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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997 Commission file number 0-11580
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PHARMAKINETICS LABORATORIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Maryland 52-1067519
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(State of Incorporation) (I.R.S. Employer Identification No.)
302 West Fayette Street
Baltimore, Maryland 21201
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (410) 385-4500
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Securities registered pursuant to Section 12(b) of the Act:
None
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(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 [ ].
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a Court. Yes__X__ No____
As of September 2, 1997, 12,195,891 shares of Common Stock of
PharmaKinetics Laboratories, Inc. were outstanding and the aggregate
market value of Common Stock (based upon the average bid and asked prices
as reported on the OTC Bulletin Board on that date) held by non-affiliates
was $4,095,916.
List hereunder the following documents if incorporated by reference and
the part of the Form 10-K into which the document is incorporated: none.
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PART I
ITEM 1. BUSINESS
PharmaKinetics Laboratories, Inc. (the "Company") is a contract
research organization ("CRO") providing a range of clinical research and
development services to the worldwide pharmaceutical industry and to the
biotechnology industry in the development of prescription and non-
rescription drug products. The Company also provides bioanalytical
laboratory services and management and monitoring of clinical trials
conducted at remote sites, including ancillary services such as protocol and
case report form design, data management and biostatistics and regulatory
consulting. The Company has historically focused its business development
efforts on generic pharmaceutical companies in the United States ("U.S.")
and Canada, and has more recently expanded its clients to include several of
the innovator pharmaceutical and biotechnology companies in the U.S. and
Europe.
In connection with the implementation of a new strategic plan, the
Company is pursuing business opportunities in four segments of the
CRO industry: (1) providing services to generic drug companies - primarily
in the area of bioequivalence/bioavailability studies which include both
clinical and laboratory services; (2) providing Phase I clinical trials -
primarily safety studies on new drugs - to the innovator pharmaceutical
industry and to biotechnology firms; (3) providing bioanalytical laboratory
services primarily to the innovator drug companies - this involves the
analysis of biological samples, typically blood samples, which are the
result of trials conducted at sites around the country and sent to the
Company's laboratory for analysis; and (4) providing project management and
monitoring services to both generic and innovator pharmaceutical firms -
overseeing the conduct of trials conducted at remote sites, typically on
patients. The Company's project management expertise lies in management of
smaller trials conducted at fifteen or fewer sites with 200 - 400 patients
rather than the very large trials more typically conducted by the large
global CROs.
SERVICES
CLINICAL EVALUATION SERVICES
The Company offers complete services for the testing of generic
pharmaceutical products to determine bioavailability and bioequivalency.
Bioavailability testing determines the rate and extent to which an
active drug ingredient is absorbed from a drug product and becomes available
at the site of drug action in the human body. Typically, the determination
of bioavailability is performed through the collection and laboratory
analysis of blood, urine or other specimens. However, for certain drug
products which are not absorbed or are minimally absorbed, for
example ointments and creams, the determination of bioavailability must be
performed using special procedures and equipment. Drug manufacturers are
required to include information obtained from human testing in detailed
laboratory and clinical studies as part of applications for approval to
market certain new drug products, submitted to regulatory authorities, such
as the United States Food and Drug Administration ("FDA"). Bioavailability
data is also used to evaluate the adequacy of proposed labeling
recommendations regarding dosage and administration of a drug product, to
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define its profile in order to evaluate product reformulations or changes in
recommended dosage strength or dosage regimens, and to evaluate and
substantiate controlled release claims.
Bioequivalency testing compares the bioavailability of similar generic
and brand name drugs. The FDA has established bioequivalency requirements
for certain drug products or classes of drug products which are intended to
be interchangeable. As a result, bioequivalency data is required in the
case of new formulations of certain drug products developed by generic
pharmaceutical manufacturers for marketing upon expiration of patents on
brand name drugs previously found to be safe and effective. Bioequivalency
testing is also required for certain drug products in the case of new
formulations or new dosage forms intended to be used by the manufacturer
which obtained the original approval.
The Company also conducts Phase I clinical trials - primarily safety
studies on new drugs - for the innovator pharmaceutical industry and for
biotechnology firms.
The clinical portions of studies are conducted pursuant to testing
plans, called protocols, which are designed to reflect the specific
characteristics of the active drug ingredients being tested. The Company
employs experts in medicine, pharmacology, analytical chemistry, statistical
analysis and data processing to design, evaluate and execute protocols
according to current scientific standards and governmental regulatory
requirements.
Protocols for the Company's clinical studies are either written by the
Company's staff or provided by the client. Once developed, a protocol is
submitted for approval to the Company's Institutional Review Board, which
independently evaluates and, if necessary, requests revisions of the
protocol in order to safeguard the rights and welfare of the human subjects.
The current Institutional Review Board consists of one affiliated
(non-voting) individual and ten non-affiliated (voting) individuals, four of
whom are medical doctors (one of these serving as chairman), one
pharmacologist, one clergy, and four representatives of the community.
For each clinical study the Company uses volunteer study participants.
The availability of sufficient numbers of qualified and willing study
participants has at times been, and could in the future be, a limitation on
the Company's business. In 1997 the Company opened a new screening site in
suburban Baltimore. The site is close to two colleges and is expected to
expand the Company's access to healthy volunteers.
Each prospective participant is screened at a Company facility and
examined by a physician or physician's assistant employed by the Company.
Prior to the commencement of a study, the Company's Medical Director or
another qualified individual meets with the study participants to explain
the purpose of the study and the fact that research is involved, the
procedures to be followed and the expected duration of the testing, and to
provide them with other information, including a description of any
foreseeable risks or discomforts deemed relevant, to enable them to make an
informed decision as to whether or not they want to participate in the
study. A written consent form approved by the Company's Institutional
Review Board for each study, acknowledging such disclosures, is signed by
each participant prior to initiation of the study.
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Study participants usually arrive at the Company's controlled
environment facility the night before testing is to begin. To maximize
reliability of the test data, all study participants are immediately placed
on a strictly supervised schedule in which all of their activities,
including eating, drinking, sleeping, recreation and type of clothing, are
tightly regulated. Testing, which can last for as long as four weeks,
includes physical observation by medical personnel and a strict schedule of
collecting blood, urine and other specimens which are subjected to drug
analysis in the Company's analytical chemistry laboratory or by other
arrangements of the client.
BIOANALYTICAL LABORATORY SERVICES
Laboratory analysis determines the amount of drug present in each of
the hundreds of biological specimens generated by a given study. Chemists
extract the drug and metabolites (compounds into which a drug is broken down
inside the body) from a specimen using a mixture of solvents or a specific
extraction column. Extracted samples are then processed by the Company's
analytical instrumentation, including high performance liquid
chromatography, and gas chromatography interfaced with various methods of
detection, including mass spectrometry. These instruments, HPLC,
HPLC/MS/MS, GC and GC/MS, separate the drug and metabolites from any other
remaining substances and have the ability to detect and quantify as little
as billionths of a gram of material. This process of extraction and
detection is called an assay method. Each drug requires the development of
a unique assay method, the accuracy and precision of which must be
documented according to current scientific standards to meet FDA
requirements. The Company's research and development group develops and
validates these unique assay methods.
The results of these assays are entered into computers maintained by
the Company to show the concentration of drug in the blood over time and to
determine statistically whether the product being evaluated is equivalent to
the already marketed product or other reference material. A detailed report
on the results of the analysis is prepared by Company scientists and
submitted to the client requesting the test. Following the system used by
the FDA for granting approval to market new drug products, the
pharmaceutical manufacturer may use the report to support either a New Drug
Application ("NDA") or, in the case of generic drugs, an Abbreviated New
Drug Application ("ANDA"). In the event that the study results show the
product is not bioequivalent, they may provide the basis for additional
development work and further bioequivalence studies or the manufacturer may
discontinue its NDA or ANDA application.
The Company also provides bioanalytical laboratory services to
innovator drug companies conducting clinical trials around the country.
Samples from these trials are sent to the Company's laboratory for analysis.
Through July 31, 1995, the Company also offered a complete range of
stability services for finished dosage form pharmaceuticals. The services
were discontinued because they did not fit strategically with the Company's
base business.
CLINICAL TRIAL MANAGEMENT AND MONITORING
The Company provides project management and monitoring of Phase II, III
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and IV clinical trials conducted at remote sites. In the course of such
projects the Company's personnel are involved in site and investigator
recruitment, patient enrollment, and study monitoring and data collection.
In studies where the Company is providing Project Management and/or
Monitoring services the drug is administered to patients by physicians,
referred to as investigators, at hospitals, clinics, or other locations,
referred to as sites. Potential investigators may be identified by the drug
sponsor or by the Company. The Company generally solicits investigators'
participation in the study. The trial's success depends on the successful
identification and recruitment of investigators with an adequate base of
patients who satisfy the requirements of the study protocol.
The investigators find and enroll patients suitable for the study. The
speed with which trials can be completed is significantly affected by the
rate at which patients are enrolled. The Company's personnel closely track
the rate of patient enrollment and provide input necessary to ensure that
the planned schedule of enrollment is maintained. Prospective patients are
required to review information about the drug and its possible side effects,
and sign an Informed Consent form to record their knowledge and acceptance
of potential side effects. Patients also undergo a medical examination to
determine whether they meet the requirements of the study protocol. Patients
then receive the drug and are examined by the investigator as specified by
the study protocol.
As patients are examined and tests are conducted in accordance with the
study protocol, data are recorded on Case Report Forms (CRFs) and laboratory
reports. The data are collected from study sites by specially trained
persons known as monitors. The Company's monitors visit sites regularly to
ensure study protocol adherence, that the CRFs are completed correctly, and
that all data specified in the protocol are collected. The monitors take
completed CRFs to be reviewed for consistency and accuracy before their data
is entered into an electronic database.
REGULATORY AFFAIRS SERVICES
The Company provides comprehensive regulatory services to
pharmaceutical and biotechnology companies including: representation with
state formularies, pre-audit facility inspections, NDA and ANDA report
writing, data assessment, report and literature review, protocol design and
development, full statistical data analysis, and liaison with the FDA.
LIABILITY EXPOSURE
The Company's clinical research services center on the testing of new
and generic (already marketed) drugs on human volunteers pursuant to a study
protocol. Clinical research involves a risk of liability for personal
injury or death to participants due, among other reasons, to possible
unforeseen adverse side effects or improper administration of the drug.
The Company believes that the risk of liability to participants in
clinical research is mitigated by various regulatory requirements, including
the role of IRBs and the need to obtain each participant's informed consent.
The FDA requires that each human clinical trial be reviewed and approved by
the IRB at each study site. The Company has its own independent IRB. This
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is an independent committee that includes both medical and non-medical
personnel whose major purpose is to protect the interests and well being of
individuals enrolled in the trial. After the trial begins, the IRB monitors
compliance with the protocol and measures designed to protect participants,
such as the requirement to obtain the informed consent.
To reduce its potential liability, the Company seeks to obtain
indemnity provisions in its contracts with clients and with investigators
hired by the Company on behalf of its clients. These indemnities generally
do not, however, protect the Company against certain of its own actions such
as those involving negligence. Moreover, these indemnities are contractual
arrangements that are subject to negotiation with individual clients and the
terms and scope of such indemnities can vary from client to client and from
study to study. Finally, the financial performance of these indemnities is
not secured so that the Company bears the risk that an indemnifying party
may not have the financial ability to fulfill its indemnification
obligations. The Company could be materially and adversely affected if it
were required to pay damages or incur defense costs in connection with a
claim that is outside the scope of indemnity or where the indemnity,
although applicable, is not performed in accordance with its terms.
The Company itself does not maintain professional malpractice insurance
related to its testing procedures as its medical personnel are required to
carry such insurance, and the Company is not a provider of medical care and
related services. The Company maintains a general liability policy which
provides coverage with a limit of $1,000,000 for each occurrence, an
umbrella liability policy which has a limit of $5,000,000 for each
occurrence in excess of primary, and a workmen's compensation liability
policy which provides coverage of $1,000,000. There can be no assurance
that this insurance coverage will be adequate, or that insurance coverage
will continue to be available on terms acceptable to the Company.
GOVERNMENT REGULATION
The Company's services are conducted for pharmaceutical and
biotechnology companies to support their applications for approval to market
new "branded" or bioequivalent generic drug products. These companies, and
therefore the Company, are subject to extensive regulation by government
authorities. Regulatory proceedings which adversely affect the Company's
clients have affected and could continue to adversely affect the Company's
business. The repeal or significant alteration of some or all of the laws
or regulations requiring testing of the type performed by the Company could
have a material adverse effect on the Company's business. However,
regulatory changes which require additional or more complex testing to be
performed in support of the drug approval process could significantly
enhance the Company's business. Management believes that legislation and
regulation, on balance, have a favorable impact on the demand for its
services by providing sponsors and manufacturers of new drugs with
additional requirements which increase the need for outsourcing.
The services provided by the Company and the activities of its clients
are ultimately subject to FDA regulation in the U.S. and comparable agencies
in other countries. The Company is obligated to comply with FDA
requirements governing activities such as obtaining informed consents,
verifying qualifications of investigators, complying with Standard Operating
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Procedures (SOPs), reporting adverse reactions to drugs, and maintaining
thorough and accurate records. The Company must maintain source
documents for each study for specified periods. Such documents are
frequently reviewed by the study sponsor during visits to the Company's
facility and may be reviewed by the FDA during audits. Non-compliance with
FDA regulations can result in the disqualification of data collected during
a study.
The Company is subject to regulation and inspection by the Baltimore
City Health Department (for the Maryland State Department of Health and
Mental Hygiene), the Center for Disease Control of the United States
Department of Health and Human Services and other state and local agencies
where the Company's facility is located. The Company has not experienced
any significant problems to date in complying with the applicable
requirements of such agencies and does not believe that any existing or
proposed regulations will require material capital expenditures or changes
in its method of operation. Management believes that the Company is acting
in accordance with all applicable federal, state and local laws.
COMPETITION
The Company competes primarily against other CROs and pharmaceutical
companies' own in-house research departments. The CRO industry is highly
fragmented, with approximately twenty "full service" CROs and many small
specialty providers. In recent years, several large full service CROs have
emerged some of which have substantially greater capital and other
resources, are better known and have more experienced personnel than the
Company. The recent trend towards industry consolidation is likely to
result in heightened competition among the larger CROs. The Company
competes in a specialty niche segment of the overall market where total size
and "full service" are less important competitive factors than in the
overall CRO industry. Clients choose to use the Company, or a direct
competitor, on the basis of prior experience with the Company, its
reputation for quality of the service provided, the ability to schedule the
specific study in a time frame which meets the client's needs, scientific
and technical capability and the price of the services performed. The
Company believes it competes favorably in these areas.
