the result
of an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities
6
<PAGE>
outstanding, increases the proportionate number of shares of Voting Securities
beneficially owned by any person to twenty-five percent (25%) or more of the
combined voting power of all then outstanding Voting Securities; provided,
however, that if any person referred to in this sentence shall thereafter become
the beneficial owner of any additional shares of Voting Securities (other than
pursuant to a stock split, stock dividend, or similar transaction or as a result
of an acquisition of securities directly from the Company), then a "Change of
Control" shall be deemed to have occurred for purposes of the foregoing clause
(A).
(ii) "Good Reason" shall mean the occurrence of any of the
following:
(A) a material adverse change or diminution in the
nature or scope of the powers, functions, titles, duties or responsibilities of
the Employee that is adverse to the Employee;
(B) a breach by the Company of any of its material
obligations hereunder;
(C) the failure by the Company to obtain an effective
agreement from any successor to assume and agree to perform this Agreement; or
(D) the relocation of the offices at which the Employee
is principally employed as of the Change of Control to a location more than
fifty (50) miles from such offices, which relocation is not approved by the
Employee.
(iii) The Employee shall provide the Company with reasonable
notice and an opportunity to cure any of the events listed in Section 6(g)(ii)
and shall not be entitled to compensation pursuant to this Section 6(g) unless
the Company fails to cure within a reasonable period of not less than thirty
(30) days; and
(iv) It is the intention of the Employee and of the Company
that no payments by the Company to or for the benefit of the Employee under this
Agreement or any other agreement or plan, if any, pursuant to which the Employee
is entitled to receive payments or benefits shall be nondeductible to the
Company by reason of the operation of Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"), relating to parachute payments or any like
statutory or regulatory provision. Accordingly, and notwithstanding any other
provision of this Agreement or any such agreement or plan, if by reason of the
operation of said Section 280G or any like statutory or regulatory provision,
any such payments exceed the amount which can be deducted by the Company, such
payments shall be reduced to the maximum amount which can be deducted by the
Company. To the extent that payments exceeding such maximum deductible amount
have been made to or for the benefit of the Employee, such excess payments shall
be refunded to the Company with interest thereon at the applicable Federal rate
determined under Section 1274(d) of the Code, compounded annually, or at such
other rate as may be required in order that no such payments
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<PAGE>
shall be nondeductible to the Company by reason of the operation of said Section
280G or any like statutory or regulatory provision. To the extent that there is
more than one method of reducing the payments to bring them within the
limitations of said Section 280G or any like statutory or regulatory provision,
the Employee shall determine which method shall be followed; provided that if
the Employee fails to make such determination within forty-five (45) days after
the Company has given notice of the need for such reduction, the Company may
determine the method of such reduction in its sole discretion.
(h) No Mitigation. Without regard to the reason for the termination
of the Employee's employment hereunder, the Employee shall be under no
obligation to mitigate damages with respect to such termination under any
circumstances and in the event the Employee is employed or receives income from
any other source, there shall be no offset against the amounts due from the
Company hereunder.
7. Non-Competition.
(a) Because the Employee's services to the Company are special and
because the Employee has access to the Company's confidential information,
during the Term of Employment, the Employee shall not, without the express
written consent of the Company, directly or indirectly, engage, participate,
invest in, be employed by or assist, whether as owner, part-owner, shareholder,
partner, director, officer, trustee, employee, agent or consultant, or in any
other capacity, any Person (as hereinafter defined) other than the Company and
its affiliates in the Designated Industry (as hereinafter defined); provided,
however, that nothing herein shall be construed as preventing the Employee from
making passive investments in a Person in the Designated Industry if the
securities of such Person are publicly traded and such investment constitutes
less than one percent (1%) of the outstanding shares of capital stock or
comparable equity interests of such Person.
(b) For purposes of this Agreement, the following terms have the
following meanings:
"Person" means an individual, a corporation, an association, a
partnership, a limited liability company, an estate, a trust and any other
entity or organization; and
"Designated Industry" means the business of providing
chemistry research and development services to pharmaceutical and biotechnology
companies involved in drug development and discovery and any and all activities
related thereto, including, without limitation, medicinal chemistry, chemical
development, analytical chemistry services and small-scale manufacturing and any
other business conducted by the Company during the Employee's employment with
the Company.
8. Confidentiality. In the course of performing services hereunder and
otherwise, the Employee has had, and it is anticipated that the Employee will
from time to time have,
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<PAGE>
access to confidential records, data, customer lists, trade secrets, technology
and similar confidential information owned or used in the course of business by
the Company and its subsidiaries and affiliates (the "Confidential
Information"). The Employee agrees (i) to hold the Confidential Information in
strict confidence, (ii) not to disclose the Confidential Information to any
Person (other than in the regular business of the Company), and (iii) not to
use, directly or indirectly, any of the Confidential Information for any
competitive or commercial purpose; provided, however, that the limitations set
forth above shall not apply to any Confidential Information which (A) is then
generally known to the public, (B) became or becomes generally known to the
public through no fault of the Employee, or (C) is disclosed in accordance with
an order of a court of competent jurisdiction or applicable law. Upon
termination of the Employee's employment with the Company, all data, memoranda,
customer lists, notes, programs and other papers and items, and reproductions
thereof relating to the foregoing matters in the Employee's possession or
control, shall be returned to the Company and remain in its possession. This
Section 8 shall survive the termination of this Agreement for any reason.
9. Conflicting Agreements. The Employee hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants which
would affect the performance of his obligations hereunder. As of the Effective
Date, the Employee is not performing any other duties for, and is not a party to
any similar agreement with, any Person competing with the Company or any of its
affiliates.
10. Severability. In case any of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, any such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had been
limited or modified (consistent with its general intent) to the extent necessary
to make it valid, legal and enforceable, or if it shall not be possible to so
limit or modify such invalid, illegal or unenforceable provision or part of a
provision, this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or part of a provision had never been contained in this
Agreement.
11. Litigation and Regulatory Cooperation. During and after the Employee's
employment, the Employee shall cooperate fully with the Company in the defense
or prosecution of any claims or actions now in existence or which may be brought
in the future against or on behalf of the Company which relate to events or
occurrences that transpired while the Employee was employed by the Company. The
Employee's full cooperation in connection with such claims or actions shall
include, but not be limited to, being available to meet with counsel to prepare
for discovery or trial and to act as a witness on behalf of the Company at
mutually convenient times. During and after the Employee's employment, the
Employee also shall cooperate fully with the Company in connection with any
investigation or review of any federal, state or local regulatory authority as
any such investigation or review relates to events
9
<PAGE>
or occurrences that transpired while the Employee was employed by the Company.
The Company shall reimburse the Employee for any reasonable out-of-pocket
expenses incurred in connection with the Employee's performance of obligations
pursuant to this Section 11. This Section 11 shall survive the termination of
this Agreement for any reason.
12. Arbitration of Disputes. Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Albany, New York, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered in any court having
jurisdiction. In the event that the Company terminates the Employee's employment
for cause under Section 6(b) and the Employee contends that cause did not exist,
then the Company's only obligation shall be to submit such claim to arbitration
and the only issue before the arbitrator will be whether the Employee was in
fact terminated for cause. If the arbitrator determines that the Employee was
not terminated for cause by the Company, then the only remedies that the
arbitrator may award are (i) payment of amounts which would have been payable if
the Employee's employment had been terminated under Section 6(e), (ii) the costs
of arbitration, (iii) the Employee's attorneys' fees, and (iv) all rights and
benefits granted or in effect with respect to the Employee under the Company's
stock option plans and agreements with the Employee pursuant thereto, with the
vesting and exercise of any stock options and the forfeitability of any
stock-based grants held by the Employee to be governed by the terms of such
plans and the related agreements between the Employee and the Company. If the
arbitrator finds that the Employee's employment was terminated for cause, the
arbitrator will be without authority to award the Employee anything, and the
parties will each be responsible for their own attorneys' fees, and they will
divide the costs of arbitration equally. Furthermore, should a dispute occur
concerning the Employee's mental or physical capacity as described in Section
6(c), a doctor selected by the Employee and a doctor selected by the Company
shall be entitled to examine the Employee. If the opinion of the Company's
doctor and the Employee's doctor conflict, the Company's doctor and the
Employee's doctor shall together agree upon a third doctor, whose opinion shall
be binding. This Section 12 shall survive the termination of this Agreement for
any reason.
13. Specific Performance. Notwithstanding Section 12 hereof, it is
specifically understood and agreed that any breach of the provisions of this
Agreement, including, without limitation, Sections 7 and 8 hereof, by the
Employee is likely to result in irreparable injury to the Company and its
subsidiaries and affiliates, that the remedy at law alone will be inadequate
remedy for such breach and that, in addition to any other remedy it may have,
the Company shall be entitled to enforce the specific performance of this
Agreement by the Employee and to seek both temporary and permanent injunctive
relief (to the extent permitted by law), without the necessity of proving actual
damages. To the extent that any court action is permitted consistent with or to
enforce Section 7 or 8 of this Agreement, the parties hereby consent to the
jurisdiction of the courts of the State of New York and the United States
District Court for the Eastern District of New York. Accordingly, with respect
to any such court action, the Employee (i) submits to the personal jurisdiction
of such courts, (ii) consents to service of process, and (iii) waives any other
requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction or service of process.
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14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered by hand, (ii) when transmitted by facsimile and receipt is
acknowledged, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
To the Company:
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203-5154
Facsimile: (518) 464-0289
Attention: Chairman and Chief Executive Officer
To the Employee:
-------------------------
-------------------------
-------------------------
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or to such other address of which any party may notify the other parties as
provided above. Notices shall be effective as of the date of such delivery or
mailing.
15. Amendment; Waiver. This Agreement shall not be amended, modified or
discharged in whole or in part except by an Agreement in writing signed by both
of the parties hereto. The failure of either of the parties to require the
performance of a term or obligation or to exercise any right under this
Agreement or the waiver of any breach hereunder shall not prevent subsequent
enforcement of such term or obligation or exercise of such right or the
enforcement at any time of any other right hereunder or be deemed a waiver of
any subsequent breach of the provision so breached, or of any other breach
hereunder.
16. Successors and Assigns. This Agreement shall inure to the benefit of
successors of the Company by way of merger, consolidation or transfer of all or
substantially all of the assets of the Company, and may not be assigned by the
Employee.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties concerning the subjects hereof and supersedes all prior
understandings and agreements between the parties relating to the subject matter
hereof.
18. Governing Law. This Agreement shall be construed and regulated in all
respects under the laws of the State of New York.