CLIENTS
The Company has served most of the leading U.S. and Canadian generic
drug firms and several of the leading U.S. and European pharmaceutical
companies. The Company's clients also include companies which utilize
biotechnology and other emerging technologies to develop new drugs.
The Company has in the past derived, and may in the future derive, a
significant portion of its revenue from a relatively limited number of major
clients. Concentrations of business in the CRO industry are not uncommon
and the Company is likely to experience such concentration in future years.
For the years ended June 30, 1997, 1996 and 1995, one customer contributed
in excess of 10% of contract revenue, accounting for 29%, 27% and 11%,
respectively, of contract revenue.
While an individual client may represent a significant percent of
revenues, these revenues are the result of the sum of a number of different
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contracts during the year. While the complete loss of a significant client
could have a material adverse effect on the Company, the termination or loss
of any one contract would typically not have a material adverse effect on
the Company's results of operations.
EXPORT SALES
The Company conducts studies for a number of companies outside of the
U.S., primarily in Canada and Europe, in addition to many domestic
companies. This work is billed and paid in U.S. dollars, so there is no
currency exchange risk to the Company. The Company has recognized revenue
of $3,221,000, $3,301,000, and $2,208,000, for the years ended June 30,
1997, 1996 and 1995, respectively, from its clients outside of the United
States.
BACKLOG
The Company maintains a backlog of its business, representing studies
underway in-house, for which revenue has not yet been recognized, and
studies that have been awarded to the Company by its various clients
but have yet to begin. At June 30, 1997, the backlog was approximately $6.0
million. At June 30, 1996, the Company's backlog was approximately $4.0
million. The Company expects to recognize revenue from studies included in
the June 30, 1997, backlog during fiscal 1998 and future fiscal years.
EMPLOYEES
At July 31, 1997, the Company had 151 employees (58 of whom were part-
time employees), of which 9 hold Ph.D. or M.D. degrees and 11 others hold
masters degrees. The Company does not have collective bargaining agreements
with any of its employees and considers its employee relations to be
satisfactory.
BUSINESS CONSIDERATIONS
Certain statements contained in this Annual Report on Form 10-K are
forward looking statements that have been made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There
are numerous risks and uncertainties which may cause the Company's actual
results in future periods or plans for future periods to differ materially
from the forward-looking statements contained herein. Those risks include,
among others, (1) general economic conditions, (2) conditions affecting the
pharmaceutical industry and the generic drug industry in particular, and (3)
consolidation resulting in increased competition within the Company's
market, as well as certain other risks described herein.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Baltimore,
Maryland, where it owns a building containing approximately 142,000 square
feet of space of which approximately 117,000 square feet are utilized in the
Company's operations. The remaining space, consisting of two unfinished
floors in the seven story 302 W. Fayette Street building, could be made
available for expansion of the Company's operations when necessary. The
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building contains a consolidated analytical chemistry laboratory, a
controlled live-in clinical facility with a 120 bed capacity, and corporate-
wide information and data management systems. Substantially all of the
Company's assets, including the building, collateralize the Company's
borrowing agreements with NationsBank, N.A. (see Notes C and E to the
Financial Statements).
The Company also leases 1,000 square feet of office space in a
Baltimore suburb for utilization as a screening location to provide more
convenient access for students attending two nearby colleges, as well as for
local residents and those for whom a suburban location is more convenient.
ITEM 3. LEGAL PROCEEDINGS
(a) Reorganization Proceedings under Chapter 11 of the Bankruptcy Code
On November 19, 1990, PharmaKinetics Laboratories, Inc. filed a
voluntary petition (Case No. 90-5-5020-JS) in the United States Bankruptcy
Court in the District of Maryland seeking to reorganize under Chapter 11 of
the Federal Bankruptcy Code. The Company confirmed its Amended Plan of
Reorganization (the "Plan") on April 1, 1993. The Plan became effective May
10, 1993. The Company received an order approving its Application for Final
Decree on May 23, 1996. Therefore, the bankruptcy case is closed.
(b) Other Material Legal Proceedings
On January 24, 1997, the Company was notified that it may have incurred
liability or may incur liability under Section 107(a) of the Comprehensive
Environmental Response, Compensation and Liability Act, as amended (CERCLA),
42 U.S.C. Section 9607(a), in connection with the RAMP industries Site in
Denver, Colorado. The Environmental Protection Agency (the "EPA") has
identified approximately 800 entities that shipped wastes to the site and is
conducting an investigation of the source, extent and nature of the release
or threatened release of hazardous substances, pollutants or contaminants,
or hazardous wastes, on or about the RAMP Industries Site. It is believed
that the Company may have disposed of 15 cubic feet, or two drums, of waste
at this site. Management is unable to estimate at this time the Company's
portion of such costs, but based on information available to date,
management does not believe that the resolution of this matter will be
material to the Company's financial position, results of operations, or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is currently traded in the over-the-counter
market and is quoted on the OTC Bulletin Board (OTCBB: PKLB). The trading
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market for the Company's stock is limited and sporadic. The following table
sets forth the high and low bid prices of the Common Stock for the fiscal
periods indicated and as reported through the OTC Bulletin Board.
Year Ended Year Ended
June 30, 1997 June 30, 1996
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Quarter High Low High Low
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First $ 21/32 $ 5/16 $ 9/16 $ 11/32
Second 5/8 13/32 15/32 1/4
Third 7/16 3/8 7/16 11/32
Fourth 3/8 .245 1/2 11/32
Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. The
approximate number of shareholders of record at September 2, 1997, was
1,107.
The Company has not declared a dividend on its Common Stock since its
inception and has no intention of doing so in the foreseeable future.
Notwithstanding the Company's dividend policy, the Company's borrowing
agreement with its primary lender restricts the Company from declaring or
paying a dividend if such dividend would cause the Company to default under
any of the covenants contained in the borrowing agreement.
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30,
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1997 1996 1995 1994 1993
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $9,597,536 $10,962,160 $9,893,762 $8,847,674 $8,718,246
Earnings (loss):
Before
extraordinary item ($109,513) $778,895 $127,827 $204,851 ($197,947)
Extraordinary item - - - - $107,016
Net earnings (loss) ($109,513) $778,895 $127,827 $204,851 ($90,931)
Earnings (loss)
per share:
Before
extraordinary item ($0.01) $0.06 $0.01 $0.02 ($0.02)
Extraordinary item - - - - 0.01
Net earnings (loss)
per share ($0.01) $0.06 $0.01 $0.02 ($0.01)
Weighted average
shares outstanding 12,195,891 12,319,646 12,598,102 12,780,687 10,719,615
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<S> <C> <C> <C> <C> <C>
Total Assets $5,958,732 $6,622,959 $6,553,348 $6,163,128 $6,198,151
Working capital
(deficiency) $282,538 $411,498 ($63,474) $262,632 $831,114
Long-term
liabilities $1,538,945 $1,784,876 $2,074,109 $2,437,373 $2,866,072
Stockholders' equity $2,438,241 $2,547,754 $1,768,859 $1,540,669 $1,364,898
- ---------------------------------------------------------------------------
Notes to Selected Financial Data:
The Company has not declared a dividend on common stock since
inception.
During the fiscal year ended June 30, 1993, the Company recorded
$68,000 for expenses associated with the reorganization of the Company under
the Bankruptcy Code and debt forgiveness of $107,016, which was recorded as
an extraordinary item.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
PharmaKinetics Laboratories, Inc. ("the Company") is a contract
research organization ("CRO") providing a range of clinical research and
development services to the worldwide pharmaceutical industry and to the
biotechnology industry in the development of prescription and non-
prescription drug products. The Company also provides bioanalytical
laboratory services and management and monitoring of clinical trials
conducted at remote sites, including ancillary services such as protocol and
case report form design, data management and biostatistics and regulatory
consulting. The nature of the Company's services and recurring business
with major clients results in the Company having clients whose business
could account for 10% or more in a fiscal year. From year to year, the
specific clients may change. Since the Company's inception in 1976, the
Company has assisted pharmaceutical clients with over 900 Abbreviated New
Drug ("ANDA") and New Drug ("NDA") Approvals which were received as a result
of the conduct of over 2,000 studies. The Company's services are provided
in accordance with regulations, promulgated by the United States Food and
Drug Administration ("FDA"), as well as submissions to the Canadian Health
Protection Branch ("HPB"), which govern clinical trials and the drug
approval process.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items in the
Statements of Operations as percentages of total revenue and the increase
(decrease) by each item as a percentage of the amount for the previous
period:
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<TABLE>
Percentage of Period to Period
Total Revenues Change
--------------------- -------------------
1997 1996
Years ended June 30, Compared to
1997 1996 1995 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Contract revenue 91.3% 95.5% 93.5% (16.3)% 13.2%
License fees 8.7 4.5 6.5 69.1 (23.8)
----- ----- ----- ----- -----
Total 100.0 100.0 100.0 (12.4) 10.8
Cost of contracts 73.5 66.5 68.9 (3.2) 7.0
----- ----- ----- ----- -----
Gross margin 26.5 33.5 31.1 (30.7) 19.2
Research
and development 4.7 3.6 4.2 12.6 (5.5)
Selling, general
and administrative 21.4 20.9 22.2 (10.2) 4.3
----- ----- ----- ----- -----
Operating income 0.4 9.0 4.7 (95.9) 112.7
Interest expense (1.9) (2.0) (2.6) (16.7) (13.2)
Interest income 0.4 0.4 0.4 (11.1) (3.5)
Loss on disposal
of equipment - (0.2) - (100.0) -
Loss on sale
of investments - - (1.0) - (100.0)
Write-down
of investments - - (0.5) - (100.0)
----- ----- ----- ----- -----
Earnings (loss)
before taxes (1.1) 7.1 1.0 (114.0) 690.9
Income taxes - - (0.3) (100.0) 115.4
----- ----- ----- ----- -----
Net earnings (loss) (1.1)% 7.1% 1.3 % (114.1)% 509.3%
===== ===== ===== ===== =====
1997 COMPARED TO 1996
Total revenue decreased 12.4% from $11.0 million in fiscal 1996 to $9.6
million in fiscal 1997. The decrease was primarily attributable to weakness
in the generic drug market early in the year, caused by an industry-wide
downturn and continued consolidation of generic drug industry clients, and
failure to meet certain internal time lines resulting in delayed revenue
recognition for projects not completed by June 30, 1997. The Company has
made progress in accomplishing its goals to increase the amount of clinical
revenue generated from major pharmaceutical and biotechnology firms;
initiate new clinical trial management contracts; and acquire its second
LC/MS/MS instrument for utilization in its laboratory. The Company's
contract revenue decreased 16.3% for fiscal 1997, compared to fiscal 1996.
License fee income of $834,000 was recorded in fiscal 1997, compared to
$493,000 in fiscal 1996. The Company will continue to receive license fee
income, based on clients' sales of their approved drug products, through the
-12-
</PAGE>
<PAGE>13
expiration of the license fee agreements, the first of which will expire
early in fiscal 1998 and the second of which will expire in fiscal 2000. In
addition, the Company began receiving license fees under its third agreement
with another of its clients which received approval from the FDA to
manufacture and market Sucralfate Tablets. The client received approval to
market its drug in April 1996 and commenced sales in November 1996. The
Company expects to receive payments for a minimum of eight years from the
date of approval. License fee income from sales of this third product
accounted for the increase in license fee income, notwithstanding a decline
in license fee income from the other two license fee arrangements. The
Company believes it is unlikely that its clients will wish to utilize
license fee arrangements in the future as compensation for work performed.
As a result of this trend, contract revenues, rather than licensing income,
will continue to be the primary source of revenues.
The Company's gross margin decreased 30.7% from $3.7 million in fiscal
1996 to $2.5 million in fiscal 1997. As a percentage of revenue, the
Company's gross margin decreased from 33.5% in fiscal 1996 to 26.5% in
fiscal 1997, on a 12.4% decrease in total revenue. The decrease in gross
margin is indicative of the fact that fixed costs, relative to employee
salaries and other operating expenses, remained at similar levels as
revenues decreased. Measures to bring costs and staffing levels in line
with current levels of business were implemented in January 1997.
Selling, general and administrative expenses totaled $2.1 million for
fiscal 1997, compared to $2.3 million in fiscal 1996, representing a 10.2%
decrease. As a percentage of revenue, selling, general and administrative
expenses were 20.9% in fiscal 1996 and 21.4% in fiscal 1997. The Company
effected certain staff reductions for administrative personnel in September
1995. The fact that these positions have not been filled has contributed to
the decrease in expenses for fiscal year 1997, offset by increased
compensation and increased operating costs.
Research and development expenses increased 12.6% from $397,000 in
fiscal 1996 to $447,000 in fiscal 1997. The Company has continued to invest
in its research and development effort in 1997 in an effort to bring new
analytical methods on-line to meet client demands. In addition, in August
1996, the Company acquired its first LC/MS/MS instrument for its laboratory
and has invested in research and development to bring the instrument on-line
and to develop methods for utilization in future studies. The Company
believes that these investments will result in the generation of new
business and an improvement in its competitive position.
Interest expense decreased 16.7% from $223,000 in fiscal 1996 to
$186,000 in fiscal 1997. The decrease is primarily attributable to
decreases in the Company's interest bearing obligations.
No provision for income taxes has been recorded in fiscal 1997,
compared to minimal amounts for Alternative Minimum Tax obligations in
fiscal 1996. The Company has available tax loss carryforwards of
approximately $5,319,000, expiring in 2006 through 2010, and general
business credits of approximately $1,433,000, expiring during the period
1999 to 2009.
-13-
</PAGE>
<PAGE>14
1996 COMPARED TO 1995
Total revenue increased 10.8% from $9.9 million in fiscal 1995 to $11.0
million in fiscal 1996. The increase was primarily attributable to the
Company's increased marketing efforts and timely completion of several
studies in the fourth quarter of fiscal 1996. During fiscal 1996, the
Company continued to expand its client list, diversify its services and
perform multiple studies for several of its clients. Contract revenue
increased 13.2% for fiscal 1996, compared to fiscal 1995. Revenue growth in
the current fiscal year demonstrates continued growth in volume, despite the
Company's decision in July 1995 to discontinue its offering of Stability and
Dissolution services.