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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: /s/ Thomas E. D'Ambra
-------------------------------
Thomas E. D'Ambra
Chairman and CEO
EMPLOYEE:
/s/ James J. Grates
-----------------------------------
James J. Grates
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Exhibit 10.19
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of the 29th day of June, 1998, by and
between FLEET NATIONAL BANK, a national banking association created under the
laws of the United States of America, having an office located at 69 State
Street, Albany, New York 12207 (the "Bank"), and ALBANY MOLECULAR RESEARCH,
INC., a New York corporation with a business address at 21 Corporate Circle,
Albany, New York 12203 (the "Borrower").
R E C I T A L S:
WHEREAS, the Borrower has requested that the Bank make certain Loans (as
defined herein) to the Borrower on and subject to the terms and for the purposes
set forth herein; and
WHEREAS, the Bank has agreed, on the terms and conditions set forth in
this Loan Agreement and the other Loan Documents (as defined herein), to make
the Loans to the Borrower; and
WHEREAS, the proceeds from the Loans shall only be used by the Borrower as
hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and convenants hereinafter set forth, the Borrower and the Bank hereby agree as
follows:
A G R E E M E N T :
Section 1. Definitions and Rules of Construction. As used in this Loan
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
,"Allegra Patent" shall mean all the Borrower's interest in U.S. Patent
Numbers 5,750,703 and 5,578,610.
"Assignment of Licensing Payment" shall mean that certain agreement
between the Borrower and Bank whereby the Borrower assigns all of its rights to
receive all payments due the Borrower under the License Agreement Terfenadine
Acid Metabolite.
"Bank" shall mean Fleet National Bank, a national banking association
created under the laws of the United States of America, and any successor and/or
assignee of the Bank.
"Bankruptcy Code" shall mean Title 11 of the United States Code entitled
"Bankruptcy," as from time to time amended, and any successor statute.
"Borrower" shall mean Albany Molecular Research, Inc., a New York
corporation.
<PAGE>
"Business Day" shall mean a day on which commercial banks settle payments
in New York or London if the payment obligation is calculated by reference to
any (i) LIBOR Rate, or (ii) New York, if the payment obligation is calculated by
reference to any Prime Rate.
"Closing Date" shall mean the 29th day of June 1998.
"Current Ratio" shall be defined as the ratio of Borrower's (i) current
assets to (ii) current liabilities.
"Event of Default" shall have the meaning assigned to that term in Section
6.
"Fixed Cover Charge" shall mean the ratio of Borrower's (i) earnings
before interest, taxes, depreciation and amortization - for the then most
recently ended four (4) quarters to (ii) the amount of principal paid on long
term debt, plus interest expense, unfunded capital expenditures, taxes paid,
operating lease expenses, and cash dividends - for the then most recently ended
four (4) quarters.
"Fixed LIBOR Rate" shall mean a fixed rate of interest equal to the LIBOR
Rate, plus fifty hundredths of one percent (.50%).
"Fleet Bank Prime Rate" shall mean the variable per annum rate of interest
so designated from time to time by Fleet National Bank as its prime rate. The
Fleet Bank Prime Rate is a reference rate and does not necessarily represent the
lowest or best rate being charged to any customer. Any change in this interest
rate shall be effective on the date the change in the Fleet Bank Prime Rate
occurs, without notice to Borrower.
"Floating Rate" shall mean the Prime Rate, as such rate changes from time
to time, minus two percent (-2.0%).
"GAAP" shall mean generally accepted accounting principles consistently
maintained throughout the periods involved. Except as otherwise expressly stated
herein, all computations required hereunder shall be made by the application of
GAAP.
"Indebtedness" shall mean all items that in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet as at the date as of which debt is to be determined, or to which
reference should be made by footnotes thereto, but also includes reimbursement
obligations, guaranties, endorsements (other than endorsements for collection or
deposit in the ordinary course of business), and other contingent obligations in
respect of, or to purchase or otherwise acquire or advance funds on account of
or otherwise service, obligations of others.
"Interest Rate Election " shall mean an election on the part of the
Borrower to choose the Fixed LIBOR Rate to be charged on a Revolver Portion or
the Term Loan.
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"Interest Rate Election Period" shall mean the time period selected by the
Borrower during which interest is to accrue, with reference to the LIBOR Rate,
on a Revolver Portion or the Term Loan. An Interest Rate Election Period
applicable to a Revolver Portion or Term Loan shall be for a duration, as
designated by the Borrower, of either seven (7) days, or a one (1), two (2), or
three (3) month period of time.
"Leased Property" shall mean that real property located at 21 Corporate
Circle, Albany, New York 12203.
"Leverage Ratio" shall be defined as the ratio of Borrower's (i) total
liabilities to (ii) tangible net worth.
"LIBOR Rate" shall mean the rate per annum (rounded upward, if necessary,
to the nearest 1/32 of one percent) as determined on the basis of the offered
rates for deposits in U.S. dollars, for a period of time comparable to an
Interest Rate Election Period selected by the Borrower to apply to a Revolver
Portion or the Term Loan, which appears on the Telerate page 3750 (or any
successor page) as of 11:00 a.m. London time on the day that is two London
Banking Days preceding the first day of the Interest Rate Election Period;
provided, however, if the rate described above does not appear on the Telerate
System on the applicable interest determination date, the LIBOR Rate shall be
the rate (rounded upwards as described above, if necessary) for deposits in
dollars for a period substantially equal to the Interest Rate Election Period,
on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on
that service for the purpose of displaying such rates), as of 11:00 a.m. (London
Time), on the day that is two (2) London Banking Days preceding the first day of
the Interest Rate Election Period.
If both the Telerate and Reuters system are unavailable, then the rate for
that date will be determined on the basis of the offered rates for deposits in
U.S. dollars for a period of time comparable to the Interest Rate Election
Period, which are offered by four major banks in the London interbank market at
approximately 11:00 a.m. London time, on the day that is two (2) London Banking
Days preceding the first day of the Interest Rate Election Period. The principal
London office of each of the four major London banks will be requested to
provide a quotation of its U.S. dollar deposit offered rate. If at least two
such quotations are provided, the rate for that date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S. dollars to leading European banks for a period of time comparable to the
Interest Rate Election Period, offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the day that is two London
Banking Days preceding the first day of the Interest Rate Election Period. In
the event that Bank is unable to obtain any such quotation as provided above, it
will be deemed that the LIBOR Rate cannot be determined, in which case the
applicable Floating Rate shall apply until a LIBOR Rate can be determined.
In the event that the Board of Governors of the Federal Reserve System
shall impose a Reserve Percentage with respect to LIBOR deposits of the Bank
then for any period during which
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such Reserve Percentage shall apply, the LIBOR Rate shall be equal to the amount
determined above divided by an amount equal to 1 minus the Reserve Percentage.
"License Agreement Terfenadine Acid Metabolite" shall mean that agreement
dated as of the 15th day of March, 1995 by and between Marion Merrell Dow Inc.
and the Borrower, whereby the Borrower granted to Marion Merrell Dow Inc. an
exclusive, worldwide license, with the right to grant sublicenses, in the
Allegra Patent.
"Loans" shall mean the Revolver and the Term Loan.
"Loan Agreement" shall mean this Loan Agreement dated as of the 29th day
of June, 1998, by and between the Bank and the Borrower, as such agreement shall
be amended, modified or supplemented from time to time.
"Loan Documents" shall mean this Loan Agreement, the Note, the Security
Agreement, and any other ancillary documentation which is required to be or is
otherwise executed by the Borrower and delivered to the Bank in connection with
this Loan Agreement, or at any time after the date hereof and which the Bank
designates as a Loan Document.
"Note" shall mean the promissory note of the Borrower issued hereunder and
relating to the Revolver and Term Loan.
"Person" shall mean an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
governmental authority or other entity of any kind.
"Revolver" shall mean the loan owing to the Bank by the Borrower and
described in Section 2.1 hereof.
"Revolver Maturity Date" shall mean the 30th day of June 2001.
"Revolver Portion" shall mean that portion of the Revolver to which the
Borrower elects to accrue interest at the Revolver Fixed LIBOR Rate.
"Security Agreement" shall mean that certain written security agreement
dated the date hereof between the Borrower and the Bank and pursuant to which
the Borrower shall grant a lien on and security interest in the Collateral (as
defined therein), as such agreement is amended, modified or supplemented from
time to time.
"Security Interest" shall mean any lien, charge, mortgage, pledge,
assignment, or other encumbrance, retained title, or security interest, whether
created or arising voluntarily, involuntarily or by operation of law.
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"Term Loan" shall mean the loan owing to the Bank by the Borrower and
described in Section 2.2 hereof.
"Term Loan Maturity Date" shall mean the 30th day of June 2006.
Section 2. The Loans; Interest; Payments.
Section 2.1 The Revolver.
(a) Amount and Maturity Date. The principal amount of the Revolver
is Fifteen Million and no/100 Dollars ($15,000,000.00). The Revolver shall be
available to the Borrower until the Revolver Maturity Date and be repayable as
set forth herein.
(b) Note. The Borrower shall execute and deliver to the Bank on the
Closing Date the Note to evidence the Borrower's indebtedness under the Revolver
and the Term Loan, in the principal amount of the Revolver.
(c) Interest. The Revolver shall bear interest on the outstanding
principal amount thereof from and including the Closing Date but not including
the date the Revolver is repaid at one of the following per annum interest rates
as selected by the Borrower from time to time to apply to any Revolver Portion:
(i) the Floating Rate, or
(ii) the Fixed LIBOR Rate
Interest on all proceeds of the Revolver shall be charged at the Floating
Rate, unless and until such time as the Borrower has notified the Bank that it
has selected an Interest Rate Election and Interest Rate Election Period to
apply to a Revolver Portion. The Borrower may select the Fixed LIBOR Rate only
for Revolver Portions equal to or in excess of One Hundred Thousand and no/100
Dollars ($100,000.00) and the Borrower is limited to a maximum of five (5)
separate Revolver Portions accruing at a Fixed LIBOR Rate outstanding at any one
time. The Fixed LIBOR Rate for each Revolver Portion shall remain in effect
until expiration of the Interest Rate Election Period chosen by the Borrower for
that Revolver Portion. At the end of any applicable Interest Rate Election
Period selected by the Borrower to apply to a Revolver Portion, interest on that
Revolver Portion shall accrue at the Floating Rate unless and until the Borrower
again selects a new Interest Rate Election and Interest Rate Election Period to
apply. In no event may an Interest Rate Election Period applicable to a Revolver
Portion extend beyond the Revolver Maturity Date.
(d) Repayment. Interest on the outstanding principal balance of the
Revolver shall be paid monthly commencing on the first day of the month
following the Closing Date, and on the first day of each succeeding month
thereafter during the term of the Revolver.
Section 2.2 The Term Loan.
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(a) Amount and Maturity Date. So long as there is no Event of
Default under the Loan Documents and provided that the conditions for conversion
to a term loan are met, the balance of the Revolver outstanding as of the
Revolver Maturity Date, not to exceed Fifteen Million and no/100 Dollars
($15,000,000.00), will be converted to the Term Loan. The Term Loan shall mature
on the Term Loan Maturity Date and be repayable as set forth herein.
(b) Interest. The Term Loan shall bear interest on the outstanding
principal amount thereof from and including July 1, 2001 but not including the
date the Term Loan is repaid at one of the following per annum interest rates as
selected by the Borrower from time to time to apply to the Term Loan:
(i) the Floating Rate, or
(ii) the Fixed LIBOR Rate.
Interest on the outstanding balance of the Term Loan shall be charged at
the Floating Rate, unless and until such time as the Borrower notifies the Bank
they have selected an Interest Rate Election and Interest Rate Election Period
to apply to the Term Loan. The Fixed LIBOR Rate for the Term Loan shall remain
in effect until expiration of the Interest Rate Election Period chosen by the
Borrower for the Term Loan. At the end of any applicable Interest Rate Election
Period selected by the Borrower to apply to the Term Loan, interest on the Term
Loan shall accrue at the Floating Rate unless and until the Borrower again
select a new Interest Rate Election and Interest Rate Election Period to apply.
In no event may an Interest Rate Election Period applicable to the Term Loan
extend beyond the Term Loan Maturity Date.
(d) Repayment. The entire principal balance of the Term Loan shall
be paid in sixty (60) equal monthly installments over the term of the Term Loan,
commencing on July 1, 2001 and on the first day of each succeeding month during
the term of the Term Loan. Interest on the outstanding principal balance of the
Term Loan shall be due and payable monthly in arrears contemporaneously with
payments of principal as set forth herein. The outstanding principal amount of
the Term Loan, plus any accrued interest, shall be due and payable in full on
the Term Loan Maturity Date.
Section 3. Conditions Precedent.
Section 3.1 Conditions Precedent to Making the Loans. The obligations of
the Bank to make available to the Borrower the Loans described herein are
subject to the condition that the Borrower shall have complied with or the Bank
shall have received on or prior to the Closing Date the following in form and
substance satisfactory to the Bank and its counsel and (unless otherwise
indicated) each dated the Closing Date.
(a) This Loan Agreement duly executed by the Borrower;
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(b) The Note duly executed by the Borrower;
(c) Resolutions by the board of directors of the Borrower, certified
by the Secretary of the Borrower, of the Closing Date, to be duly adopted and in
full force and effect, without modification or amendment, on such date,
authorizing (1) the consummation of each of the transactions contemplated by the
Loan Documents, and (2) specific officers to execute and deliver this Loan
Agreement and the other Loan Documents;
(d) A certificate by the Secretary of the Borrower showing the
incumbency and signatures of the officer of the Borrower who will execute this
Loan Agreement and the other Loan Documents;
(e) The Security Agreement duly executed by the Borrower;
(f) Evidence that the insurance policies required hereunder are in
full force and effect, certified by the insurer thereof, together with
appropriate evidence showing the Bank as an additional loss payee thereon;
(g) The other Loan Documents duly executed as required by such
documents, together with such additional information and documentation as may
reasonably be requested by the Bank and its counsel in connection with this Loan
Agreement, the other Loan Documents and the Loans;
(h) A favorable opinion of counsel to the Borrower in form and
substance satisfactory to the Bank and its counsel;
(i) The Assignment of Licensing Payment duly executed by the
Borrower, with a consent to the Assignment of Licensing Payment, executed by
Hoechst Marion Roussel, Inc. (as successor in interest to Marion Merrell Dow,
Inc.);
(j) A copy of the executed lease agreement extension between the
Borrower and Hoffmann Enterprises for the Leased Property;
(k) A properly executed landlord lien waiver in favor of the Bank
relating to the Leased Property;
(l) A copy of the Borrower's audited December 31, 1997 financial
statements;
(m) A copy of the Borrower's internally prepared first quarter 1998
financial statements;
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(n) Proof of the existence of key man life insurance policies,
covering the lives of Messrs. Thomas D'Ambra, Chester Opalka, and Harold M.
Armstrong, Jr., the terms of which the Bank finds acceptable in its sole
discretion; and,
(o) A copy of the executed licensing agreement for the Allegra
Patent between the Borrower and Hoechst Marion Roussel, Inc.
Section 4. Representations and Warranties. In order to induce the Bank to
enter into this Loan Agreement and to make the Loans provided for herein, the
Borrower makes the following representations and warranties to, and agreements
with, the Bank, all of which shall survive the execution and delivery of this
Loan Agreement, the issuance of the Note and the making of the Loans.
Section 4.1 Corporate Existence. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. The Borrower has the power and authority to own its properties and
conduct its business as now, heretofore or proposed to be conducted, to execute,
deliver and perform its obligations under this Loan Agreement, the Note and the
other Loan Documents to which it is a party. The Borrower is duly qualified as a
foreign corporation and will remain in good standing in all other jurisdictions,
if any, where their activities make such qualifications necessary. The Borrower
is duly authorized under all applicable provisions of law to conduct the
business contemplated to be conducted following the closing of the Loans.
Section 4.2 Authorization. The execution, delivery and performance by the
Borrower of the Loan Agreement, and each Loan Document to which the Borrower is
a party (i) have been duly authorized by all requisite corporate action of the
Borrower, (ii) will not violate any provision of any law, rule or regulation,
order or decree of any court or governmental authority applicable to the
Borrower, (iii) will not violate any provision of the Borrower's certificate of
incorporation or by-laws, (iv) will not violate the provisions of any indenture
or any agreement for borrowed money, any bond, note, debenture or other similar
instrument or any other material agreement to which the Borrower is a party, or
by which the Borrower or any of its properties or assets are bound, (v) will not
be in conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a material default under any such indenture, agreement,
bond, note, debenture, instrument or other agreement, and (vi) will not result
in the creation or imposition of any lien upon any property or assets of the
Borrower, whether now owned or hereafter acquired, other than Security Interests
in favor of the Bank.
Section 4.3 Governmental Approval. No action, consent or approval of, or
registration or filing with, or any other action by any governmental authority
is required in connection with the execution, delivery and performance by the
Borrower of this Loan Agreement or any of the other Loan Documents and to the
best of the Borrower's knowledge the Borrower has complied in all material
respects with all federal, state, county and municipal laws, rules, regulations
and ordinances applicable to it or to its assets where failure to comply could
subject a material part of its assets to
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forfeiture or otherwise have a material adverse effect on its ability to repay
the Loans or perform its obligations under this Loan Agreement.
Section 4.4 Valid Obligations. This Loan Agreement, the Note and the other
Loan Documents to which the Borrower is a party are legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms.
Section 4.5 No Material Litigation. There is no pending, or to the best
knowledge of the Borrower, threatened action, suit, proceeding or claim
affecting the Borrower or any of its properties before any court, governmental
agency or arbitrator which may materially adversely affect the assets,
properties, condition (financial or otherwise) or operations of the Borrower or
which would involve this Loan Agreement or any of the transactions contemplated
hereby or by the other Loan Documents.
Section 4.6 No Defaults. The Borrower is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement, instrument or contract to which it is a
party or by which the Borrower or any of its assets or properties are bound.
Section 4.7 Financial Condition of Borrower. The Borrower represents and
warrants that all financial statements heretofore given by the Borrower to the
Bank upon which the Bank relies in making the Loans, are true, correct and
complete in all material respects and truly represent the financial condition of
the Borrower as of the dates of such financial statements. All such financial
statements have been prepared in accordance with GAAP, consistently applied, and
since the date of the latest such statement, there has been no materially
adverse change in the condition, financial or otherwise, of the Borrower. The
Borrower has disclosed all material obligations, liabilities or commitments,
direct or contingent, which are required by GAAP to be disclosed, and all such
obligations, liabilities or commitments are reflected in such financial
statements.
Section 4.8 Taxes. The Borrower has filed or caused to be filed all
federal, state and local tax and similar returns which are required to be filed,
and has paid or caused to be paid all taxes as shown on said returns or on any
assessment received by it in writing, to the extent that such taxes have become
due. The Borrower has no knowledge of any claims for taxes upon its assets or
properties, now owned, or as will be hereafter acquired.
Section 4.9 Disclosure. Neither this Loan Agreement or any other Loan
Document or any other agreement, document, certificate or statement furnished to
the Bank by or on behalf of the Borrower in connection with the transactions
contemplated hereby or by the other Loan Documents at the time it was furnished
contained any untrue statement of a material fact or omitted to state a material
fact, under the circumstances under which it was made, which was necessary in
order to make the statements contained herein or therein not misleading.
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Section 4.10 Title to Properties. The Borrower has, at the Closing Date,
good and marketable title to all of its assets and none of its assets are
subject to any lien, mortgage, security interest, encumbrance, or other adverse
claims of any nature except as has been disclosed to the Bank in writing.
Section 4.11 Obligations of Others, The Borrower is not an insurer,
endorser, or guarantor of any Indebtedness or obligation of another, except as
may be permitted in Section 5.6 herein.
Section 4.12 Assignment of Licensing Payment,
(a) The Borrower (i) is, except for interests which have been licensed
pursuant to the License Agreement Terfenadine Acid Metabolite, the sole and
absolute owner of the Allegra Patent, (ii) has, except for the Assignment of
Licensing Payment, made no prior assignment(s) of any of its interests in the
License Agreement Terfenadine Acid Metabolite, (iii) has neither done any acts
or omitted to do any act which might prevent Bank from, or limit Bank in, acting
under any of the provisions of the Assignment of Licensing Payment, (iv) through
its execution and delivery of the Assignment of Licensing Payment, the
performance of each and every covenant of Borrower under the Assignment of
Licensing Payment and the meeting of each and every condition contained in the
Assignment of Licensing Payment, neither conflicts with nor constitutes a breach
or default under, any agreement, indenture, or other instrument to which
Borrower is a party, or any law, ordinance, administrative regulation or court
decree which is applicable to Borrower, (v) has not been made the subject of any
action or, as far as is known to Borrower, been threatened with any action,
which would interfere in any way with the right of Borrower to execute the
Assignment of Licensing Payment and to perform all of Borrower's obligations
contained under the Assignment of Licensing Payment, and (vi) is not in default
in the fulfillment, performance or observance of any of the terms, conditions or
covenants of the License Agreement Terfenadine Acid Metabolite;
(b) The Bank shall have the right, power and authority to take any and all
actions which Bank deems necessary or appropriate in connection with collecting
all or any sums due the Borrower under the License Agreement Terfenadine Acid
Metabolite and enforcing the rights of the Borrower thereunder, including,
without limitation, bringing, prosecuting, defending or settling legal
proceedings against Hoechst Marion Roussel, Inc. (and any successor in interest
and/or assignee);
(c) The Bank shall have the right, power and authority to use and apply
any sums received under the Assignment of Licensing Payment, for the payment of
amounts due under any of the Loan Documents;
(d) The Borrower shall have a revocable license to collect and receive and
use sums due under the License Agreement Terfenadine Acid Metabolite, however,
such license may be revoked by the Bank upon the occurrence of an Event of
Default and after applicable notice, grace and cure periods. In addition to any
rights the Bank may possess, Bank shall have the right to take possession of all
sums Borrower has collected under the License Agreement Terfenadine Acid
Metabolite, and thereafter collect amounts due under that agreement and apply
the same to any amounts due under
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any of the Loan Documents. The Bank's right to receive payments under the
Assignment of Licensing Payment shall terminate at such time as the Loans and
all obligations of the Borrower under the Loan Documents have been satisfied in
full.