License fee income of $493,000 was recorded in fiscal 1996, compared to
$647,000 in fiscal 1995. License fee income, based on clients' sales of
approved drugs, will continue through the expiration of the license fee
agreements, the first of which will expire during fiscal 1998 and the second
of which will expire in fiscal 2000.
The Company's gross margin increased 19.2% from $3.1 million in fiscal
1995 to $3.7 million in fiscal 1996. As a percentage of revenue, the
Company's gross margin increased from 31.1% in fiscal 1995 to 33.5%
in fiscal 1996, on a 10.8% increase in total revenue. The increase in gross
margin, despite a significant reduction in license fee income, is attributed
to increased productivity, timely completion of studies and increased study
shipments, particularly in the fourth quarter. Fiscal 1995 also reflected a
reversal of $232,719 in accrued expenses for unemployment insurance
assessments on study participant compensation. Absent this reversal in
fiscal 1995, gross profit as a percentage of revenue would have been 28.8%.
Selling, general and administrative expenses totaled $2.3 million for
fiscal 1996, compared to $2.2 million in fiscal 1995, representing a 4.2%
increase. As a percentage of revenue, selling, general and administrative
expenses were 20.9% in fiscal 1996 and 22.2% in fiscal 1995. Selling,
general and administrative expenses increased due to the increased
compensation and related expenses associated with the growth of the
Company's administrative staff and certain non-recurring business
development costs.
Research and development expenses decreased 5.5% from $420,000 in
fiscal 1995 to $397,000 in fiscal 1996. The Company has continued to invest
in its research and development effort in 1996 in an effort to bring new
analytical methods on-line to meet client demands. The Company re-directed
certain personnel to revenue generating activities throughout the year in an
effort to meet client demands.
Interest expense decreased 13.2% from $257,000 in fiscal 1995 to
$223,000 in fiscal 1996. The decrease is primarily attributable to
decreases in the Company's interest bearing obligations. In addition, the
rate of interest on the Company's long-term debt has been favorably impacted
by reductions in the prime rate of interest of NationsBank, N.A., 8.25% at
June 30, 1996, compared to 9.00% at June 30, 1995. Also, on a discretionary
basis, the Company has made and expects to continue to make accelerated
principal payments relative to its term note payable to the Bank.
-14-
</PAGE>
<PAGE>15
During fiscal year 1996, the Company sold idle equipment from its
Stability and Dissolution services group. The sale of the equipment
generated proceeds of $71,400 and a net loss of $17,172.
Income tax expense of $4,400 was recorded in fiscal 1996. The tax
arises from the impact of the Alternative Minimum Tax. At June 30, 1996,
the Company had tax loss carry forwards of approximately $3,885,000,
expiring in 2006 through 2009, and general business credits of approximately
$1,432,500, expiring during the period 1999 through 2009.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1997, the Company had cash and equivalents of $556,000
compared to $990,000 at June 30, 1996. The decrease in cash is the result
of contractual and discretionary payments on long-term debt and capital
lease obligations and the purchase of equipment for utilization in the
Company's operating units. The Company invested $249,000 in capital
equipment purchases, $195,000 of which was paid in cash with the remaining
$54,000 financed through capital leases. The capital leases have terms
expiring through fiscal 2000. The Company made principal payments of
$145,000 on its long-term debt obligations during fiscal 1997. On a
discretionary basis, the Company has made and expects to continue to make
accelerated principal payments relative to its term note payable to
NationsBank, N.A.
At June 30, 1997, the Company was not in compliance with its cash flow
ratio as required by the terms of the note. The Bank has granted a waiver
for the Company's lack of compliance on this covenant. At the time the
waiver was granted, the Company's term note payable to the Bank was amended.
The note, which had previously borne interest at the rate of the Bank's
prime rate plus one-half percent, now bears interest at the rate of the
Bank's prime rate plus three-quarters percent. This change was effective
August 1997.
The Company's primary source of funds is cash flow from operations,
which decreased by $554,000 in fiscal 1997 from fiscal 1996, principally as
a result of the Company's 1997 results of operations as compared to 1996.
The Company also has available a $500,000 line of credit from NationsBank,
N.A. which has not been drawn upon. Terms of the Company's line of credit
include advances against eligible receivables, interest at the Bank's prime
rate of interest and cash pledges equal to amounts advanced.
As of June 30, 1997, the Company's stockholders' equity totaled
$2,438,000 compared to $2,548,000 at June 30, 1996. The Company had
working capital of $283,000 at June 30, 1997, compared to working capital of
$411,000 at June 30, 1996. The decrease in working capital reflects the
decrease in cash balances caused by the Company's poor performance during
fiscal 1997. The Company's performance in fiscal 1997 can be attributed to
weakness in the generic drug market and failure to meet certain internal
time lines resulting in delayed revenue recognition for projects not
completed by June 30, 1997.
The Company is currently negotiating to lease its second state-of-the-
art laboratory instrument, a LC/MS/MS, delivered to the Company in the first
-15-
</PAGE>
<PAGE>16
quarter of fiscal 1998. The cost of the instrument approximates $360,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable to this registrant in 1997
REPORT OF INDEPENDENT ACCOUNTANTS
_____________
To the Directors and Stockholders of
PharmaKinetics Laboratories, Inc.
We have audited the financial statements and financial statement
schedule of PharmaKinetics Laboratories, Inc. listed in the index on page 29
of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of PharmaKinetics
Laboratories, Inc. as of June 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND, L.L.P.
Baltimore, Maryland
August 14, 1997
-16-
</PAGE>
<PAGE>17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
</TABLE>
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Years ended June 30,
-----------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
Revenues $9,597,536 $10,962,160 $9,893,762
Cost of contracts 7,053,560 7,289,138 6,813,576
---------- ---------- ----------
Gross profit 2,543,976 3,673,022 3,080,186
Selling, general
and administrative expenses 2,057,212 2,290,828 2,199,365
Research and development expenses 446,677 396,741 420,049
---------- ---------- ----------
Earnings from operations 40,087 985,453 460,772
Interest expense (185,817) (223,028) (257,018)
Interest income 36,217 40,748 42,207
Gain (loss) on disposal of equipment - (19,848) 1,315
Loss on sale of investments - - (101,479)
Write-down of investments - - (46,750)
---------- ---------- ----------
Earnings (loss) before income taxes (109,513) 783,325 99,047
Provision for (benefit of) income taxes - 4,430 (28,780)
---------- ---------- ----------
Net earnings (loss) ($109,513) $778,895 $127,827
========== ========== ==========
Net earnings (loss) per share ($0.01) $0.06 $0.01
========== ========== ==========
Weighted average shares outstanding 12,195,891 12,319,646 12,598,102
========== ========== ==========
</TABLE>
-17-
</PAGE>
<PAGE>18
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
BALANCE SHEETS
<CAPTION>
June 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $556,040 $955,526
Restricted cash and equivalents - 34,875
Accounts receivable 1,014,538 1,248,293
Contracts in process 503,163 336,930
Prepaid expenses 190,343 126,203
---------- ----------
Total Current Assets 2,264,084 2,701,827
Property, plant and equipment, net 3,654,132 3,862,710
Other assets 40,516 58,422
---------- ----------
Total Assets $5,958,732 $6,622,959
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $206,588 $143,616
Accounts payable and accrued expenses 912,686 1,213,403
Deposits on contracts in process 862,272 933,310
---------- ----------
Total Current Liabilities 1,981,546 2,290,329
Long-term debt 1,500,231 1,708,417
Other liabilities 38,714 76,459
---------- ----------
Total Liabilities 3,520,491 4,075,205
---------- ----------
Commitments and Contingent Liabilities
Stockholders' Equity:
Preferred stock, no par value; 1,500,000
shares authorized and unissued - -
Common stock, $.001 par value; authorized,
25,000,000 shares; issued and outstanding
12,195,891 shares 12,196 12,196
Additional paid-in capital 12,013,701 12,013,701
Accumulated deficit (9,587,656) (9,478,143)
---------- ----------
Total Stockholders' Equity 2,438,241 2,547,754
---------- ----------
Total Liabilities and Stockholders' Equity $5,958,732 $6,622,959
========== ==========
- ----------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-18-
</PAGE>
<PAGE>19
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Years ended June 30,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $12,196 $12,196 $12,396
Stock canceled - - (200)
---------- ---------- ----------
Balance, end of year 12,196 12,196 12,196
---------- ---------- ----------
(Shares outstanding: 12,195,891 at
June 30, 1997, 1996 and 1995.)
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 12,013,701 12,013,701 12,113,501
Stock subscription canceled - - (99,800)
---------- ---------- ----------
Balance, end of year 12,013,701 12,013,701 12,013,701
---------- ---------- ----------
ACCUMULATED DEFICIT
Balance, beginning of year (9,478,143) (10,257,038) (10,384,865)
Net earnings (loss) (109,513) 778,895 127,827
---------- ---------- ----------
Balance, end of year (9,587,656) (9,478,143) (10,257,038)
---------- ---------- ----------
NOTE RECEIVABLE ON
COMMON STOCK SUBSCRIBED
Balance, beginning of year - - (101,283)
Note canceled - - 100,000
Interest accrued - - (6,000)
Interest received - - 7,283
---------- ---------- ----------
Balance, end of year - - -
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY $2,438,241 $2,547,754 $1,768,859
========== ========== ==========
- ----------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-19-
</PAGE>
<PAGE>20
<TABLE>
PHARMAKINETICS LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended June 30,
--------------------------------
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ($109,513) $778,895 $127,827
Adjustments to reconcile net earnings
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 457,785 405,703 312,875
Recovery of doubtful accounts - - (9,450)
(Gain) loss in disposal of equipment - 19,848 (1,315)
Loss on sale of investments - - 101,479
Write-down of investments - - 46,750
Changes in operating assets
and liabilities:
Accounts receivable 233,755 (473,609) 40,628
Contracts in process (166,233) 358,429 (176,390)
Prepaid expenses (64,140) (62,522) (14,093)
Refundable income taxes - 29,364 (29,364)
Accounts payable and accrued expenses (306,386) (327,781) 61,935
Deposits on contracts in process (71,038) (200,237) 378,372
Other liabilities - - (204,729)
--------- --------- ----------
Net cash provided (used)
by operating activities (25,770) 528,090 634,525
--------- --------- ----------
Cash flows from investing activities:
Payments for purchases
of property and equipment (195,367) (164,474) (410,885)
Proceeds from sale of equipment - 71,400 4,300
Proceeds from sale of investments - - 69,747
--------- --------- ----------
Net cash used by investing activities (195,367) (93,074) (336,838)
--------- --------- ----------
Cash flows from financing activities:
Payments on long-term debt (145,214) (304,264) (273,153)
Payments for capital lease obligations (85,916) (224,169) (15,298)
Other assets 17,906 - -
--------- --------- ----------
Net cash used by financing activities (213,224) (528,433) (288,451)
--------- --------- ----------
Increase (decrease) in cash and equivalents (434,361) (93,417) 9,236
Cash and equivalents, beginning of year 990,401 1,083,818 1,074,582
--------- --------- ----------
Cash and equivalents, end of year $556,040 $990,401 $1,083,818
========= ========= ==========
Supplemental Schedule of Non-Cash Transactions
Fixed assets acquired
through capital leases $53,840 $347,167 $214,903
- ----------------------------------------------------------------------------
See notes to financial statements.
</TABLE>
-20-
</PAGE>
<PAGE>21
PHARMAKINETICS LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND BASIS OF PRESENTATION
PharmaKinetics Laboratories, Inc. (the "Company") is a contract
research organization ("CRO") providing a range of clinical research and
development services to the worldwide pharmaceutical industry and to the
biotechnology industry in the development of prescription and non-
prescription drug products. The Company also provides bioanalytical
laboratory services and management and monitoring of clinical trials
conducted at remote sites, including ancillary services such as protocol and
case report form design, data management and biostatistics and regulatory
consulting. The Company has historically focused its business development
efforts on generic pharmaceutical companies in the United States ("U.S.")
and Canada, and has more recently expanded its clients to include several of
the innovator pharmaceutical and biotechnology companies in the U.S. and
Europe.
The Company operates principally in one industry segment, the testing
and related research of pharmaceutical products. Revenues include contract
revenue and revenue from licensing technologies under special agreements
whereby the Company receives license fees based upon the clients' actual
product sales. At June 30, 1997, the Company had three license fee
agreements from which it received license fee income. The Company began
receiving license fees under its third license fee arrangement in November
1996. Based upon actual client sales, license fee income of $833,701,
$493,076, and $647,308 was recorded during fiscal years ended June 30, 1997,
1996, and 1995, respectively. License fee income, based on clients' sales
of approved drugs, will continue through the expiration of the license fee
agreements, the first of which will expire early in fiscal 1998.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues associated with testing services, which are short-term in
duration, are earned and recognized upon completion of all required clinical
and laboratory analysis. Operating revenue attributable to the performance
of long-term testing is recorded by contract by determining the status of
work performed to date in relation to total services to be provided.
Revenues under fixed-rate contracts include a proration of the earnings
expected to be realized on the contract based upon the ratio of costs
incurred to estimated total costs. Projected losses on contracts are
provided for in their entirety when known.
For the years ended June 30, 1997, 1996, and 1995 one client
contributed in excess of 10% of contract revenue, accounting for 29%, 27%
and 11% of contract revenue, respectively.
The Company conducts studies for a number of companies outside of the
U.S., primarily in Canada and Europe, in addition to many domestic
companies. This work is billed and paid in U.S. dollars, so there is no
currency exchange risk to the Company. The Company has recognized revenue
-21-
</PAGE>
<PAGE>22
of $3,221,000, $3,301,000, and $2,208,000, for the years ended June 30,
1997, 1996 and 1995, respectively, from its clients outside of the United
States.
Contracts in Process and Deposits on Contracts
Contracts in process includes direct and indirect costs related to
contract performance. Deposits on contracts represent interim payments.
Upon completion of contracts, the customer is billed for the total contract
amount less any deposits or interim payments.