Section 5. Covenants. The Borrower hereby covenants and agrees that from
and after the date hereof until the repayment in full of all of Borrower's
obligations to the Bank under this Loan Agreement, the Loans and the Loan
Documents:
Section 5.1 Financial Statement Requirement. The Borrower will maintain a
system of accounting established and administered in accordance with sound
business practices to permit the preparation of financial statements in
accordance with GAAP and:
(a) promptly, and in any event within one hundred fifty (150) days
after the close of each fiscal year, furnish to the Bank: (i) a balance sheet
presenting the financial condition of the Borrower as of the close of such
fiscal year, a statement of income presenting the results of operations of the
Borrower for such fiscal year and a statement of cash flows, all in reasonable
detail and accompanied by an opinion thereon (which shall not be qualified by
reason of any limitation imposed by Borrower) of an independent certified public
accountant satisfactory to Bank to the effect that such financial statements
have been prepared in accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and shall be certified to
be true and correct, to the best of his knowledge and belief, by Borrower's
chief financial officer, and, (ii) an annual contract-in-progress report;
(b) promptly, and in any event within sixty (60) days after the
close of each fiscal quarter, furnish to the Bank an internally prepared balance
sheet and income statement, prepared in accordance with GAAP consistently
applied;
(c) promptly, and in any event within ninety (90) days after the
close of each fiscal year, furnish to the Bank a detailed financial plan for the
Borrower's operations for the ensuing fiscal year;
(d) promptly, and in any event within sixty (60) days after the end
of each fiscal quarter, deliver to Bank a compliance certificate executed by the
Borrower's chief financial officer stating that a review of the activities of
Borrower during such fiscal quarter has been made under his supervision and
that, to the best of his knowledge and belief, the Borrower has observed,
performed and fulfilled each and every obligation and covenant contained herein
and is not in default under any of the same status thereof;
Section 5.2 Fixed Cover Charge Ratio, The Borrower shall test each quarter
and maintain a minimum Fixed Cover Charge Ratio of 1.25 to 1.00, based upon the
Borrower's financial statements referred to in Section 5.1 above;
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Section 5.3 Leverage Ratio. The Borrower shall test each quarter and
maintain a maximum Leverage Ratio of 2.75 to 1.00, based upon the Borrower's
financial statements referred to in Section 5.1 above;
Section 5.4 Current Ratio. The Borrower shall test each quarter and
maintain a minimum Current Ratio of 2.00 to 1.00, based upon the Borrower's
financial statements referred to in Section 5.1 above;
Section 5.5 Security Interests. Borrower will not create, incur, or suffer
any Security Interest upon any of its assets, now owned or hereafter acquired,
securing any Indebtedness, except:
(a) Security Interests to Bank;
(b) materialmen's, suppliers', and other like Security Interests
arising in the ordinary course of business and securing obligations that are not
overdue or are being contested in good faith by appropriate proceedings;
(c) Security Interests as permitted in the Security Agreement; and
(d) Security Interests of vendors and sellers to the Borrower on
property hereafter acquired, or existing on such property at the time of
acquisition thereof and securing indebtedness permitted by subsection 5.6(b) and
(d) of this Agreement, provided that the principal amount of indebtedness
secured by each such Security Interest does not exceed the purchase price or of
the fair market value of such property, whichever is less, and further provided
that any Security Interest permitted by this clause does not extend to any other
property of the Borrower.
Section 5.6 Limitation On Indebtedness. Borrower shall not have any
Indebtedness except for:
(a) Indebtedness incurred under this Agreement;
(b) Indebtedness incurred, but limited up to but not to exceed Five
Hundred Thousand and no/100 Dollars ($500,000.00) in aggregate at any time;
(i) in the normal course of business; and
(ii) for additional borrowed money;
(c) Indebtedness existing as of the date hereof with the Albany
Local Development Corporation and the New York State Job Development Authority,
but not any modification, increase or extension, thereof;
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(d) purchase money Indebtedness to vendors and sellers of property
purchased by the Borrower;
(e) Indebtedness to the Bank; and
(f) Indebtedness related to the purchase of real property, and any
structures thereon, located at 21 Corporate Circle, Albany, New York, provided
that the Borrower obtains the Bank's written consent prior to the incurrance of
such Indebtedness, which consent shall not be unreasonably withheld.
Section 5.7 Taxes, etc. All taxes, levies, and assessments of whatever
description will be paid before interest and penalties accrue thereon.
Section 5.8 Reorganizations, Acquisitions, Change of Name. Borrower will
not (a) merge or consolidate with or into any corporation, or sell, lease,
transfer, or otherwise dispose of all or any substantial part of its assets,
whether now owned or hereafter acquired; (b) change its corporate name, or (c)
do business under any trade or assumed names. However, nothing herein shall
prohibit Borrower form undertaking a public offering of its common stock.
Section 5.9 Management / Executive Officers. Borrower will at all times
retain management and supervisory personnel adequate for the management,
supervision and conduct of Borrower's properties, business and operations.
Borrower will at all times retain Messrs. Thomas E. D'Ambra and Harold M.
Armstrong, Jr. as executive officers, and shall not otherwise change its
executive officers without the express written consent of the Bank, however, the
Bank acknowledges and agrees that the Borrower can bring in additional executive
officers beyond the current management without the consent of the Bank.
Section 5.10 Leases. Borrower will not create, incur, assume, or suffer to
exist any lease obligations other than lease obligations incurred in the
ordinary course of business which do not exceed the Indebtedness limitations
provided herein.
Section 5.11 Obligations Of Others. Borrower will not purchase or acquire
obligations owed by others.
Section 5.12 Insurance. Borrower shall maintain insurance in responsible
companies in such amounts and against such risks as is satisfactory to Bank,
and, in any event, as are ordinarily carried by similar businesses. All such
policies insuring property upon which Bank shall have a Security Interest shall
provide that the proceeds thereof shall be payable to Borrower and Bank, as
their respective interests may appear; and if such property is real estate, such
policies shall also list Borrower as mortgagee. Such policies shall also contain
provisions that no such insurance may be canceled or decreased without thirty
(30) days' prior written notice to Bank. If Borrower shall acquire additional
insurable collateral, Borrower shall cause such insurance coverage to be
increased or amended in such manner and to such extent as prudent business
judgment would dictate. Upon
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the occurrence of any Event of Default, Bank shall have the right to settle and
compromise any and all claims under any of the policies required to be
maintained by Borrower hereunder and Borrower hereby appoints Bank as its
attorney-in-fact, with power to demand, receive, and receipt for all monies
payable thereunder, to execute in the name of Borrower or Bank or both any proof
of loss, notice, draft, or other instruments in connection with such policies or
any loss thereunder and generally to do and perform any and all acts as
Borrower, but for this appointment, might or could perform.
Section 5.13 Inspection. Borrower will permit Bank, at any reasonable time
and from time to time, to enter Borrower's places of business and inspect and
appraise any of Borrower's assets, examine any of Borrower's books and records,
make copies or extracts from such books and records, and discuss Borrower's
assets and affairs with Borrower and its accountants.
Section 5.14 Compliance with ERISA. The Borrower will at all times comply
with the relevant provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), and will not take any action which may result in or otherwise
permit a lien or encumbrance on any of the Borrower's assets as a result of the
application of any relevant provisions of ERISA.
Section 5.15 Use of Proceeds. The Borrower shall not use the proceeds of
the Revolver or Term Loan for any purpose or reason whatsoever other than for
general corporate purposes and to refinance an existing debt facility with Key
Bank in the approximate amount of One Million Six Hundred Thousand and no/100
Dollars ($1,600,000.00).
Section 5.16 Compensating Balance. The Borrower shall maintain an average
of Five Hundred Thousand and no/100 Dollars ($500,000.00) of collected
non-interest bearing funds deposited at the Bank at all times during which there
remains any outstanding balances under this Loan Agreement and/or the Loans. The
average shall be calculated quarterly. If the Borrower shall fail to satisfy the
above requirement during any quarter, the Borrower shall pay to the Bank a fee
equal to the three (3) month LIBOR Rate, plus one (1%) percent, on the
difference between Five Hundred Thousand and no/100 Dollars ($500,000.00) and
the average amount of funds so deposited.
Section 5.17 Sale of Assets. Borrower will not sell, assign, lease,
exchange or otherwise dispose of any of its assets used or useful in its
business and valued at more than One Hundred Thousand and no/100 Dollars
($100,000.00), except for inventory in the ordinary course of business, without
Bank's consent, which consent shall not be unreasonably withheld, conditioned or
delayed. However, the Borrower will not sell, assign, lease, exchange or
otherwise dispose of its interests in the Allegra Patent, without the consent of
the Bank.
Section 5.18 Further Assurances. Borrower will execute such other and
further documents and instruments as Bank may request to implement the
provisions of this Agreement and to perfect and protect the Security Interests
to Bank contemplated herein.
Section 6. Events of Default; Remedies.
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Section 6.1 Events of Default. The occurrence of any one or more of the
following events (regardless of the reason) shall constitute an "Event of
Default" hereunder:
(a) Failure by the Borrower to make any payment to the Bank, within
ten (10) days of the date when such payment is initially due (including without
limitation any payment of principal, interest, expenses or fees), as required to
be made under this Loan Agreement, the Note or any other Loan Document to which
it is a party when due;
(b) Failure by the Borrower to comply with any other term or
covenant of this Loan Agreement, the Note, the Security Agreement, or any other
agreement with or obligation to the Bank, after the Bank has provided fifteen
(15) days written notice of an Event of Default to the Borrower. However,
nothing herein shall require the Bank to provide any advance notice whatsoever
to the Borrower if an Event of Default pursuant to subsection (f) herein shall
occur;
(c) Any representation or warranty made by the Borrower shall prove
to have been intentionally false or misleading in any material respect when
made;
(d) Any information furnished by the Borrower to the Bank having
been intentionally false or misleading in any material respect as of the date
furnished;
(e) Dissolution, winding up, liquidation or becoming a party to any
agreement or instrument contemplating any merger, consolidation, liquidation or
dissolution, or any sale, lease, sublease or other disposition of any of the
Borrower's assets, or issuance of any of the Borrower's securities, or the
Borrower enters into any agreement or permits any shareholder of the Borrower to
enter into any agreement which would result in a change of control in the
Borrower; provided, however, the Borrower may sell inventory or otherwise sell
or dispose of its assets in the ordinary course of its business without such
sales constituting an Event of Default hereunder;
(f) Commencement of bankruptcy proceedings or other proceedings of
any kind for the relief or collection of debts by or against the Borrower under
the Bankruptcy Code or otherwise (including, without limitation, assignments for
the benefit of creditors, appointment of trustees, receivers, or custodians for
a material part of assets, levies upon or attachments of assets, or filing of
judgments not fully insured or bonded or removed within thirty (30) days, and
filing of tax liens);
(g) Default by the Borrower with respect to performance, observance
or fulfillment of any of the obligations, covenants or conditions contained in
any agreement, instrument or contract to which it is party or by which the
Borrower or any of its assets or properties are bound;
(h) Condemnation, seizure or appropriation of a material part of the
Borrower's assets by a court or governmental authority;
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(i) Judgments in the aggregate exceeding Two Hundred Fifty Thousand
and no/100 Dollars ($250,000.00) rendered against Borrower;
(j) The acceleration or call by any other lender of Borrower's debt
prior to its stated maturity; or,
(k) The failure of Borrower to pay any money judgment against it
before such judgment becomes final and no longer appealable.
Section 6.2 Remedies. If any Event of Default shall occur, the Bank may,
at its option, (i) terminate any further commitments or obligations it has to
the Borrower, (ii) declare all amounts outstanding under the Note, including all
interest thereon and accrued fees thereunder and under any of the Loan
Documents, immediately due and payable, whereupon all such amounts shall become
immediately due and payable, without presentment, demand, protest, or other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Loan Documents notwithstanding, and/or (iii) pursue such
remedies, including, without limitation, a judgment against the Borrower either
before, after, or during the pendency of any proceedings for the enforcement of
any security interests, mortgages or guaranties, as are available to the Bank
under the terms of this Loan Agreement and/or the other Loan Documents or
otherwise provided by law. In the event of realization of any funds from any
security or guaranty and application thereof to the payment of the Loans, the
Bank shall be entitled to enforce payment of and recover judgment for all
amounts remaining due and unpaid upon such Loans. The Bank may proceed to
protect and enforce its rights by any other appropriate proceedings, including
action for the specific performance of any covenant or agreement contained in
this Loan Agreement and/or other agreements with the Bank. Furthermore upon any
Event of Default the Borrower shall promptly pay any fees, expenses, and
disbursements, including the Bank's reasonable attorneys' fees incurred as a
result of such default.
Section 7. Additional Provisions.
Section 7.1 Fees and Expenses. The Borrower shall promptly pay any
reasonable fees, expenses, and disbursements, including the Bank's reasonable
attorneys' fees related to, in connection with collection of the Loans or
enforcement of any of the Bank's rights hereunder or under any other Loan
Document. This obligation shall survive the payment of the Note by the Borrower.
The Bank may apply any payments of any nature received by it first to the
payment of obligations notwithstanding any conflicting provision contained in
any other agreement with the Borrower.
Section 7.2 Late Fee. If the entire amount of any required principal
and/or interest payment is not paid in full within ten (10) days after the same
is due, the Borrower shall pay to the Bank a late fee equal to five percent (5%)
of the required payment.
Section 7.3 Waiver. No course of dealing, delay or failure of the Bank to
exercise any right, remedy, power, or privilege hereunder or under any other
agreement with the Borrower shall
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impair the same or be construed to be a waiver of the same or of any Event of
Default or an acquiescence therein. No single or partial exercise of any right,
remedy, power or privilege shall preclude other or further exercise thereof by
the Bank. All rights, remedies, powers and privileges herein conferred upon the
Bank shall be deemed cumulative and not exclusive of any others available.
Section 7.4 Security; Setoff. The Borrower shall grant to the Bank a lien,
security interest and right of setoff as security for all liabilities and
obligations of the Borrower to the Bank, whether now existing or hereafter
arising, upon and against all deposits, credits, collateral and property, now or
hereafter in the possession, custody, safekeeping or control of the Bank or any
entity under the control of Fleet Financial Group, Inc., or in transit to any
one of them. At any time, without demand or notice, the Bank may set off the
same or any part thereof and apply the same to any liability or obligation of
the Borrower even though unmatured and regardless of the adequacy of any other
collateral securing the Loans. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE LOANS, IF ANY, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT
TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
Section 7.5 Default Rate. Upon default or after maturity or after judgment
has been rendered on any of the notes evidencing the Loans, Borrower's rights to
select pricing options shall cease and the unpaid principal of the Loans shall,
at the option of the Bank, bear interest at a rate which is four (4.0%)
percentage points per annum greater than that which would otherwise be
applicable.
Section 7.6 Business Days. In respect of any date specified in this Note,
a day on which commercial banks settle payments in New York or London if the
payment obligation is calculated by reference to any (i) LIBOR Rate, or (ii) New
York, if the payment obligation is calculated by reference to the Fleet Bank
Prime Rate.
Section 7.7 Amendments. This Loan Agreement is intended to be continuing
and shall not be changed, terminated, or amended without the express written
agreement of both the Borrower and the Bank.
Section 7.8 Pledge. The Bank may at any time pledge all or any portion of
its rights under the Loan Documents evidencing the Loans, including but not
limited to any portion of the notes, to any of the twelve (12) Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or enforcement shall release the Bank from its obligations
under any of the Loan Documents.
Section 7.9 Participations. The Bank shall have the unrestricted right at
any time and from time to time, and without the consent of or notice to the
Borrower to grant to one or more banks or
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other financial institutions (each a "Participant") participating interests in
the Bank's obligations to lend hereunder and/or the Loan Documents held by Bank
hereunder. In the event of any such grant by the Bank of a participating
interest to a Participant, whether or not upon notice to the Borrower, the Bank
shall remain responsible for the performance of its obligations hereunder and
the Borrower shall continue to deal solely and directly with the Bank in
connection with the Bank's rights and obligations hereunder.
The Bank may furnish any information concerning any of the Borrower in its
possession from time to time to prospective assignees and Participants, provided
that Bank shall require any such prospective assignee or Participant to agree in
writing to maintain the confidentiality of such information.
Section 7.10 Replacement. Upon receipt of an affidavit of an officer of
Bank as to the loss, theft, destruction or mutilation of any promissory note or
any other security document which is not of public record, and, in the case of
any such loss, theft, destruction or mutilation, upon surrender and cancellation
of such promissory note or other security document, the Borrower will issue, in
lieu thereof, a replacement promissory note(s) or other security document in the
same principal amount thereof and otherwise of like tenor.
Section 7.11 Parties in Interest. All the terms and provisions of this
Loan Agreement shall inure to the benefit of and be binding upon and be
enforceable by the parties to this Loan Agreement and their respective legal
representatives, successors and assigns of the parties hereto.
Section 7.12 Entire Agreement. This Loan Agreement and the other Loan
Documents constitute the entire agreement among the parties hereto and thereto
as to the subject matter hereof and thereof and supersede any previous
agreement, oral or written, as to such subject matter.
Section 7.13 Notices. Unless otherwise provided herein, any notice or
other communication herein required or permitted to be given shall be in writing
and may be personally served, telecopied, or sent by United States mail and
shall be deemed to have been given when delivered in person, upon receipt of
telecopy or four business days after depositing it in the United States mail,
registered or certified, with postage prepaid and properly addressed as follows:
If to the Bank: Fleet National Bank
Peter D. Kiernan Plaza
Albany, New York 12207
Attention: James M. Marini, Vice President
with a copy by first class U.S. Mail or facsimile to:
Honen & Wood, P.C.
126 State Street
Albany, New York, 12207
Attention: James D. Wood, Esq.
Facsimile number: (518) 472-1227
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If to the Borrower: Albany Molecular Research, Inc.,
21 Corporate Circle
Albany, New York 12203
Attention: Harold M. Armstrong, Jr.
with a copy by first class U.S. Mail or facsimile to:
Segel, Goldman & Mazzotta, P.C.
5 Washington Square
Washington Avenue Extension
Albany, New York 12205
Attention: Paul J. Goldman, Esq.
Facsimile number: (518) 452-0417
Section 7.14 Governing Law. This Loan Agreement, together with all of the
rights and obligations of the parties hereto, shall be construed, governed and
enforced in accordance with the laws of the State of New York. The Borrower
consents to jurisdiction and service of process, which may be effected by
certified mail, in the courts of the State of New York and in the courts of the
United States having jurisdiction thereof.
Section 7.15 Trial by Jury. THE BORROWER AND THE BANK MUTUALLY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT, THE LOANS, THE LOAN DOCUMENTATION, THE SECURITY AGREEMENT, OR
THE OBLIGATIONS RELATED HERETO OR THERETO, OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY TO THE
FULLEST EXTENT ALLOWED BY LAW. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR
THE BANK TO ENTER INTO THIS AGREEMENT AND MAKE THE LOANS.
Section 7.16 Interest Computations, All computations of interest under the
Loans shall be made on the basis of a three hundred sixty (360) day year and the
actual number of days elapsed.
Section 7.17 Yield Maintenance Fee. If, at any time the Borrower wishes to
prepay a Revolver Portion or the Term Loan and: (i) the interest rate on the
balance being prepaid is accruing at the LIBOR Rate, and (ii) Bank in its sole
discretion should determine that current market conditions can accommodate such
a prepayment, Borrower shall have the right at any time and from time to time to
prepay the entire Revolver Portion or Term Loan in whole (but not in part), and
Borrower shall pay to Bank a yield maintenance fee in an amount computed as
follows: The current rate for United States Treasury securities (bills on a
discounted basis shall be converted to a bond equivalent) with a maturity date
closest to the expiration date of the applicable Interest Rate Election Period
for the funds being prepaid, shall be subtracted from the "cost of funds"
component of the
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fixed rate in effect at the time of prepayment. If the result is zero or a
negative number, there shall be no yield maintenance fee. If the result is a
positive number, then the resulting percentage shall be multiplied by the amount
being prepaid. The resulting amount shall be divided by 360 and multiplied by
the number of days remaining until the expiration of the applicable Interest
Rate Election Period.
Said amount shall be reduced to present value calculated by using the
above-referenced United States Treasury security rate and the number of days
remaining until the expiration of the applicable Interest Rate Election Period.