Earnings (Loss) per Share
Earnings (loss) per share is determined by dividing net earnings by the
weighted average number of common stock and dilutive common stock
equivalent shares outstanding. Outstanding stock options granted under the
Company's stock option plans and other grants outside of the Company's plans
are considered common stock equivalents for the purpose of earnings (loss)
per share data; however, they are excluded from fiscal 1997 calculations
because the effect of their inclusion would be anti-dilutive.
Cash and Equivalents
Cash equivalents consist of highly liquid investments with an original
maturity of ninety days or less.
Restricted cash at June 30, 1996, of $34,875 represented an amount held
in escrow for payment of post-confirmation administrative claims. The
amount was returned to the Company's general funds in September 1996.
Concentration of Credit Risk
The Company is subject to credit risk related to cash balances with
financial institutions in excess of insured amounts. The risk is mitigated
by the fact that, at the close of each business day, excess funds in the
Company's operating accounts are placed in an overnight investment account
which is collateralized by government securities held by the financial
institution.
Five of the Company's customers account for 63.6% of the outstanding
accounts receivable balance at June 30, 1997. In addition, 34.5% of the
outstanding accounts receivable balance at June 30, 1997 was from clients
outside of the U.S.
Property, Plant and Equipment
Property, plant and equipment are stated at the lower of cost or net
realizable value. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets.
Estimated useful lives of the Company's furniture and equipment
approximate five years, and its building and improvements range from fifteen
to thirty-six years.
-22-
</PAGE>
<PAGE>23
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes
are recognized for the tax consequences of temporary differences by applying
currently enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. Valuation allowances are established when
the deferred tax assets are not currently assured of realization.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure 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 amounts could differ from these
estimates.
During fiscal 1995, the Company reversed a previous accrual for
unemployment insurance assessments on study participant compensation as a
result of a favorable ruling from Maryland's Board of Appeals, which had the
effect of increasing income before taxes by $232,719.
New Accounting Standards Adopted
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", establishes accounting and reporting standards
for stock based employee compensation plans. Accordingly, no compensation
cost has been recognized for the stock option plans consistent with previous
accounting under APB No. 25. Effective July 1, 1996, the Company adopted
the disclosure only provisions of this Statement.
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long Lived Assets and Assets to be Disposed of", adopted
by the Company for its current fiscal year, requires that long lived assets
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Adoption of this standard had no impact on the Company's financial
statements.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued the
following Statements of Financial Accounting Standards: No. 128 regarding
Earnings per Share and No. 129 regarding Capital Structure. These require
the Company to present basic and diluted earnings per share in the financial
statements and make certain disclosures about the Company's capital
structure. The Company must adopt the requirements of these Standards in
the financial statements for periods ending after December 15, 1997.
Adoption of these Standards is not expected to have a material impact on the
Company's financial presentation and disclosure.
-23-
</PAGE>
<PAGE>24
Also during 1997, the Financial Accounting Standards Board issued the
following Statements of Financial Accounting Standards that will impact the
Company's financial statement presentation and disclosure: No. 130
regarding Reporting Comprehensive Income and No. 131 regarding Segment
Reporting. The Company will adopt these Standards as prescribed in fiscal
1999.
C. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at June 30, is summarized as follows:
1997 1996
---------- ----------
Land $200,000 $200,000
Building and improvements 2,880,085 2,876,430
Furniture and equipment 2,461,118 2,215,566
---------- ----------
5,541,203 5,291,996
Less: accumulated depreciation (1,887,071) (1,429,286)
---------- ----------
$3,654,132 $3,862,710
========== ==========
Assets held under capital lease at June 30, 1997 and 1996, were
$289,990 and $535,400, respectively. Accumulated amortization of assets
held under capital lease at June 30, 1997 and 1996, was $119,267, and
$94,230, respectively.
During fiscal year 1996, the Company wrote off certain fully
depreciated assets with an historical cost basis of $748,538. In addition,
idle equipment was sold, generating cash proceeds of $71,400 and a loss of
$17,172. These assets had an historical cost basis of $156,359.
D. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At June 30, accounts payable and accrued expenses consisted of the
following:
1997 1996
---------- ----------
Trade accounts payable $488,522 $293,001
Accrued payroll and related expenses 94,647 341,768
Other accrued expenses 329,517 578,634
---------- ----------
$912,686 $1,213,403
========== ==========
E. DEBT
At June 30, long-term debt consisted of the following:
1997 1996
---------- ----------
Note payable $1,706,819 $1,852,033
Less: current portion (206,588) (143,616)
---------- ----------
$1,500,231 $1,708,417
========== ==========
-24-
</PAGE>
<PAGE>25
The Company has a note payable to NationsBank, N.A. and a $500,000
working capital borrowing facility. Terms of the note and credit facility
provide for interest at the Bank's prime rate (8.50% at June 30, 1997) plus
an additional one-half percent on the note payable only. Terms of the
Company's line of credit include advances against eligible receivables and
cash pledges equal to amounts advanced. The note has a five year
amortization schedule with equal monthly payments of $25,000 for principal
and interest. In May 1998, the Company will have the option to pay the
remaining principal balance over a three year period or to refinance the
note. The borrowing agreements are collateralized by substantially all of
the Company's assets, place restrictions on borrowings and investments, and
require maintenance of specified amounts of working capital, net worth and
cash flow ratios. The carrying value of the note approximates its current
value at June 30, 1997.
At June 30, 1997, the Company was not in compliance with its cash flow
ratio as required by the terms of the note. The Bank has granted a waiver
for the Company's lack of compliance on this covenant. At the time the
waiver was granted, the Company's term note payable to the Bank was amended.
The note, which had previously borne interest at the rate of the Bank's
prime rate plus one-half percent, now bears interest at the rate of the
Bank's prime rate plus three-quarters percent. This change was effective
August 1997.
Cash payments for interest were $181,722, $362,946, and $248,148, in
fiscal 1997, 1996, and 1995, respectively.
The long-term debt matures as follows:
Year ending June 30,
-------------------
1998 206,588
1999 487,680
2000 532,105
2001 480,446
----------
$1,706,819
----------
On a discretionary basis, the Company has made and expects to continue to
make accelerated principal payments relative to its term note payable to the
bank.
F. INCOME TAXES
The Company's expenses for and benefit from income taxes results from the
impact of alternative minimum tax charges and credits.
Deferred tax balances are comprised of the following:
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<PAGE>26
Year ended June 30,
------------------------
1997 1996
---------- ----------
Deferred tax assets:
Property, plant and equipment $388,964 $508,225
Accrued liabilities 20,644 73,973
Net operating loss carryforwards 2,074,466 1,515,251
Alternative minimum tax credits 4,095 4,095
General business credits 1,432,538 1,432,538
---------- ----------
Total deferred tax assets 3,920,707 3,534,082
Less: valuation allowance (3,920,707) (3,534,082)
---------- ----------
Deferred income taxes per balance sheet $ - $ -
========== ==========
Based on the weight of evidence available at June 30, 1997, in
management's opinion, a full valuation allowance is required to be recorded
against the Company's deferred income tax assets.
At June 30, 1997, the Company had tax loss carryforwards of approximately
$5,319,000, expiring in 2006 through 2010, and general business credits of
approximately $1,433,000, expiring during the period 1999 through 2009.
The principal differences between the actual effective tax rate and the
statutory federal tax rate are as follows:
Year ended June 30,
-------------------------
1997 1996 1995
----- ----- -----
Statutory rate 34.0% 34.0% 34.0%
State income taxes - net of federal benefit 4.9 4.9 4.9
Alternative minimum tax - .8 -
Alternative minimum tax credits - (.2) (29.0)
Loss carryforwards (38.9) (38.9) (38.9)
----- ----- -----
Effective rate -% .6% (29.0)%
===== ===== =====
The Company made cash payments for income taxes in fiscal years ended June
30, 1997, and 1995, in the amounts of $5,800 and $5,000, respectively. The
Company received a refund for income taxes of $29,000 in the fiscal year ended
June 30, 1996.
G. COMMITMENTS AND CONTINGENT LIABILITIES
Leases
On October 1, 1996, the Company commenced an operating lease for a
LC/MS/MS for utilization in its analytical laboratory. The terms of the lease
include an original instrument cost of $358,000, 36 monthly payments of
approximately $10,200 and an end-of-lease-term option to retain or return the
instrument. Lease expense for all operating leases, including leases with
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<PAGE>27
terms of less than one year, amounted to $168,000, $50,700 and $106,000 for the
years ended June 30, 1997, 1996 and 1995, respectively. The future expected
payout of leases with terms in excess of one year is as follows:
Year ending June 30,
-------------------
1998 $175,678
1999 166,352
2000 54,078
2001 7,925
2002 2,054
--------
$406,087
========
The Company has entered into capital lease arrangements for the purchase
of furniture and equipment in the amount of $289,990. The current and long-
term portions of the capital lease obligations are in accounts payable and
accrued expenses and other liabilities, respectively. The future expected
payout of these capital leases is as follows:
Year ending June 30,
-------------------
1998 $95,019
1999 29,695
2000 12,664
less: interest portion (13,388)
--------
$123,990
========
Legal Proceedings
On January 24, 1997, the Company was notified that it may have incurred
liability or may incur liability under Section 107(a) of the Comprehensive
Environmental Response, Compensation and Liability Act, as amended (CERCLA),
42 U.S.C. Section 9607(a), in connection with the RAMP industries Site in
Denver, Colorado. The Environmental Protection Agency (the "EPA") has
identified approximately 800 entities that shipped wastes to the site and is
conducting an investigation of the source, extent and nature of the release or
threatened release of hazardous substances, pollutants or contaminants, or
hazardous wastes, on or about the RAMP Industries Site. It is believed that
the Company may have disposed of 15 cubic feet, or two drums, of waste at this
site. Management is unable to estimate at this time the Company's portion of
such costs, but based on information available to date, management does not
believe that the resolution of this matter will be material to the Company's
financial position, results of operations, or cash flows.
H. CAPITAL STOCK AND STOCK PLANS
Preferred Stock
The Board of Directors is authorized to issue up to 1,500,000 shares of
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<PAGE>28
preferred stock at such time or times, in such series, with such designations,
preferences, or other special rights, as it may determine.
Stock Option Plans
The Company has stock option plans under which incentive and non-qualified
stock options may be granted to key employees. As of June 30, 1997, the plans
provide for the delivery of up to 2,569,900 shares of common stock upon
exercise of options granted at no less than the fair market value of the shares
on the date of grant. The options may be granted for terms up to but not
exceeding ten years and are generally fully vested after five years from the
date granted.
In November 1996, the Board of Directors elected to discontinue cash
compensation for its non-employee directors and to adopt a Non-Employee
Directors Stock Option Plan effective November 25, 1996. Each non-employee
director shall be granted options to purchase 120,000 shares of the Company's
Common Stock, at the fair market value of the stock on the effective date of
the grant, which shall vest in four equal installments of one-quarter over four
years. The first year's grant will be pro-rated for directors joining the
Board after the effective date. The first installment shall vest on the
effective date of the grant. Thereafter, on the date of each of the next three
annual meetings of stockholders at which elections to the Board are conducted,
an installment of 30,000 shares shall vest in each serving director who is
reelected to the Board. The Plan shall be administered by the Board or the
Compensation Committee established by the Board and provides that the number
of shares of Stock that may be issued pursuant to options granted under the
Plan shall not exceed in the aggregate 600,000 shares. As of June 30, 1997,
there were 352,500 options outstanding under this Plan. The Plan will be
submitted to stockholders for ratification at the next Annual Meeting of
Stockholders.
In addition to the options described above, the Company has granted Non-
qualified options to purchase 284,600 shares of the Company's Common Stock to
non-employees. The options were granted at fair market value of the stock on
the effective date of the grant and were considered vested on the effective
date of the grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" and has continued to account for its stock based compensation in
accordance with the provisions of APB No. 25. Accordingly, no compensation
cost has been recognized for the stock option plans. Had compensation cost for
the Company' stock option plans been determined based on the fair value at the
date of grant for awards in 1997 and 1996 consistent with the provisions of
SFAS No. 123, the Company's net earnings (loss) and earnings (loss) per share
would have been adjusted to the pro forma amounts indicated below:
1997 1996
--------- ---------
Net earnings (loss) - as reported ($109,513) $778,895
Net earnings (loss) - pro forma ($151,314) $768,078
Earnings (loss) per share - as reported ($0.01) $0.06
Earnings (loss) per share - pro forma ($0.01) $0.06
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<PAGE>29
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions for options granted in 1997 and 1996:
1997 1996
--------- ---------
Expected option life 5 years 5 years
Expected annual volatility 59.7% 78.6%
Risk-free interest rate 6.48% 6.12%
Dividend yield .00% .00%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferrable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Changes in the subjective input assumptions can materially affect
the fair value estimate, therefore, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value
of its stock options.
The status of stock options is summarized as follows:
Weighted
Average
Option Number Price Options
Price of Shares per Share Exercisable
-------------------------- --------- --------- -----------
Balance
June 30, 1994 ($0.28 - $5.25 per share) 988,467 $0.61 539,884
Granted ($0.44 - $0.7813 per share) 155,900 $0.51
Exercised - -
Forfeited ($0.625 - $1.0625 per share) (63,300) $0.70
---------
Balance
June 30, 1995 ($0.28 - $5.25 per share) 1,081,067 $0.59 792,660
Granted ($0.4375 - $0.50 per share) 281,700 $0.48
Exercised - -
Forfeited ($0.4375 - $1.50 per share) (172,700) $0.64
---------
Balance
June 30, 1996 ($0.28 - $5.25 per share) 1,190,067 $0.56 863,434
Granted ($0.36 - $0.5469 per share) 725,600 $0.47
Exercised - -
Forfeited ($0.315 - $2.00 per share) (311,992) $0.59
---------
Balance
June 30, 1997 ($0.28 - $5.25 per share) 1,603,675 $0.51 788,975
=========
The following table summarizes information about stock options outstanding
at June 30, 1997:
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<PAGE>30
Options outstanding Options exercisable
----------------------------------- -----------------------
Range Number Weighted Weighted Number Weighted
of outstanding average average exercisable average
exercise at remaining exercise at exercise
prices June 30, contractual price June 30, price
1997 life 1997
- ---------------------------------------------------- -----------------------
$ years $ $
0.28 - 1.00 1,527,775 6.9 0.47 715,325 0.47
1.01 - 5.25 75,900 4.9 1.44 73,650 1.45
- ---------------------------------------------------- -----------------------
0.28 - 5.25 1,603,675 6.8 0.51 788,975 0.56
Options exercised to date total 710,012. Of the options exercised to
date, 200,000 shares were returned to the Company and canceled when a note
receivable for common stock subscribed was canceled effective June 30, 1995.