The resulting amount shall be the yield maintenance fee due to Bank upon
prepayment.
If by reason of an Event of Default Bank elects to declare one or more of
the Loans to be immediately due and payable, then any yield maintenance fee with
respect to any portion of the Loans accruing at a fixed rate and declared
immediately due by the Bank, shall become due and payable in the same manner as
though the Borrower had exercised such right of prepayment.
Any portion of the Revolver or Term Loan, accruing interest at the
Floating Rate may be prepaid at any time without payment of a yield maintenance
fee.
Section 7.18 Termination. This Loan Agreement may be terminated only (a)
upon written agreement of the Bank, or (b) upon written request of the Borrower
at such time as the Loans and all obligations of the Borrower under the Loan
Documents have been satisfied in full and the Borrower has no remaining
obligations to the Bank of any kind.
Section 7.19 Severability. Any partial invalidity of the provisions of
this Loan Agreement or any notes, agreements, or documents related to the Loan
shall not invalidate the remaining portions hereof or thereof.
Section 7.20 Survival of Provisions. All warranties, representations,
covenants and obligations of the Borrower contained in this Loan Agreement shall
survive the execution and delivery of this Loan Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Loan
Agreement on the date first above written by their duly authorized, respective
officers.
FLEET NATIONAL BANK
By: _____________________
Name: James M. Marini
Title: Vice President
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ALBANY MOLECULAR RESEARCH, INC.
By:___________________________
Name: Harold M. Armstrong, Jr.
Title: Executive Vice President and Chief Financial Officer
ACKNOWLEDGEMENTS ON THE FOLLOWING PAGES
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ACKNOWLEDGMENTS
STATE OF NEW YORK )
) ss:
COUNTY OF ALBANY )
On the 29th day of June, 1998, before me personally came James M. Marini.,
to me known, who being by me duly sworn, did depose and say that he is a Vice
President of FLEET NATIONAL BANK, the national bank described in the foregoing
instrument, and acknowledged that he executed the same by order of the Board of
Directors of such bank.
------------------------------
Notary Public
STATE OF NEW YORK )
)ss:
COUNTY OF ALBANY )
On the 29th day of June, 1998, before me personally came Harold M.
Armstrong, Jr., to me known, who being by me duly sworn, did depose and say that
he is the Executive Vice President and Chief Financial Officer of ALBANY
MOLECULAR RESEARCH, INC., the corporation described in the foregoing instrument,
and acknowledged that he executed the same by order of the Board of Directors of
such corporation.
----------------------------
Notary Public
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EXHIBIT 10.20
AMENDMENT TO AGREEMENTS
THIS AMENDMENT TO AGREEMENTS dated as of February 8th 1999 by and
between Fleet National Bank, a national banking association having an office
located at 69 State Street, Albany, New York 12207 (the "Bank"), ALBANY
MOLECULAR RESEARCH, INC., a New York corporation with a business address at 21
Corporate Circle, Albany, New York 12203 (the "Borrower").
RECITALS:
WHEREAS by a Loan Agreement dated as of the 29th day of June, 1998 (the
"Loan Agreement") the Bank and the Borrower entered into agreement whereby the
Bank extended a revolving line of credit loan (the "revolver") to Borrower in
the amount of Fifteen Million and no/100 Dollars ($15,000,000.00);
WHEREAS the Loan Agreement provided that upon expiration of the
Revolver the then outstanding principal balance thereof would convert to a term
loan (the "Term Loan");
WHEREAS the obligations of the Revolver and Term Loan set forth in the
Loan Agreement were evidenced by a Revolving Line of Credit Note dated as of the
29th day of June, 1998, (the Revolving Line of Credit Note as shall hereinafter
be the "Note") from Borrower to Bank in the maximum principal amount of Fifteen
Million and no/100 Dollars ($15,000,000.00);
WHEREAS the obligations of Borrower to the Bank were secured by a
Security Agreement dated as of the 29th day of June, 1998 (the "Security
Agreement");
WHEREAS the Loan Agreement, Note, Security Agreement and all other
documents executed by the Borrower in connection with the Revolver and Term Loan
are collectively referred to hereinafter as the "Loan Documents";
WHEREAS the Borrower has requested and Bank has agreed to increase the
maximum amount that may be outstanding under the Revolver or the Term Loan from
Fifteen Million and no/100 Dollars ($15,000,000.00) to Twenty-Five Million and
no/100 Dollars ($25,000,000.00), provided the Borrower agrees to all the terms
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
promises and mutual covenants hereinafter set forth, the parties hereto agree as
follows:
1. The terms and conditions of the Loan Documents are hereby modified
to reflect the following amendments and modifications:
<PAGE>
(a) The maximum amount that may outstanding under the Revolver
and/or Term Loan is increased by Ten Million and no/100 Dollars ($10,000,000.00)
from fifteen Million and no/Dollars ($15,000,000.00) to twenty-five Million and
no/100 Dollars ($25,000,000.00);
(b) The term "Public Offering" shall mean the sale of shares
of the Borrower's common stock or the Borrower's affiliate, Albany Molecular
Research, Inc., a Delaware corporation's common stock pursuant to a registration
statement which has become effective under the Securities Exchange Acts of 1933
or 1934, as amended, and the rules and regulations promulgated by the Securities
and Exchange Commission thereunder;
(c) In the event: (i) the Borrower or the Borrower's
affiliate, Albany Molecular Research, Inc., a Delaware corporation, completes a
Public Offering, and (ii) the Borrower (in the Bank's reasonable judgement) has
used the increase in the principal amount of the Revolver and/or Term Loan
agreed to in subparagraph (a) herein to payoff obligations between the Borrower
and Harold M. Armstrong, Jr., THEN the Bank shall have the right, at any time
thereafter, to require the maximum amount which may be outstanding under the
Revolver and/or Term Loan be permanently reduced to Fifteen Million and no/100
($15,000,000.00), and within sixty (60) days after the Bank provides the
Borrower written notice of such election the Borrower shall be immediately
required to make such payments, if any, as may be required to reduce the
outstanding principal balance of Revolver and/or Term Loan to Fifteen Million
and no/100 Dollars ($15,000,000.00);
(d) If during the Permanent Term (as such is defined in the
Note): (i) the Borrower or the Borrower's affiliate, Albany Molecular Research,
Inc., a Delaware corporation, completes a Public Offering, (ii) the Borrower (in
the Bank's reasonable judgement) has used the increase in the principal amount
of the Revolver and/or Term Loan agreed to in subparagraph (a) herein to payoff
obligations between the Borrower and Harold M. Armstrong, Jr., and (iii) the
Bank provides the Borrower sixty (60) days written notice of its election to
require the Borrower to reduce the principal amount outstanding under the Term
Loan to Fifteen Million and no/Dollars (15,000,000.00), then the Borrower shall
be immediately required to make such payments, if any, as may be required to
reduce the outstanding principal balance of Term Loan to Fifteen Million and
no/100 Dollars; ($15,000,000.00) and, repayment of the remaining principal
balance due under the Term Loan shall be made by the Borrower in: (1) equal
monthly installments of principal which shall be calculated so that the
remaining principal balance shall be fully amortized over the then remaining
time left in the Permanent Term, and (2) monthly payments of accrued interest;
(e) Borrower has reviewed the "Year 2000 Risk" (that is the
risk that computer applications used by Borrower and/or its suppliers, vendors
and customer may be unable to recognize and perform without error date-sensitive
functions involving certain dates prior to and any date after December 31, 1999)
and represents that it is taking such action as may be necessary to ensure that
the Year 2000 Risk will not adversely affect its business operations and/or
financial condition;
2
<PAGE>
(f) If the Borrower, and the Borrower's affiliate, Albany
Molecular Research, Inc., a Delaware corporation, agree to maintain all of their
depository relationships at the Bank until the Maturity Date (as such is defined
in the Note), for security purposes, then the Borrower shall no longer be
required to maintain a compensation balance with the Bank as provided in Section
5.16 of the Loan Agreement.
2. The Borrower reaffirms and ratified each and every covenant and
agreement set forth in each of the Loan Documents and agrees to comply and
observe each of them.
3. By entering into this agreement, the Bank in no way waives any
rights it may have against the Borrower pursuant to the Loan Documents except as
the same have been expressly modified hereby.
4. All terms, provisions, covenants, representations, warranties,
agreements and conditions contained in the Loan Documents shall remain in full
force and effect except as expressly provided and amended hereby.
5. The Borrower hereby warrants and covenants to the Bank that as of
the date of this Agreement, there are no disputes, offsets, claims or
counterclaims of any kind or nature whatsoever under the Loan Documents or the
obligations represented or evidenced thereby.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
FLEET NATIONAL BANK
By: /s/ James M. Marini
------------------------------
Name: James M. Marini
Title: Vice President
ALBANY MOLECULAR RESEARCH, INC.
By: /s/ Thomas E. D'Ambra
------------------------------
Name: Thomas E. D'Ambra
Title: Chief Executive Officer
Acknowledgments on Following Page
3
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF ALBANY )
On February 12, 1999, before me personally came James M. Marini, to me
known, who being by me duly sworn, did depose and say that he is a Vice
President of Fleet National Bank, the entity described in the foregoing
instrument, and acknowledged that he executed the same by order of the Board of
Directors of such entity.
/s/ Theresa Jorgensen
------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF ALBANY )
On February 8, 1999, before me personally came Thomas E. D'Ambra, to me
known, who being by me duly sworn, did depose and say that he is the Chief
Executive Officer of Albany Molecular Research, Inc., the corporation described
in the foregoing instrument, and acknowledged that he executed the same by power
of the Board of Directors of such corporation.
/s/ Joan A. Lupo
------------------------------
Notary Public
4
<PAGE>
Exhibit 10.21
RESTATED AND REVISED LEASE AGREEMENT
LEASE AGREEMENT made effective this December 1, 1999, by and
between THE UNIVERSITY AT ALBANY FOUNDATION, a not-for-profit corporation
existing under the laws of the State of New York, having its principal place of
business located at Administration 231, 1400 Washington Avenue, Albany, New York
12222, hereinafter referred to as "FOUNDATION," acting as a campus related
entity in connection with the University at Albany (State University of New
York) (hereinafter referred to as "ALBANY") and Albany Molecular Research, Inc.,
a corporation having its principal place of business located at 21 Corporate
Circle, Albany, New York, 12203 (hereinafter referred to as the "TENANT"). This
RESTATED and REVISED LEASE AGREEMENT supersedes the previous LEASE date May 28,
1996, as amended.