As of June 30, 1997, the Company has reserved 1,603,675 shares of Common
Stock for future issuance under authorized options and grants.
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 directors and executive officers of the Company and their ages,
positions and years of service are as follows:
DIRECTORS
Name, Age, and Year
in which first
Elected a Director Business Experience
- --------------------- --------------------------------------------------------
Thomas F. Kearns, Jr. Retired from Bear Stearns, Inc. in 1987; Director of
60 (1995) Biomet, Inc., Fibrogen, Inc. and OnGard Systems,
Inc.; Trustee of the University of North Carolina
Foundation and Endowment Fund.
James K. Leslie President and Chief Executive Officer of PharmaKinetics
52 (1995) Laboratories, Inc., since July 1995; Executive Vice
President and Chief Operating Officer from June 1995
to July 1995; President and Chief Executive Officer
of BioFin, Inc., a start-up biotechnology company from
July 1993 to June 1995; President and Chief Executive
Officer of SICPA Industries of America from 1991 to
1992; and President and Chief Operating Officer of
Ecogen, Inc. from 1988 - 1990. Education - M.B.A.
(with distinction), Harvard Business School, Boston,
Massachusetts, 1969; B.SC., Chemical Engineering
(First Class Honors), University of Edinburgh,
Edinburgh, Scotland, 1967.
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<PAGE>31
Roger C. Thies Director of Hyman, Phelps and McNamara, P.C.
53 (1991) representing a broad range of clients on legal issues
concerning food, drug, medical devices, and cosmetic
law and legislation since 1988; Vice President and
General Counsel of G.D. Searle managing all of the
company's legal matters from 1986 to 1988.
Grover C. Wrenn Chairman and CEO of Better Health Network, Inc.,
54 (1997) a provider of consumer health information to physician
waiting rooms in more than 30 media markets since
1996. Previously, President and CEO of Ensys
Environmental Products, Inc. from 1995 to 1996 and
prior to that President and CEO of Applied Bioscience
International from 1990 to 1995. Director of
Strategic Diagnostics, Inc. and Laidlaw
Environmental Services.
The Board of Directors has an Audit Committee and a Compensation
Committee, each consisting of all directors who are not employees of the
Company. The Board of Directors does not have a Nominating Committee.
EXECUTIVE OFFICERS
Position with the Company Employed Officer
Name Age and principal occupation Since Since
- -------------------------- --- -------------------------- -------- -------
Christopher H. Hendy, Ph.D. 37 Vice President Clinical 1993 1993
Evaluation Services since (1)
December 1993; Director of
Clinical Research of
ICON Clinical Research from
February 1993 to December
1993; Managing Director of
Harris Labs Ltd from April
1991 to February 1993; and
Manager of European Project
Management of Otsuka
Pharmaceutical Co., Ltd from
April 1988 to April 1991.
Education - Ph.D.,
Neurophysiology, Imperial
College, University of London,
1987; B.SC.., Zoology, Imperial
College, University of London,
1982.
Taryn L. Kunkel 36 Vice President, Chief Financial 1990 1991
Officer and Treasurer since
February 1991; Controller from
November 1990 to February 1991;
and Director of Financial Analysis
from July 1990 to November 1990.
Education - M.A.S., Management,
Johns Hopkins University,
Baltimore, Maryland 1989; B.S.,
Accounting (Magna Cum Laude),
Loyola College, Baltimore,
Maryland 1983. C.P.A.
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</PAGE>
<PAGE>32
Elizabeth A. Lane, Ph.D. 52 Vice President Biopharmaceutics 1988 1992
and Regulatory Affairs since May
1992; Director of Pharmacokinetics
and Regulatory Affairs from
September 1988 to May 1992.
Education - Ph.D., Pharmaceutical
Sciences, University of Washington,
Seattle, Washington, 1981; B.S.
Pharmacy, University of Washington,
Seattle, Washington, 1973; B.Pharm.,
University of Sydney, Australia,
1965.
James K. Leslie 52 President and Chief Executive 1995 1995
Officer since July 1995;
Executive Vice President and
Chief Operating Officer
from June 1995 to July 1995;
President and Chief Executive
Officer of BioFin, Inc., a start
up biotechnology company from
July 1993 to June 1995; President
and Chief Executive Officer of
SICPA Industries of America from
1991 to 1992; and President and
Chief Operating Officer of Ecogen,
Inc. from 1988 - 1990. Education
- M.B.A. (with distinction),
Harvard Business School, Boston,
Massachusetts, 1969;
B.SC., Chemical Engineering (First
Class Honors), University of
Edinburgh, Edinburgh, Scotland,
1967.
Vernon D. Parker, Ph.D. 49 Vice President Clinical Services 1997 1997
since January 1997; Director, (2)
Clinical Pharmacology from 1995
to 1997 of Wyeth-Ayerst Research;
Associate Director, Clinical
Pharmacology from 1990 to 1995,
and Assistant Director,
Clinical Pharmacology from 1988
to 1990 also at Wyeth-Ayerst
Research. Education - Ph.D.,
Clinical Pharmacy with a minor
in pharmacology, Purdue
University School of Pharmacy,
West Lafayette, Indiana,
1983; M.S., Pharmacology and
Physiology, Tuskegee
University School of Veterinary
Medicine, Tuskegee, Alabama, 1976;
B.S. Pharm., Pharmacy with a minor
in chemistry, Florida A&M
University School of Pharmacy,
Tallahassee, Florida, 1970.
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</PAGE>
<PAGE>33
James M. Wilkinson II, Ph.D. 45 Vice President Analytical 1996 1996
Laboratory Services since
July 1996; Associate Director,
Pharmaco International, Inc.
Analytical Laboratory Division
from December 1992 to June 1996.
Education - Postdoctoral Associate,
University of Washington,
Seattle, Washington, 1979;
Ph.D., Organic Chemistry, Duke
University, Durham, North Carolina,
1978; B.S., Chemistry, Virginia
Military Institute, Lexington,
Virginia, 1974.
(1) Dr. Hendy resigned his position with the Company effective September 24,
1996.
(2) Dr. Parker joined the Company on January 3, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of copies of reporting forms received by it,
the Company believes that during the fiscal year ended June 30, 1997, all
applicable filing requirements were complied with, except that one report, a
Form 4, was filed late by Mrs. Kunkel.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The following table sets forth, for the Company's last three fiscal
years, the cash compensation paid or accrued by the Company, as well as certain
other compensation paid or accrued for those years, to its Chief Executive
Officer and other executive officers whose remuneration exceeded $100,000 for
the fiscal year ended June 30, 1997.
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</PAGE>
<PAGE>34
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------
Long-term All
Compensation Other
------------ -----
Other Securities All
Annual Underlying Other
Name and Fiscal Salary Bonus Comp. Options Comp.
Principal Position Year ($) ($) ($)(1) (#) ($)(2)
- ----------------------------- ------ ------- ------- ------- ------- -----
James K. Leslie (3) 1997 150,000 - 6,000 100,000 -
President, CEO 1996 124,000 87,043 6,000 100,000 -
and Director 1995 4,700 - 230 120,000 -
Christopher H. Hendy, Ph.D.(4) 1997 28,700 - 1,500 - -
Vice President 1996 102,000 32,226 6,000 - -
Clinical Evaluation Services 1995 102,000 - 6,000 10,000 -
Elizabeth A. Lane, Ph.D. 1997 100,000 - - - -
Vice President 1996 88,000 10,742 - - -
Biopharmaceutics and 1995 85,000 - 3,000 - -
Regulatory Affairs
Vernon D. Parker, Ph.D. (5) 1997 51,000 - 2,500 60,000 3,600
Vice President 1996 - - - - -
Clinical Evaluation Services 1995 - - - - -
James M. Wilkinson II, Ph.D. 1997 106,000 - 6,000 70,000 7,000
Vice President 1996 - - - - -
Analytical Laboratory Services 1995 - - - - -
(1) Other Annual Compensation includes personal benefits provided by the
Company.
(2) Other compensation includes amounts paid for relocation and related
expenses.
(3) Mr. Leslie joined the Company in June 1995.
(4) Dr. Hendy resigned from the Company effective September 24, 1996.
(5) Dr. Parker joined the Company on January 3, 1997. Dr. Parker's annual
salary for fiscal 1997 was $105,000, plus other compensation of $5,000.
SEVERANCE AGREEMENTS
The Company has severance agreements with Mr. Leslie and Mrs. Kunkel, Vice
President and Chief Financial Officer, respectively. The Agreements, which are
identical, provide for continuance of their respective annual base salaries
for a period of twelve (12) months from the date of termination if such
termination occurs at any time during a two (2) year period after a
"Significant Transaction" or a "Change of Board Composition", and is for
reasons other than "Just Cause", such terms being defined in the Agreements.
Upon termination, the Agreements also provide for accelerated vesting of all
stock options and the option to extend the exercise period of such options.
The Agreements were effective April 22, 1997. As of June 30, 1997, benefits
payable would be approximately $156,000 for Mr. Leslie and approximately
$90,500 for Mrs. Kunkel.
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<PAGE>35
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options under the Company's 1996 Incentive Stock Option Plan during fiscal 1997
to the executive officers named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
% of Total
Options
Options Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#)(1) Fiscal Year ($/share) Date
- ------------------------------------------------------------------------------
James K. Leslie 100,000 13.8% $0.469 7/01/06
Vernon D. Parker, Ph.D. 60,000 8.3% $0.4531 1/13/07
James M. Wilkinson II, Ph.D. 70,000 9.6% $0.469 7/01/06
(1) All options were granted under the 1996 Incentive Stock Option Plan. All
options vest over a four year period from the date of grant and all
options expire ten years from the date of grant, if not exercised
earlier.
The following table sets forth information related to the number and value
of options held by four of the Company's executive officers. No options were
exercised during the fiscal year ended June 30, 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Value of
Number of Unexercised
Shares Unexercised In-the-Money
Acquired ($) Options at Options at
in Value FY-End (#) FY-End ($)(1)
Name Exercise Realized Exer. Unexer. Exer. Unexer.
- -------------------------------------------------------------------------------
Elizabeth A. Lane, Ph.D. - - 75,000 - - -
James K. Leslie - - 85,000 235,000 - -
Vernon D. Parker, Ph.D. - - - 60,000 - -
James M. Wilkinson II, Ph.D. - - - 70,000 - -
(1) The exercise price of all options exceeded market value at June 30, 1997.
DIRECTOR COMPENSATION
Each member of the Board of Directors who is not an employee of the
Company, except one, received a monthly retainer of $1,366.66 and reimbursement
of expenses for attendance at meetings during the period July 1, 1996 through
November 30, 1996. One director opted to forego his monthly retainer for
personal reasons. Two of the directors serving the Company during this time
period did not stand for reelection to the Board of Directors at the Company's
Annual Meeting of Stockholders on November 25, 1996.
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</PAGE>
<PAGE>36
Subsequent to the Annual Meeting of Stockholders on November 25, 1996 the
Company instituted a stock option plan covering non-employee directors pursuant
to which each director shall be granted options to purchase 120,000 shares at
the fair market value of the Stock on the effective date of the grant, which
shall vest in four equal installments of 30,000 shares over four years. The
first year's installment shall vest on the effective date of the grant and
shall be prorated for directors joining the Board after the effective date of
November 25, 1996, but shall in no event be less than 15,000 shares.
Thereafter, on the date of each of the next three annual meetings of
stockholders at which elections to the Board are conducted, an installment of
30,000 shares shall vest in each serving director who is reelected to the
Board. The Plan shall be administered by the Board and provides that the
number of shares of Stock that may be issued pursuant to Options granted under
the Plan shall not exceed 600,000 shares. Currently there are options covering
352,500 shares outstanding under this Plan. Although the Plan, by its terms,
became effective on November 25, 1996, no options granted under this Plan may
be exercised unless and until the Plan has been approved by the vote of the
holders of a majority of the shares of Common Stock of the Company represented
in person or by proxy at the Company's next annual meeting of shareholders.
Each member of the Board of Directors who is not an employee of the
Company continues to receive reimbursement of expenses for attendance at
meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 2, 1997,
regarding stock ownership of management and owners of 5% or more of the
Company's Common Stock:
Beneficial Ownership
------------------------------------
Number of Percent of
Name & Address Shares Owned Shares Owned
- -------------- ------------ ------------
R.A. Mackie and Co., L.P. 173,593 1.4%
18 North Astor Street
Irvington, NY 10533
Robert A. Mackie, Jr. 898,383 7.4%
18 North Astor Street
Irvington, NY 10533
Allen and Company, Incorporated 843,155 6.9%
Allen Holding Inc.
711 Fifth Avenue
New York, NY 10022
Thomas F. Kearns 69,078 (1) (3)
Elizabeth A. Lane, Ph.D. 75,000 (1) (3)
James K. Leslie 245,000 (1)(2) 2.0%
Roger C. Thies 44,600 (1) (3)
James M. Wilkinson II, Ph.D. 17,500 (1) (3)
Grover C. Wrenn 22,500 (1) (3)
All directors and officers as a group 563,678 (1) 4.5%
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<PAGE>37
(1) Includes shares of stock which directors and officers have exercisable
rights to acquire as of or within 60 days of June 30, 1997, through the
exercise of options, in the amount of 30,000 shares for Mr. Kearns; 75,000
shares for Dr. Lane; 135,000 shares for Mr. Leslie; 44,600 shares for Mr.
Thies; 17,500 shares for Dr. Wilkinson; 22,500 shares for Mr. Wrenn;
and 414,600 shares for all directors and officers as a group.
(2) Of the total shares, 10,000 shares are held in the estate of Mary Hogan
Leslie for which Mr. Leslie is a beneficiary. Mr. Leslie serves as
executor of the estate.
(3) Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 20, 1996, Dr. Wilkinson executed a non-interest bearing
Promissory Note in favor of the Company in the amount of $20,000. Dr.
Wilkinson may earn the forgiveness of the principal balance of the note upon
successful completion of specific goals and objectives over a five year period.
None of the principal was forgiven for the fiscal year ended June 30, 1997.