WHEREAS, the TENANT is compatible with the business incubation program
of the new ALBANY campus; and
WHEREAS, ALBANY wishes to promote and foster interaction and collaboration
between the university and industry; and
WHEREAS, the parties desire to enter into an agreement whereby FOUNDATION, will
lease appropriate space on ALBANY'S East Campus in Rensselaer, New York, to the
TENANT;
NOW, THEREFORE, be it known that a Lease is hereby agreed to by the FOUNDATION
and TENANT, subject to the terms and conditions as hereinafter provided, to use
the facilities and services ("Premises") designated in this Lease:
1. The FOUNDATION leases to the Tenant and the TENANT accepts the
Premises, subject to the terms and conditions as hereinafter provided, including
the following designated facilities:
31,752 square feet in C-Wing (1st - 4th floors), Laboratory
Building
1
<PAGE>
located at One University Place, Rensselaer, New York, together with a right in
common with others to utilize the driveways, parking areas and other common
areas, such as solvent storage.
2. FOUNDATION shall supply all ordinary and necessary water,
gas, and electrical services, heat, sewage services, lawn and parking lot and
building maintenance, lawn mowing, and snow removal for Premises. Telephone
services will be provided in accordance with FOUNDATION policy at the expense
of the TENANT. TENANT may request upgrades of facilities to conduct its
operations, and if approved by FOUNDATION, FOUNDATION will work with TENANT
to arrange the upgrades. TENANT shall pay the FOUNDATION, in advance, for the
cost of any and all capital upgrades, which are requested by TENANT unless
TENANT and FOUNDATION agree in advance to share in the costs in a different
manner. TENANT shall be responsible for TENANT's proportionate share of any
increase in real property taxes or payments in lieu of taxes assessed upon
termination of FOUNDATION'S current Pilot Agreement that are directly
attributable to TENANT'S occupancy of Premises under this Lease. Utility
usage of the TENANT shall be monitored on a regular basis and FOUNDATION will
adjust the utility charge to cover the actual costs of TENANT utility usage
as provided for in the formula defined in Appendix D.
3. TENANT shall pay rent and utilities to FOUNDATION in the annual
amount of $441,786, as adjusted by an amortization schedule, Appendix B. Rent is
payable monthly in the amounts specified in the rent schedule, Appendix C.
4. TENANT shall take proper care of the facilities made available
for their use and shall preserve them in good order and condition, normal wear
and tear excepted.
5. TENANT understands and agrees that services offered by
FOUNDATION to TENANT shall be equivalent to those provided other tenants of the
facility, unless otherwise agreed to in writing by both parties. All operations
of the TENANT on the Premises will be in accordance with standard business
practice for laboratory and research facilities and TENANT shall limit its
activities at said Premises to those usually and customarily associated with
such
2
<PAGE>
operations. The activities of TENANT shall not infringe upon, delay or conflict
with the normal operation of the facility.
6. This agreement shall be interpreted according to the laws of the
State of New York, TENANT shall comply with established FOUNDATION and ALBANY
regulations and policies and all laws, rules, orders, regulations, and
requirements of Federal, State and municipal governments applicable to the
Premises or this Lease. TENANT shall obtain and keep in force at its sole cost
and expense any permits or licenses which may be required by any governmental
agency for conduct of its operations. FOUNDATION represents and warrants that it
holds a validly existing Certificate of Occupancy and that it holds all the
permits and approvals necessary to operate the Premises.
7.TENANT specifically agrees to pay all costs related to the
rehabilitation of the Premises that TENANT requests, and the FOUNDATION has
approved. FOUNDATION shall not be required to provide furnishings, fixtures or
decorations. Upon termination of the Lease, the TENANT will tender the Premises
in broom clean condition, reasonable wear and tear excepted. At its sole cost
and expense, TENANT may remove any furnishings, TENANT installed fixtures and
decorations belonging to TENANT at its election, provided that TENANT repairs
any damage caused by the removal of the fixtures. Any TENANT owned fixtures not
removed by TENANT after a reasonable period of time following the expiration of
the Lease shall become the property of FOUNDATION.
8. The TENANT shall have the right, so long as the Lease shall
remain in force, to enter upon the Premises for the purposes set forth in this
Lease. However, if in the judgment of FOUNDATION any activity of TENANT or its
personnel or clients is deemed incompatible with the purpose of this Lease as
defined in paragraph (5), then the FOUNDATION shall provide TENANT with thirty
(30) days notice of the incompatible use of the Premises by TENANT and TENANT
shall have thirty (30) days to cure the incompatible use. In the event the
incompatible use is not cured within the thirty (30) day period FOUNDATION may
exhaust all legal remedies.
3
<PAGE>
9. TENANT specifically agrees not to hold itself out as
representing the FOUNDATION, the State of New York, the State University of New
York, or ALBANY in connection with the use of the Premises or the property to
which the Lease relates, nor shall the name of the FOUNDATION, the State of New
York, the State University of New York, or Albany be used by TENANT for any
purpose without prior, specific written approval of the party whose name is to
be used. FOUNDATION agrees that it will not use the name of TENANT for any
purpose without the prior, specific written approval of TENANT, except that
FOUNDATION is free to state that TENANT leases the Premises.
10. TENANT assumes all risks and liability incidental to its use of
the Premises, appurtenances and surrounding grounds, and shall be solely
responsible for any and all accidents and injuries to persons (including death)
and property damage arising out of or in connection with such activities if
caused by the actions of TENANT, its officers, employees, agents, subcontractors
or assigns, and TENANT hereby covenants and agrees to indemnify and hold
harmless the FOUNDATION, the State of New York, the State University of New
York, and ALBANY and their respective officers, employees, agents and assigns,
from any and all claims, suits, actions, damages and costs of every nature and
description arising out of or relating to the said use. TENANT further agrees,
upon request, to assume the defense and to defend, at its own cost and expense,
any action brought at any time against the FOUNDATION, the State of New York, or
the State University of New York, and ALBANY with respect to such claims, suits
and losses. FOUNDATION hereby covenants and agrees to indemnify TENANT from all
claims, suits, actions, damages and costs of every nature and description
arising out of or relating to uses of the Premises by previous owners or
occupants of said Premises.
11. TENANT agrees to provide evidence of appropriate insurance of
the type and in the amount set forth in Appendix A of this Lease, naming the
FOUNDATION and ALBANY as additional insured. Proof of such insurance shall be
presented to FOUNDATION at the beginning of this Lease and at such times as
reasonably requested by the FOUNDATION.
4
<PAGE>
12. TENANT specifically agrees that if the Lease is canceled or
terminated for any reason set forth in this Lease, TENANT shall have no claim
against the FOUNDATION, the State of New York, State University of New York and
ALBANY nor their respective officers, agents or employees, and further that the
FOUNDATION, the State of New York, the State University of New York and ALBANY
and their officers, employees, agents and assigns shall be relieved from any and
all liability.
13. Any notice to either party hereunder must be in writing, signed
by the party giving it, and shall be served either personally or by certified
mail return receipt requested addressed as follows:
TO: FOUNDATION Office of Executive Director
University at Albany Foundation
AD 231
University at Albany
Albany, New York 12222
TO: TENANT Chief Financial Officer
Albany Molecular Research, Inc.
21 Corporate Circle
Albany, New York 12203
or to such other addresses as may be designated by the party giving it in
writing. All notices become effective upon receipt.
14. This Lease, including any Exhibits and Appendices, constitutes
the entire agreement between the parties hereto and all previous communications
between the parties, whether written or oral, with references to the subject
matter of this Lease is hereby superseded.
15. The term of this Revised and Restated Lease shall be from December 1, 1999
through November 30, 2009, unless terminated earlier by either party or extended
in writing in accordance with the terms of this Lease. TENANT may renew this
Lease for the period December 1, 2009 to November 30, 2014 and seven (7)
additional successive, five-year periods. This Lease shall be deemed to be
automatically renewed by TENANT unless TENANT gives
5
<PAGE>
FOUNDATION notice of its intent to not exercise TENANT'S renewal option to
FOUNDATION six (6) months prior to the expiration of the current term of the
Lease.
16. TENANT shall meet at least annually with FOUNDATION, at a
time determined by FOUNDATION, for the purpose of reviewing the status of
this Lease. Rent for the period December 1, 2009 to November 30, 2014, and
each subsequent five (5) year period thereafter, shall be increased three (3)
percent in the first year of each 5-year period above the base rent charged
in the last year of the Revised and Restated Lease. Utility cost will be
based upon usage during each year as defined in Appendix D.
17. TENANT may assign, transfer, sublease or convey this Lease, or
any interest herein, without the consent of the Foundation; however, the
assignment, transfer, sublease or conveyance by Tenant shall not operate to
terminate the Tenant's liability under this agreement.
18. This Lease may be changed, amended, modified or extended only
by a writing duly executed by the parties hereto.
19. The parties hereto mutually agree that if the Building in which
the Premises are located are partially or totally destroyed or damaged by fire
or other hazard, then FOUNDATION shall repair and restore such the Premises as
soon as is reasonably practicable to substantially the same condition in which
such building or improvements were before such damage. If, however, such
Building is completely destroyed or so damaged that FOUNDATION cannot reasonably
restore or rebuild the Premises within six (6) months of the occurrence of the
loss to their original condition, then TENANT or FOUNDATION may terminate this
Lease without further liability to each other by serving written notice upon the
Non-Terminating Party.
20. (a) In the event that the Premises, or any part thereof, shall
be taken by exercise of the right of condemnation or eminent domain or by
agreement between
6
<PAGE>
FOUNDATION and those authorized to exercise such right (collectively herein
referred to as "Condemnation Proceedings") FOUNDATION and TENANT shall be
entitled to collect from any condemnor that portion of the award that they may
be legally entitled to receive in any such proceeding.
(b) FOUNDATION and TENANT agree to execute any and all further
documents that may be required in order to facilitate collection by each party
of any and all such awards.
(c) If at any time during the term of this Lease title to the
part of the Premises shall be taken in Condemnation Proceedings, this Lease
shall terminate and expire on the date on which TENANT is deprived of possession
of the Premises thereby and the fixed monthly rent provided to be paid by TENANT
shall be apportioned and paid to such date. In such event, TENANT shall be
entitled to receive an apportionment of any other charges paid or payable by
TENANT under this Lease.
21. (a) Subject to and conditioned upon the TENANT'S receipt of a
nondisturbance agreement in a form reasonably acceptable to TENANT from
FOUNDATION'S lender, this Lease and all rights of the TENANT hereunder are and
shall be automatically subject and subordinated to the lien of any mortgages,
(whether fee or leasehold), which may now or hereafter affect the Premises and
to all renewals, modifications, consolidations, replacements and extensions
thereof.
(b) Although it is the intent of the parties that no further
instrument of subordination shall be necessary to effect the foregoing and that
the provisions for subordination be self-operative, TENANT agrees that it will,
upon demand, execute and deliver such instruments to effect more fully such
subordinations of this Lease to the lien of any mortgagee or proposed mortgagee,
subject to the TENANT'S receipt of a nondisturbance agreement from such
mortgagee or proposed mortgagee.
7
<PAGE>
22. FOUNDATION shall have the right to enter the Premises at all
reasonable business hours and upon reasonable advance notice to tenant, except
in case of emergency, for the purpose of-
(a) inspecting the same
(b) making any repairs to the Premises and performing any work
that may be required to be performed by FOUNDATION under the Lease or that may
be necessary by reasons of TENANT'S default under the terms of this Lease
continuing beyond any applicable period of notice and opportunity to cure
(c) exhibiting the Premises for the purpose of sale, ground
leaseor mortgage, or
(d) exhibiting the Premises to prospective tenants.
23. TENANT, subject to the terms and provisions of this Lease on
payment of the rent and observing, keeping and performing all of the terms and
provisions of this Lease on its part to be observed, kept and performed shall
lawfully peaceably and quietly have, hold and enjoy the Premises during the term
hereof on and after the commencement date of this Lease without hindrance or
ejection by any persons lawfully claiming under FOUNDATION.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
agreement the day and year first above written.
UNIVERSITY AT ALBANY ALBANY MOLECULAR
FOUNDATION RESEARCH, INC.
Paul Stec David P. Waldek
Executive Director Chief Financial Officer
- - ------------------------------- --------------------------------
9
<PAGE>
APPENDIX A
Worker's Compensation and )
) Statutory Limits
New York State Disability )
Comprehensive General Liability, )
with Broad Form Endorsement ) $3,000,000.00
Automobile ) $1,000,000.00
Professional Liability Insurance, )
where appropriate ) NA
Excess Insurance Coverage ) $1,000,000.00
10
<PAGE>
APPENDIX B
ALBANY MOLECULAR RESEARCH PAYMENT AND AMORTIZATION SCHEDULE
CURRENT AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
PROJECT Period Amount End Date
<S> <C> <C> <C>
C-406-407 three years $9,505/yr 3/1/01
C-209/210 three years $5,250/yr 6/1/01
C-408 three years $10,983/yr 6/1/01
C-416 three years $5,394/yr 6/1/02
C-413 three years $4,652/yr 6/1/02
FUTURE AMORTIZATION SCHEDULE (ESTIMATES)
C-207/208 ten years $3,645/yr 12/1/09
C-302 ten years $844/yr 12/1/09
C102/C104 ten years $18,500/yr 5/1/10
Third Floor ten years $30,000/yr 3/1/11
</TABLE>
11
<PAGE>
APPENDIX C
ALBANY MOLECULAR RESEARCH SPACE ANALYSIS - C WING
<TABLE>
<CAPTION>
SQUARE MONTHLY DATE
FLOOR/ROOM TYPE OF SPACE FOOTAGE RENT AMORTIZATION NET RENT RENT OCCUPIED
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
C-120/121 solvent storage 3,000 3,000 250 6/1/96
C-202/204 laboratory 2,250 34,200 34,200 2,850 6/1/96
C-401/402 laboratory 2,670 40,584 40,584 3,382 1/1/98
C-411 laboratory 540 10,476 10,476 873 1/1/98
C-406/407 laboratory 1,050 15,960 (9,505) 6,455 538 4/1/98
C-407A office 510 4,896 4,896 408 4/1/98
C-412 office 540 5,184 5,184 432 4/1/98
C-209/210 laboratory 1,920 29,184 (5,250) 23,934 1,995 7/1/98
C-211/214 laboratory 2,130 32,376 32,376 2,698 7/1/98
C-408/408A laboratory 1,050 15,960 (10,983) 4,977 415 7/1/98
C-410 office 510 4,896 4,896 408 7/1/98
C-104 rent phased out 6/1/00 540 3,564 3,564 297 7/1/98
C-413/414 laboratory 1,035 15,732 (4,652) 11,080 923 6/1/99
C-415/416 laboratory 1,000 15,200 (5,394) 9,806 817 6/1/99
C-208A/B office 490 4,704 4,704 392 7/1/99
C-108 support 1,030 5,150 5,150 429 10/1/99
C-109 office 655 6,288 6,288 524 10/1/99
C-302 office 630 6,048 (844) 5,204 434 10/1/99
C217/218 office 1,008 9,677 9,677 806 11/1/99
Receiving support 154 770 770 64 12/1/99
C-207/208 laboratory 1,080 16,416 (3,645) 12,771 1,064 12/1/99
Secure Storage Vault 6,500 6,500 542 1/1/00
-----------------------------------------------------------
RENT 1/1/00 286,765 (40,273) 246,492 20,541
-----------------------------------------------------------
C-303/304 support 540 2,700 2,700 225 3/1/00
C-304/306 laboratory 1,560 23,712 (30,000) (6,288) (524) 3/1/00
C-306A/B office 342 3,283 3,283 274 3/1/00
C-307/308 laboratory 1,008 15,322 15,322 1,277 3/1/00
C-308A/B/C office 490 4,704 4,704 392 3/1/00
C-309A/B office 540 5,184 5,184 432 3/1/00
C309/310 laboratory 1,080 16,416 16,416 1,368 3/1/00
C311/312 laboratory 1,080 16,416 16,416 1,368 3/1/00
C-313/314 laboratory 1,080 16,416 16,416 1,368 3/1/00
C-314/315A office 540 5,184 5,184 432 3/1/00
C-315/316 laboratory 1,050 15,960 15,960 1,330 3/1/00
-----------------------------------------------------------
RENT 3/1/00 412,062 (70,273) 341,789 28,482
-----------------------------------------------------------
12
<PAGE>
SQUARE MONTHLY DATE
FLOOR/ROOM TYPE OF SPACE FOOTAGE RENT AMORTIZATION NET RENT RENT OCCUPIED
- - -------------------------------------------------------------------------------------------------------------------------------
C-102/104 laboratory 2,190 33,288 (18,500) 11,224 935 6/1/00
C104 included in new 102/104 -540 (3,564) (3,564) (297)
-----------------------------------------------------------
RENT 6/1/00 31,752 441,786 (88,773) 359,013 29,918
-----------------------------------------------------------
</TABLE>
Notes: 1. laboratory space rents at $15.20 per square foot
2. office space rents at $9.60 per square foot
3. support space rents at $5.00 per square foot
4. Amortization amounts to be adjusted to actual costs where estimated
13
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements
on Form S-8 (Nos. 333-80477 and 333-91423) and Form S-3 (No. 333-31522) of
Albany Molecular Research, Inc. of our report dated February 4, 2000,
relating to the consolidated balance sheets of Albany Molecular Research,
Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999, and the related schedule, which report appears in the
December 31, 1999 annual report on Form 10-K of Albany Molecular Research,
Inc.
Albany, New York
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 2,582,402 5,319,872
<SECURITIES> 1,949,546 2,026,620
<RECEIVABLES> 2,006,637 2,875,898
<ALLOWANCES> 30,000 0
<INVENTORY> 317,789 575,526
<CURRENT-ASSETS> 7,516,147 15,598,877
<PP&E> 5,865,379 17,370,876
<DEPRECIATION> 1,429,798 2,504,578
<TOTAL-ASSETS> 13,548,397 32,629,648
<CURRENT-LIABILITIES> 1,973,727 6,456,841
<BONDS> 2,224,964 14,935,840
0 0
1,000 1,000
<COMMON> 113,848 117,715
<OTHER-SE> 9,684,119 22,766,780
<TOTAL-LIABILITY-AND-EQUITY> 13,548,397 32,629,648
<SALES> 8,208,977 13,649,345
<TOTAL-REVENUES> 10,739,848 33,294,197
<CGS> 4,430,016 7,733,504
<TOTAL-COSTS> 4,683,109 9,555,132
<OTHER-EXPENSES> 4,401,097 6,891,296
<LOSS-PROVISION> 114,000 (30,000)
<INTEREST-EXPENSE> 175,969 381,821
<INCOME-PRETAX> 1,668,257 16,848,791
<INCOME-TAX> 372,941 6,351,338
<INCOME-CONTINUING> 1,295,316 10,497,453
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,295,316 10,497,453
<EPS-BASIC> 0.11 0.93
<EPS-DILUTED> 0.10 0.82
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 43,077,145
<SECURITIES> 2,014,550
<RECEIVABLES> 3,189,394
<ALLOWANCES> 52,000
<INVENTORY> 695,478
<CURRENT-ASSETS> 53,489,410
<PP&E> 18,324,017
<DEPRECIATION> 2,898,827
<TOTAL-ASSETS> 70,603,294
<CURRENT-LIABILITIES> 3,796,031
<BONDS> 0
0
0
<COMMON> 135,559
<OTHER-SE> 66,671,704
<TOTAL-LIABILITY-AND-EQUITY> 70,603,294
<SALES> 4,587,010
<TOTAL-REVENUES> 8,770,757
<CGS> 2,601,807
<TOTAL-COSTS> 3,016,892
<OTHER-EXPENSES> 1,875,920
<LOSS-PROVISION> 52,000
<INTEREST-EXPENSE> 132,758
<INCOME-PRETAX> 4,127,389
<INCOME-TAX> 1,547,209
<INCOME-CONTINUING> 2,580,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,580,180
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.19
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,202,632
<SECURITIES> 27,257,501
<RECEIVABLES> 3,459,174
<ALLOWANCES> 10,000
<INVENTORY> 836,927
<CURRENT-ASSETS> 56,549,418
<PP&E> 18,871,758
<DEPRECIATION> 3,316,007
<TOTAL-ASSETS> 75,143,777
<CURRENT-LIABILITIES> 4,496,272
<BONDS> 293,420
0
0
<COMMON> 135,708
<OTHER-SE> 70,299,223
<TOTAL-LIABILITY-AND-EQUITY> 75,143,777
<SALES> 9,731,524
<TOTAL-REVENUES> 19,765,701
<CGS> 5,529,322
<TOTAL-COSTS> 6,522,155
<OTHER-EXPENSES> 3,908,380
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 136,552
<INCOME-PRETAX> 10,065,132
<INCOME-TAX> 3,773,416
<INCOME-CONTINUING> 6,291,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,291,716
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.44
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,100,018
<SECURITIES> 35,732,921
<RECEIVABLES> 4,967,342
<ALLOWANCES> 75,000
<INVENTORY> 1,082,027
<CURRENT-ASSETS> 62,584,864
<PP&E> 19,297,401
<DEPRECIATION> 3,758,150
<TOTAL-ASSETS> 80,960,639
<CURRENT-LIABILITIES> 5,029,303
<BONDS> 474,431
0
0
<COMMON> 142,671
<OTHER-SE> 75,598,210
<TOTAL-LIABILITY-AND-EQUITY> 80,960,639
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