This financial accommodation was made to Dr. Wilkinson in connection with
recruitment for his position.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page(s)
(a)1. FINANCIAL STATEMENTS
Report of Independent Accountants 16
Statements of operations for each of the three years 17
in the period ended June 30, 1997
Balance sheets at June 30, 1997 and 1996 18
Statements of stockholders' equity for each of the three 19
years in the period ended June 30, 1997
Statements of cash flows for each of the three years 20
in the period ended June 30, 1997
Notes to financial statements 21
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 39
3. EXHIBITS
See Exhibit Index 40
(b) REPORTS ON FORM 8-K
No reports of Form 8-K were filed during the
quarter ended June 30, 1997.
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<PAGE>38
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.
PHARMAKINETICS LABORATORIES, INC.
Date: September 29, 1997 By: /s/James K. Leslie
- ------------------------ ----------------------
James K. Leslie,
Chief Executive Officer
and President
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:
Date: September 29, 1997 /s/James K. Leslie
- ------------------------ ------------------
James K. Leslie,
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: September 29, 1997 /s/Taryn L. Kunkel
- ------------------------ ------------------
Taryn L. Kunkel,
Vice-President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Date: September 29, 1997 /s/Thomas F. Kearns
- ------------------------ -------------------
Thomas F. Kearns,
Director
Date: September 29, 1997 /s/Roger C. Thies
- ------------------------ -----------------
Roger C. Thies,
Director
Date: September 29, 1997 /s/Grover C. Wrenn
- ------------------------ ------------------
Grover C. Wrenn,
Director
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</PAGE>
<PAGE>39
PHARMAKINETICS LABORATORIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Column A Column B Column C Column D Column E
- --------------- ---------- ----------------------- ----------- ----------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expense Accounts Deductions of Period
- --------------- ---------- ---------- ----------- ----------- ----------
Valuation
Allowance
Deferred
Tax Assets
1997 $3,534,082 - $386,625 - $3,920,707
1996 $3,866,842 - ($332,760) - $3,534,082
1995 $4,341,980 - ($475,138) - $3,866,842
Notes:
(a) Represents charges to deferred tax asset account.
See Note F to Financial Statements.
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</PAGE>
<PAGE>40
EXHIBIT INDEX
Exhibit No.
2. Disclosure Statement (incorporated by reference to Exhibit 2 of the
Company's 8-K filing on April 6, 1993).
3.(a) Articles of Incorporation as amended (incorporated by reference to
Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993).
(b) Bylaws, as amended (incorporated by reference to Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1989).
10. Material Contracts
(a) PharmaKinetics Laboratories, Inc. Incentive Stock Option Plan
(incorporated by reference to Registration Statement on Form S-8, No.
33-51840).
(b) PharmaKinetics Laboratories, Inc. 1996 Incentive Stock Option Plan
(incorporated by reference to Registration Statement on Form S-8,
No. 333-19865).
(c) PharmaKinetics Laboratories, Inc. Non-qualified Employee Stock Option
Plan (incorporated by reference to Registration Statement on Form S-8,
No. 33-51838).
(d) PharmaKinetics Laboratories, Inc. 1996 Non-Employee Director's Stock
Option Plan (filed herewith).
(e) Severance Agreement, dated April 15, 1997, between the Company and
James K. Leslie (filed herewith).
(f) Severance Agreement, dated April 15, 1997, between the Company and
Taryn L. Kunkel (filed herewith).
(g) Promissory Note, dated September 20, 1996, from James M. Wilkinson II,
Ph.D. in favor of the Company (filed herewith).
(h) Loan documents dated May 13, 1993, between Maryland National Bank (now,
NationsBank, N.A.) and PharmaKinetics Laboratories, Inc. (incorporated
by reference to Exhibit 10(d) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1993).
(i) Amended and Restated Insurance Agreement
(ii) Partnership/Joint Venture Borrowing Authority
(iii) Unconditional Guaranty of Payment
(iv) Security Agreement
(v) Commercial Promissory Note
(vi) Collateral Pledge Agreement
(vii) Note
(viii) Indemnity Deed of Trust
(ix) Indemnity Deed of Trust
(x) Financing Statement
(xi) Loan Agreement
(i) First Amendment to Loan Agreement, dated May 11, 1995, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc. (incorporated
by reference to Exhibit 10(e) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995).
(j) First Commercial Promissory Note Modification Agreement dated May 11,
1995, between NationsBank, N.A. and PharmaKinetics Laboratories, Inc.
(incorporated by reference to Exhibit 10(f) to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995).
-40-
</PAGE>
<PAGE>41
(k) First Note Modification Agreement dated May 11, 1995, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc. (incorporated
by reference to Exhibit 10(g) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1995).
(l) Second Amendment to Loan Agreement, dated June 20, 1996, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc. (incorporated
by reference to Exhibit 10(h) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996).
(m) Second Commercial Promissory Note Modification Agreement, dated
November 30, 1996, between NationsBank, N.A. and PharmaKinetics
Laboratories, Inc. (filed herewith).
(n) Third Amendment to Loan Agreement, dated November 30, 1996, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc. (filed
herewith).
(o) Second Note Modification Agreement dated August 1, 1997, between
NationsBank N.A. and PharmaKinetics Laboratories, Inc. (filed
herewith).
(p) Fourth Amendment to Loan Agreement, dated August 1, 1997, between
NationsBank, N.A. and PharmaKinetics Laboratories, Inc. (filed
herewith).
11. Computations of net earnings per common share (filed herewith).
21. List of subsidiaries of registrant (incorporated by reference to Exhibit
10(g) to the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995).
23. Consent of Independent Accountants (filed herewith).
27. Financial Data Schedule (filed herewith).
99. (a) Court Order approving Debtor's Amended Plan of reorganization
(incorporated by reference to the Company's 8-K filing on April 6,
1993).
(b) Court Order approving Application for Final Decree (incorporated by
reference to Exhibit 99 (b) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996).
-41-
</PAGE>
<PAGE>1
EXHIBIT 10(d)
MATERIAL CONTRACTS
PHARMAKINETICS LABORATORIES, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
PHARMAKINETICS LABORATORIES, INC. (the "Corporation") sets
forth herein the terms of this 1996 Non-Employee Directors Stock
Option Plan (the "Plan") as follows:
1. Purpose.
The Board of Directors (the "Board") believes that the
success of the Corporation depends in part on its ability to
attract and retain directors with relevant beneficial experience
who are motivated to exert their best efforts on behalf of the
Corporation. The Board believes that a program that permits the
grant of stock options to Non-Employee Directors, as defined
below in this Section, promotes the long-term financial success
of the Corporation by further aligning the interests of the Non-
Employee Directors with the interests of the Corporation and its
stockholders. The Plan is intended to promote the interests of
the Corporation by providing Non-Employee Directors with a
program to acquire or increase a proprietary interest in the
Corporation. Each stock option granted under the Plan (an
"Option") is intended to be granted to directors of the
Corporation who are not officers or other salaried employees of
the Corporation or any "subsidiary corporation" (a "Subsidiary")
thereof within the meaning of Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code") (the "Non-Employee
Directors" or "Optionees").
2. Administration.
(a) Administration. The Plan shall be administered by the
Board or the Compensation Committee established by the Board (the
"Committee"), if the Board duly resolves to delegate
administration to the Committee which shall have full power and
authority to take all actions, and to make all determinations
required or provided for under the Plan or any Option granted or
Option Agreement (as defined in Section 7 below) entered into
hereunder and all such actions and determinations not
inconsistent with the specific terms and provisions of the Plan
deemed by the Board or Committee to be necessary or appropriate
to the administration of the Plan or any Option granted or Option
Agreement entered into hereunder. The interpretation and
construction by the Board or Committee of any provision of the
-1-
</PAGE>
<PAGE>2
Plan or of any Option granted or Option Agreement entered into
hereunder shall be final and conclusive. The Board or Committee
shall cause a copy of this Plan to be delivered to each
participant in the Plan.
(b) No Liability. No member of the Board or of the
Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted or
Option Agreement entered into hereunder.
(c) Delegation to the Committee. In the event that the Plan
or any Option granted or Option Agreement entered into hereunder
provides for any action to be taken by or determination to be
made by the Board, such action may be taken by or such
determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the
Board as provided for in Section 2(a) above. Unless otherwise
expressly determined by the Board, any such action or
determination by the Committee shall be final and conclusive.
3. Stock
The stock that may be issued pursuant to Options granted
under the Plan shall be shares of Common Stock, par value $.001
per share, of the Corporation (the "Stock"), which shares may be
authorized but unissued shares or shares that may be purchased by
the Corporation in the open market or in private transactions.
The number of shares of Stock that may be issued pursuant to
Options granted under the Plan shall not exceed in the aggregate
600,000 shares, which number of shares is subject to adjustment
as hereinafter provided in Section 16 below. If any Option
expires, terminates, or is terminated or canceled for any reason
prior to exercise in full, the shares of Stock that were subject
to the unexercised portion of such Option shall be available for
future Options granted under the Plan.
4. Eligibility.
Only those directors of the Company who are Non-Employee
Directors of the Corporation and who are not holders, directly or
indirectly, of ten percent (10%) or more of the combined voting
power of the Corporation are eligible to participate in the Plan.
5. Effective Date and Term of the Plan.
(a) Effective Date. The Plan shall be effective as of
November 25, 1996 (the "Effective Date"), the date of the
adoption by the Board.
-2-
</PAGE>
<PAGE>3
(b) Term. The Plan shall terminate on the 10th anniversary
of the Effective Date.
6. Grant of Options.
(a) Non-Employee Directors Serving on the Effective Date.
Each Non-Employee Director who is serving on the Board on the
Effective Date ("Serving Director"), shall be granted on the
Effective Date options to purchase One Hundred and Twenty
Thousand (120,000) shares of the Stock (the "Grant") which shall
vest in four equal installments of one-quarter (1/4) over four
(4) years. The first installment shall vest on the Effective
Date of the Grant. Thereafter, on the date of each of the next
three (3) annual meetings of stockholders at which elections to
the Board are conducted (each, an "Annual Meeting"), an
installment of one-quarter (1/4) of the Grant shall vest in each
Serving Director who is re-elected to the Board.
(b) Non-Employee Directors Elected or Appointed After the
Effective Date. Each Non-Employee Director who is elected or
appointed to the Board after the Effective Date ("Subsequent
Director") shall be granted on the date of his or her election or
appointment an option to purchase One Hundred and Twenty Thousand
(120,000) shares of the Stock (adjusted, if applicable, as
provided in subparagraph (ii) below) which shall vest in four
installments as follows:
(i) if the Subsequent Director is elected on the date of
an Annual Meeting, one-quarter (1/4) of the Grant shall vest on
the date of the Subsequent Director's election to the Board.
Thereafter, on the date of each of the next three (3) Annual
Meetings at which elections to the Board are conducted, an
installment of one-quarter (1/4) of the Grant shall vest in each
Subsequent Director who is reelected to the Board; and
(ii) if the Subsequent Director is appointed on a date
other than the date of an Annual Meeting, then the first
installment of the Grant shall be prorated to equal an amount
equal to the product of 30,000 times a fraction, the numerator of
which shall be the number of calendar months during which the
Subsequent Director will serve on the Board prior to the next
succeeding Annual Meeting and the denominator of which shall be
the number twelve (12). Notwithstanding this formula, in no case
shall the first installment be less than fifteen thousand
(15,000) shares and the amount of such installment shall be
rounded to the nearest whole share. Thereafter, on the date of
each of the next three (3) Annual Meetings an installment of
one-quarter (1/4) of the Grant shall vest in each Subsequent
Director who is reelected to the Board.
-3-
</PAGE>
<PAGE>4
7. Option Agreements
All Options granted pursuant to the Plan shall be evidenced
by written agreements ("Option Agreements"), to be executed by
the Corporation and by the Optionee, in such form or forms as the
Board or Committee shall from time to time determine. Option
Agreements covering Options granted from time to time or at the
same time need not contain similar provisions; provided, however,
that all such Option Agreements shall comply will all terms of
the Plan.
8. Option Price.
The purchase price of each share of the Stock subject to an
Option (the "Option Price") shall be fixed by the Board or
Committee and stated in each Option Agreement, and shall be equal
to 100% of the fair market value of the Stock which is deemed to
be the mean of the bid and asked prices as determined by over-
he-counter trading on the date the Option is granted pursuant to
the terms and conditions of Section 6 herein, or, if no sale of
the Stock has been made on such day, on the next preceding day on
which any such sale has been made.
9. Term and Exercise Options.
(a) Term. Each Option granted under the Plan shall
terminate, and all rights to purchase shares thereunder shall
cease, upon the expiration of ten (10) years from the date such
Option is granted, unless otherwise provided in this Plan.
(b) Option Period and Limitations on Exercise. Except as
otherwise provided in an Option Agreement, each Option granted be
exercised in whole or in part any time after the date of vesting
provided, however, that a period of six months must elapse
between the date of grant of an Option and the date of
disposition of the Stock purchased upon the exercise of such
Option. Notwithstanding the foregoing, the Board or Committee,
subject to the terms and conditions of the Plan, may in is sole
discretion provide other time periods during which an Option may
be exercised in whole or in part while such Option is
outstanding. Any limitation on the exercise of an Option may be
rescinded, modified or waived by the Board or Committee, in its
sole discretion, at any time and from time to time after the date
of grant of such Option, so as to accelerate the time at which
the Option my be exercised.
(c) Method of Exercise. An Option that is exercisable
hereunder may be exercised by delivery to the Corporation on any
business day, at its principal office, address to the attention
-4-
</PAGE>
<PAGE>5
of the Board, of written notice of exercise, which notice shall
specify the number of shares with respect to which the Option is
being exercised. The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part,
at any time shall be the lesser of 100 shares or the maximum
number of shares available for purchase under the Option at the
time of exercise. Payment of the Option Price for the shares of
Stock purchased pursuant to the exercise of an Option shall be
made (i) in cash or in cash equivalents; (ii) through the tender
to the Corporation of shares of Stock, which shares be valued,
for purposes of determining the extent to which the Option Price
has been paid thereby, at their fair market value (determined in
the manner described in Section 8 above) on the date of exercise;
(iii) through the tender to the Corporation of Options, to the
extent of the difference between the Option Price and the fair
market value of the shares of Stock subject to such Option
(determined in the manner described in Section 8 above) on the
exercise date; or (iv) by combination of the methods described in
(i), (ii) and (iii) above. Payment in full of the Option Price
need not accompany the written notice of exercise provided the
notice of exercise directs that the Stock certificate or
certificates for the shares for which the Option is exercised be
delivered to a licensed broker applicable to the Corporation as
the agent for the individual exercising the Option and, at the
time such Stock certificate or certificates are delivered, the
broker tenders to the Corporation cash (or cash equivalents
acceptable to the Corporation) equal to the Option Price for the
shares of Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and/or the taxes which the
Corporation may, in its judgement, be required to withhold with
respect to the exercise of the Option. An attempt to exercise
any Option granted hereunder other than as set forth above shall
be invalid and of no force and effect. Promptly after the
exercise of an Option and the payment in full of the Option Price
of the shares of Stock covered thereby, the individual exercising
the Option shall be entitled to the issuance of a stock
certificate or certificates evidencing his ownership of such
shares; provided however, that the Corporation shall have the
right to withhold and deduct from the number of shares of Stock
deliverable upon exercise of an Option, a number of shares having
an aggregate fair market value (determined in the manner
described in Section 8 above) equal to the amount of any taxes
and other charges the Corporation or any Subsidiary is obligated
to withhold or deduct from amounts payable to such individual.
An individual holding or exercising an Option shall have none of
the rights of a shareholder until the shares of Stock covered
thereby are fully paid and issued to him and, except as provided
in Section 16 below, no adjustment shall be made for dividends or
-5-
</PAGE>
<PAGE>6
other rights, if any, for which the record date is prior to the
date of such issuance.
10. Transferability of Options.
During the lifetime of an Optionee to whom an Option is
granted, only such Optionee (or, in the event of legal incapacity
or incompetency, the Optionee's guardian or legal representative)
may exercise the Option. No Option shall be assignable or
transferable by the Optionee to whom it is granted, other than by
will or the laws of the descent and distribution.
11. Termination of Service or Employment.
Any Option granted to a Non-Employee Director shall
terminate upon the expiration of ninety (90) days following the
date on which the Non-Employee Director ceases to be a member of
the Board other than because of death or "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code)
of such Optionee. All Options that have not vested on the date
the Non-Employee Director ceases to be a member of the Board
other than by death or permanent and total disability shall
expire immediately upon said date.
12. Rights in the Event of Death or Disability.
Any Option granted to a Non-Employee Director shall
terminate upon the expiration of one year following the date on
which a Non-Employee Director ceases to be a member of the Board
by reason of death or "permanent and total disability" as defined
above or, if earlier, upon the expiration of ten years following
grant of the Option.
13. Use of Proceeds.
The proceeds received by the Corporation from the sale of
Stock pursuant to Options granted under the Plan shall constitute
general funds of the Corporation.
14. Requirements of Law.
(a) Violations of Law. The Corporation shall not be
required to sell or issue any shares of Stock under any Option if
the sale or issuance of such shares would constitute a violation
by the individual exercising the Option or the Corporation of any
provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws
or regulations. Specifically in connection with Securities Act
of 1933 (as now in effect with respect to the shares of any
-6-
</PAGE>
<PAGE>7
Option, unless a registration statement under such Act is in
effect with respect to the shares of Stock covered by such
Option), the Corporation shall not be required to sell or issue
such shares unless the Corporation has received evidence
satisfactory to it that the holder of such Option may acquire
such shares pursuant to an exemption from registration under such
Act, and the shares of Stock to be issued upon the exercise of
all or any potion of any Option granted under the Plan shall be
issued on the exercise of all or any portion of any Option
granted under the Plan shall be issued on the condition that the
Optionee represents that the purchase of Stock upon such exercise
shall be for investment purposes and not with a view to resale,
distribution, offering, transferring, mortgaging, pledging,
hypothecating or otherwise disposing of any such Stock under the
circumstances which would constitute a public offering or
distribution under the Securities Act of 1993 or the securities
of any state. No shares of Stock shall be issued upon the
exercise of any Option unless the Corporation shall have received
from the Optionee a written statement satisfactory to legal
counsel for the Corporation containing the above representations,
stating that certificates representing such shares may bear a
legend restricting their transfer and stating that the
Corporation's transfer agent or agents may be given instructions
to stop transfer of any certificate bearing such legend. Such
representation and restrictions provided for herein shall not be
required if (i) an effective registration statement for such
shares under the Securities Act of 1933 and any applicable state
laws has been filed with the Securities and Exchange Commission
and with the appropriate agency or commission of any state whose
laws apply to the transaction, or (ii) an opinion of counsel
satisfactory to the Corporation has been delivered to the
Corporation to the effect that registration is not required under
the Securities Act of 1933 or under the applicable securities
laws of any state. Any determination by the Board or Committee
regarding the foregoing shall be final, binding, and conclusive.
The Corporation shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the
issuance of shares pursuant thereto to comply with any law or
regulation or any governmental authority.
(b) Restriction on Transfer of Stock. The certificate or
certificates for Stock issued upon the exercise of an Option
shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
PURSUANT TO AN INVESTMENT REPRESENTATION ON THE PART OF THE
HOLDER THEREOF AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED,
DONATED, OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
-7-
</PAGE>
<PAGE>8
CONSIDERATION EXCEPT UPON THE ISSUANCE TO THE ISSUER OF A
FAVORABLE OPINION OF ITS COUNSEL AND/OR THE SATISFACTORY TO
COUNSEL TO THE ISSUER, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL
NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS.
15. Amendment and Termination of the Plan.
The Board may, at any time and from time to time, amend,
suspend or terminate the Plan as to any shares of Stock as to
which Options have not been granted. Except as permitted under
Section 16 hereof, no amendment, suspension or termination of the
Plan shall, without the consent of the holder of the Option,
alter or impair rights or obligations under any Option
theretofore granted under the Plan.
16. Effect of Changes in Capitalization.
(a) Changes in Stock. If the outstanding shares of Stock
are increased or decreased or changed into or exchanged for a
different number or kind or shares or other securities of the
Corporation by reason of any recapitalization, reclassification,
stock split-up, combination of shares, exchange of shares, stock
divided or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of
consideration by the Corporation, occurring after the effective
date of the Plan, the number and kinds of shares for the purchase
of which Options may be granted under the Plan shall be adjusted
proportionately and accordingly by the Corporation. In addition,
the number and kind of shares for which Options are outstanding
shall be adjusted proportionately and accordingly so that the
proportionate interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the
same as immediately prior to such event. Any such adjustment in
outstanding Options shall not change the aggregate Option Price
payable with respect to shares subject to the unexercised portion
in the Option outstanding but shall include a corresponding
proportionate adjustment in the Option Price per share.
(b) Reorganization in which the Corporation is the Surviving
Corporation. Subject to Subsection (d) hereof, if the
Corporation shall be surviving corporation in any reorganization,
merger, share exchange or consolidation of the Corporation with
one or more other corporations, any Option theretofore granted
pursuant to the Plan shall pertain to and apply to the securities
to which a holder of the number of shares of Stock subject to
such Option would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that
-8-
</PAGE>
<PAGE>9
the aggregate Option Price thereafter shall be the same as the
aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or
consolidation.
(c) Reorganization in which the Corporation is not the
Surviving Corporation or Sale of Assets or Stock. In the event
of the commencement of a tender offer (other than by the
Corporation) for any shares of the Corporation or a sale or
transfer, in one or a series of transactions, of assets having a
fair marker value of 50% or more of the fair market value of all
assets of the Corporation, or a merger, consolidation or share
exchange pursuant to which shares of the Corporation may be
exchanged for or converted into cash, property or securities of
another issuer, or the liquidation of the Corporation (an
"Extraordinary Event"), then regardless of whether or not any
Option granted pursuant to the Plan shall have vested or become
fully exercisable, all Options granted pursuant to the Plan shall
immediately vest and become fully exercisable for the full number
of shares subject to any such Option on and at all times after
the "Event Date" of the Extraordinary Event.
(i) The "Event Date" is the date of the commencement of
the tender offer, if the Extraordinary Event is a tender offer,
and in the case of any other Extraordinary Event, the day
preceding the date as of which shareholders of record become
entitled to the consideration payable in respect or such
Extraordinary Event.
(ii) In the case of an Extraordinary Event other then a
tender offer, the exercise of an Option pursuant to this Section
prior to the Event Date shall be effective on and as of the Event
Date. Upon the exercise of an Option upon the occurrence of an
Extraordinary Event, the Corporation shall issue, on and as of
the effective date of such exercise, all shares with respect to
which Option shall have been exercised.
(iii) In the event of the exercise pursuant to this
Section of any Option the Option Price for which shall not have
been fixed as of the Event Date, the Option Price in respect of
such Option shall be equal to the average fair market value
(determined in the manner described in Section 8 above) for the
30 days preceding the announcement or other publication of the
Extraordinary Event.
(iv) In the event that an Optionee fails to exercise his
or her Option, in whole or in part, pursuant to this Section upon
an Extraordinary Event, the Corporation shall take such action as
-9-
</PAGE>
<PAGE>10
may be necessary to enable each Optionee to receive upon any
subsequent exercise of his or her Option, in whole or in part, in
lieu of shares of the Corporation, securities or other assets as
were issuable or payable upon such Extraordinary Event in respect
of, or in exchange for, such shares.
(d) Adjustments. Adjustments under this Section 16 related
to stock or securities of the Corporation shall be made by the
Board or Committee, whose determination in that respect shall be
final, binding, and conclusive. No fractional shares of Stock or
units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment
shall be eliminated in each case by rounding downward to the
nearest whole share or unit.
(e) No Limitations on Corporation. The grant of an Option
pursuant to the Plan shall not affect or limit in any way the
right or power of the Corporation to make adjustments,
reclassification, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or
liquidate, or sell or transfer all or any part of its business or
assets.
17. Disclaimer of Rights
No provision in the Plan or in any Option granted or Option
Agreement entered into pursuant to the Plan shall be construed to
confer upon any individual the right to remain in the service of
the Corporation or any Subsidiary, or to interfere in any way
with the right and authority of the Corporation or any Subsidiary
either to increase or decrease the compensation of any individual
at any time, or to terminate any employment or other relationship
between any individual and the Corporation or any Subsidiary.
18. Non-Exclusivity of the Plan.
The adoption of the Plan shall not be construed as creating
any limitation upon the right and authority of the Board to adopt
such other incentive compensation arrangements (which
arrangements may be applicable either generally to a class or
classes of individuals or specifically to a particular individual
or individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock
options otherwise than under the Plan.
19. Governing Law.
This Plan shall be construed and governed under the laws of
the State of Maryland.
-10-
</PAGE>
EXHIBIT 11
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (1)
<CAPTION>
For the Twelve Months Ended June 30,
-----------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted
average
shares
outstanding:
Common
stock 12,195,891 12,195,891 12,195,891 12,195,891 12,395,891 12,395,891
Shares
available
under
options - - 123,755 147,626 202,211 202,211
---------- ---------- ---------- ---------- ---------- ----------
Weighted
average
common and
common
equivalent
shares
outstanding12,195,891 12,195,891 12,319,646 12,343,517 12,598,102 12,598,102
========== ========== ========== ========== ========== ==========
Net
earnings
(loss) ($109,513) ($109,513) $778,895 $778,895 $127,827 $127,827
========== ========== ========== ========== ========== ==========
Net
earnings
(loss)
per share ($0.01) ($0.01) $0.06 $0.06 $0.01 $0.01
========== ========== ========== ========== ========== ==========
(1) Fully diluted earnings per share are not presented on the Company's
Statement of Operations due to fully diluted earnings per share not having
a difference from primary earnings per share of greater than 3% for the
years ended June 30, 1997, 1996 and 1995.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 556,040
<SECURITIES> 0
<RECEIVABLES> 1,014,538
<ALLOWANCES> 0
<INVENTORY> 503,163
<CURRENT-ASSETS> 2,264,084
<PP&E> 5,541,203
<DEPRECIATION> 1,887,071
<TOTAL-ASSETS> 5,958,732
<CURRENT-LIABILITIES> 1,981,546
<BONDS> 0
<COMMON> 12,196
0
0
<OTHER-SE> 2,426,045
<TOTAL-LIABILITY-AND-EQUITY> 5,958,732
<SALES> 9,597,536
<TOTAL-REVENUES> 9,633,753
<CGS> 7,053,560
<TOTAL-COSTS> 9,557,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,817
<INCOME-PRETAX> (109,513)
<INCOME-TAX> 0
<INCOME-CONTINUING> (109,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109,513)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
<PAGE>1
EXHIBIT 10 (e)
MATERIAL CONTRACTS
SEVERANCE AGREEMENT BETWEEN THE COMPANY AND JAMES K. LESLIE
April 15, 1997
Mr. James K. Leslie
112 Grafton Street
Chevy Chase, MD 20815
Dear Jim:
PharmaKinetics Laboratories, Inc. (the Company) is pleased to
provide to you this severance agreement in consideration of the
services you render to the Company from and after the date of
this Agreement, which the Board of Directors believes are
important to the future growth and prosperity of the Company.
The terms of the agreement follow:
If you are terminated other than for "Just Cause" -
hereinafter defined - at any time during a two (2) year period
after a "Significant Transaction" or a "Change of Board
Composition" - each, hereinafter defined - you will be entitled
to a continuance of your annual base salary for twelve (12)
months from the date of termination. You will also be granted
immediate and accelerated vesting of all stock options (ISOs,
NQSOs, and performance shares). In the event you wish to defer
the exercise of these options beyond the statutory three (3)
month period you will have the ability at your sole discretion to
extend the exercise period for no more than thirty-six (36)
months from the date of termination. It is mutually agreed and
understood that the consequences of an extension beyond the three
(3) month period carries ramifications regarding the tax
treatment of the option and the status of the stock provided to
you upon exercise (i.e. if the exercise takes place beyond the
three (3) month period the options are no longer ISOs, the stock
may be unregistered and its sale may be subject to restrictions).
Nothing in this Agreement shall be deemed to alter the "at will"
nature of your employment by the Company.
"Just Cause" to be defined as a good faith determination by
the Company's Board of personal dishonesty, breach of fiduciary
duty involving personal profit, willful failure to perform stated
duties, willful violation of any law rule or regulation (other
than traffic violation or similar offenses).
-1-
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<PAGE>2
A "Significant Transaction" is defined as any of: (a) the
sale of a block of stock representing greater than 50% or more of
the combined voting power of the Company's then outstanding
securities; (b) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer; and (c) upon the
approval by the Company's shareholders of (i) a merger with or
into another corporation, (ii) a sale or disposition of all or
substantially all of the Company's assets or (iii) a plan of
liquidation or dissolution of the Company.
"Change of Board Composition" means any change in the
composition of the Board of Directors of the Company in
connection with any transaction in which stock of the Company is
sold by the Company, such that a majority of the non-employee
directors of the Company at the time of the stock sale
transaction no longer constitute a majority.
I am pleased we have been able to work this out to everyone's
satisfaction. If the foregoing is acceptable to you, please sign
below and return this agreement to me.
Sincerely,
/s/ Roger C. Thies
- ------------------
Roger C. Thies
Chairman
Compensation Committee
cc: Thomas F. Kearns
Grover C. Wrenn
Accepted and agreed this 22nd day of April 1997.
/s/James K. Leslie
- ------------------
James K. Leslie
-2-
</PAGE>
<PAGE>1
EXHIBIT 10 (f)
MATERIAL CONTRACTS
SEVERANCE AGREEMENT BETWEEN THE COMPANY AND TARYN L. KUNKEL
April 15, 1997
Mrs. Taryn L. Kunkel
109 West Lake Avenue
Baltimore, Maryland 21210
Dear Taryn:
PharmaKinetics Laboratories, Inc. is pleased to provide to you
this severance agreement in consideration of the services you
render to the Company from and after the date of this Agreement,
which the Board of Directors believes are important to the future
growth and prosperity of the Company.
The terms of the agreement follow:
If you are terminated other than for "Just Cause" -
hereinafter defined - at any time during a two (2) year period
after a "Significant Transaction" or a "Change of Board
Composition" - each, hereinafter defined - you will be entitled
to a continuance of your annual base salary for twelve (12)
months from the date of termination. You will also be granted
immediate and accelerated vesting of all stock options (ISOs,
NQSOs, and performance shares). In the event you wish to defer
the exercise of these options beyond the statutory three (3)
month period you will have the ability at your sole discretion to
extend the exercise period for no more than thirty-six (36)
months from the date of termination. It is mutually agreed and
understood that the consequences of an extension beyond the three
(3) month period carries ramifications regarding the tax
treatment of the option and the status of the stock provided to
you upon exercise (i.e. if the exercise takes place beyond the
three (3) month period the options are no longer ISOs, the stock
may be unregistered and its sale may be subject to restrictions).
Nothing in this agreement shall be deemed to alter the "at will"
nature of your employment by the Company.
"Just Cause" to be defined as a good faith determination by
the Company's Board of personal dishonesty, breach of fiduciary
duty involving personal profit, willful failure to perform stated
duties, willful violation of any law rule or regulation (other
than traffic violation or similar offenses).
-1-
</PAGE>
<PAGE>2
"Significant Transaction" is defined as any of: (a) the
sale of a block of stock representing greater than 50% or more of
the combined voting power of the Company's then outstanding
securities; (b) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer; and (c) upon the
approval by the Company's shareholders of (i) a merger with or
into another corporation, (ii) a sale or disposition of all or
substantially all of the Company's assets or (iii) a plan of
liquidation or dissolution of the Company.
"Change of Board Composition" means any change in the
composition of the Board of Directors of the Company in
connection with any transaction in which stock of the Company is
sold by the Company, such that a majority of the non-employee
directors of the Company at the time of the stock sale
transaction no longer constitute a majority.
I am pleased we have been able to work this out to everyone's
satisfaction. If the foregoing is acceptable to you, please sign
below and return this agreement to me.
Sincerely,
/s/ Roger C. Thies
- ------------------
Roger C. Thies
Chairman
Compensation Committee
cc: Thomas F. Kearns
Grover C. Wrenn
Accepted and agreed this 22nd day of April 1997.
/s/ Taryn L. Kunkel
- -------------------
Taryn L. Kunkel
-2-
</PAGE>
<PAGE>1
EXHIBIT 10(g)
MATERIAL CONTRACTS
PROMISSORY NOTE FROM JAMES M. WILKINSON, II
Promissory Note
Twenty Thousand and 0/00 dollars
Dated: September 20, 1996
FOR VALUE RECEIVED, the undersigned, James M. Wilkinson, II,
Ph.D. (the "Maker") promises to pay to the order of
PHARMAKINETICS LABORATORIES, INC., a Maryland corporation ("PK"),
in lawful money of the United States of America, the principal
sum of TWENTY THOUSAND AND 0/00 ($20,000.00) DOLLARS according to
the payment schedule set forth below.
The aggregate principal amount of this Note outstanding shall be
non-interest bearing. The principal amount of this note may be
forgiven over a period of five years, in equal annual amounts of
$4,000, upon successful completion of specific goals and
objectives identified by the Chief Executive Officer and
communicated to and agreed upon by the Maker at the outset of
each of the five consecutive fiscal years beginning July 1, 1996.
Amounts forgiven by PK for the benefit of Maker will become
taxable income to Maker on the date of forgiveness. In the event
that Maker voluntarily ceases to be employed by PK prior to June
30, 2001, Maker agrees to pay any and all outstanding amounts
within (30) days of the last day of employment with PK. In the
event that Maker is involuntarily terminated, for reasons other
than misconduct in the performance of Maker's duties as an
Officer of PK, all remaining principal amounts will be forgiven
and will become taxable income to Maker on such date. In the
event of a change in controlling ownership of PK all remaining
principal amounts will be forgiven and will then become taxable
income to Maker on such date.
Maker waives presentment for payment, demand, notice of non-
payment, notice of protest, and protest of this Note, and all
other notices in connection with delivery, acceptance,
performance, default, dishonor, or enforcement of the payment of
this Note. Maker shall pay all costs of collection of this Note,
including reasonable attorneys' fees. All rights and remedies
given by this Note, are cumulative and not exclusive of any
thereof or of any other rights or remedies available to PK, and
no course of dealing between Maker and PK, or any delay or
omission in exercising any right or remedy shall operate as a
waiver of any right or remedy, and every right and remedy may be
-1-
</PAGE>
<PAGE>2
exercised from time to time and as often as shall be deemed
appropriate by PK.
This note shall be governed, interpreted, and enforceable in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, the undersigned has executed this Note on the
first above written.
/s/Sheila Hook /s/James M. Wilkinson, II(SEAL)
- -------------- -------------------------
Sheila Hook James M. Wilkinson, II Ph.D.
-2-
</PAGE>
<PAGE>1
EXHIBIT 10(m)
MATERIAL CONTRACTS
SECOND COMMERCIAL PROMISSORY NOTE MODIFICATION AGREEMENT
THIS SECOND COMMERCIAL PROMISSORY NOTE MODIFICATION
AGREEMENT is made this 30th day of November, 1996, by and
between PHARMAKINETICS LABORATORIES, INC., a corporation
organized under the laws of the State of Maryland (the
"Borrower") and NATIONSBANK, N.A., formerly known as NATIONSBANK
OF MARYLAND, N.A., successor by merger to MARYLAND NATIONAL
BANK, a national banking association (the "Lender").
WHEREAS, by that certain Commercial Promissory Note dated
May 13, 1993 (as amended, modified, restated, substituted,
extended and renewed at any time and from time to time, the
"Note") the Borrower became indebted to the Lender in an amount
not to exceed $500,000 (the "Revolving Credit Committed Amount")
under a revolving line of credit made by the Lender to the
Borrower pursuant to that certain Loan Agreement dated May 13,
1993 (as amended, modified, substituted, extended, and renewed
from time to time, the "Loan Agreement"); and
WHEREAS, the Note matures on the date hereof and the
Borrower and the Lender wish to provide for the extension of the
Note's maturity as herein set forth.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
That in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Lender and the Borrower covenant and
agree as follows:
1. The Borrower acknowledges that the present principal
balance of the Note is due and owing, subject to the terms of
repayment hereinafter set forth, without defense, recoupment,
counterclaim or offset.
2. The borrower and Lender agree that the maturity date in
the Note is hereby changed from November 30, 1996 to November 30,
1997.
3. The terms, provisions and covenants of the Note are in
all other respects hereby ratified and confirmed and remain in
full force and effect.
-1-
</PAGE>
<PAGE>2
4. It is expressly agreed that the indebtedness evidenced by
the Note has not extinguished or discharged hereby. The Borrower
and the Lender agree that the execution of this Agreement is not
intended to and shall not cause or result in a novation with
regard to the Note.
WITNESS the signatures and seals of the Borrower and the
Lender the day and year first above written.
WITNESS OR ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/ Taryn L. Kunkel By:/s/ James K. Leslie (SEAL)
- ------------------- -----------------------
James K. Leslie
President and
Chief Operating Officer
WITNESS: NATIONSBANK, N.A.
/s/ Taryn L. Kunkel By:/s/ James W. Kirschner (SEAL)
- ------------------- --------------------------
James W. Kirschner
Vice President
GUARANTOR ACKNOWLEDGEMENT AND AGREEMENT
The undersigned respectively guaranteed to the Lender all of the
Obligations (as defined in the Loan Agreement), including without
limitation, the per annum rate of interest (as defined in the
annexed Second Commercial Promissory Note Modification Agreement)
and hereby covenants and agrees with the Lender that the
execution of the foregoing Second Commercial Promissory Note
Modification Agreement of even date herewith and the transactions
described therein and contemplated thereby do not and shall not
in any manner affect its obligations and liabilities under its
guaranty dated May 13, 1993 (the "Guaranty"), and that the
Guaranty is hereby ratified and confirmed and remains in full
force and effect.
Dated effective as of this 30th day of November, 1996.
WITNESS: PKLB Limited Partnership
By: PharmaKinetics Laboratories, Inc.
General Partner
/s/ Taryn L. Kunkel By:/s/ James K. Leslie (SEAL)
- ------------------- -----------------------
James K. Leslie
President and
Chief Operating Officer
-2-
</PAGE>
<PAGE>1
EXHIBIT 10(n)
MATERIAL CONTRACTS
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Agreement") is
made as of the 30th day of November, 1996, by PHARMAKINETICS
LABORATORIES, INC., a corporation organized and existing under
the laws of the State of Maryland (the "Obligor"), and
NATIONSBANK, N.A., a national banking association (formerly known
as NationsBank of Virginia, N.A." and successor by merger to
NationsBank, N.A., which was formerly known as "NationsBank of
Maryland N.A." and successor by merger to Maryland National Bank
(the "Bank")).
RECITALS
A. The Obligor and the Bank entered into a Loan Agreement
dated May 13, 1993 (the same, as amended, modified, substituted,
extended, and renewed from time to time, the "Loan Agreement").
The Loan Agreement provides for some of the agreements between
the Obligor and the Bank with respect to the "Loans" (as defined
in the Loan Agreement), including revolving credit facility in an
amount not to exceed $500,000 and term facilities in an original
principal amount of $2,400,000.
B. The Obligor has requested that the Bank amend the
interest rates under the Loans and amend certain other conditions
and covenants under the Loan Agreement.
C. The Bank is willing to agree to the Obligor's request on
the condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, receipt of which is hereby
acknowledged, the Obligor and the Bank agree as follows:
1. The Obligor and the Bank agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined
in this Agreement, terms defined in the Loan Agreement shall have
the same meaning under this Agreement.
2. The Obligor and the Bank agree that on the date hereof
the aggregate outstanding principal balance under the Revolving
Credit Note (subject to change for returned items and other
adjustments made in the ordinary course of business) is $0.
-1-
</PAGE>
<PAGE>2
3. The Loan Agreement is hereby amended as follows:
(a) The section "The Revolving Loan" (which section
was added in the First Amendment) is hereby amended by changing
the Revolving Credit Termination Date from "November 30, 1996" to
November 30, 1997.
(b) The section "Deposits" (which section was added
in the First Amendment) is hereby amended by changing the amount
from "$100,000" to "$200,000."
4. The Obligor hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Loan
Agreement, as amended hereby. The Obligor agrees that this
Agreement is not intended to and shall not cause a novation with
respect to any or all of the Obligations.
5. The Obligor acknowledges and warrants that the Bank has
acted in good faith and has conducted in a commercially
reasonable manner its relationships with the Obligor in
connection with this Agreement and generally in connection with
the Loan Agreement and the Obligations, the Obligor hereby
waiving and releasing any claims to the contrary.
6. This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate
originals or counterparts shall be deemed to be an original and
all taken together shall constitute but one and the same
instrument. The Obligor agrees that the Bank may rely on a
telecopy of any signature of any Obligor. The Bank agrees that
the Obligor may rely on a telecopy of this Agreement executed by
the Bank.
IN WITNESS WHEREOF, the Obligor and the Bank have executed this
Agreement under seal as of the date and year first written above.
ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/ Taryn L. Kunkel By:/s/ James K. Leslie (SEAL)
- ------------------- -----------------------
James K. Leslie
President and
Chief Executive Officer
WITNESS: NATIONSBANK, N.A.
/s/ Taryn L. Kunkel By:/s/ James W. Kirschner (SEAL)
- ------------------- ---------------------------
Name: James W. Kirschner
Title: Vice President
-2-
</PAGE>
<PAGE>3
AGREEMENT OF GUARANTOR
The undersigned is the "Guarantor" under a Guaranty of
Payment Agreement, dated May 13, 1993 (as amended, modified,
substituted, extended and renewed from time to time, the
"Guaranty"), in favor of the foregoing Bank. In order to induce
the Bank to enter into the foregoing Agreement, the undersigned
(a) consents to the transactions contemplated by, and agreements
made by the Obligor under, the foregoing Agreement, and (b)
ratifies, confirms and reissues the terms, conditions, promises,
covenants, grants, assignments, security agreements, agreements,
representations, warranties and provisions contained in the
Guaranty. Without limiting the foregoing, the undersigned
acknowledges and agrees that the Obligations (defined in the Loan
Agreement) include, without limitation, the amendments described
in the foregoing Agreement and that the Obligations are covered
by the Guaranty.
WITNESS signature and seal of the undersigned as of the date
of the Agreement.
ATTEST: PKLB LIMITED PARTNERSHIP
By: PharmaKinetics
Laboratories, Inc.,
General Partner
/s/ Taryn L. Kunkel By:/s/ James K. Leslie (SEAL)
- ------------------- ----------------------
James K. Leslie
President and
Chief Executive Officer
-3-
</PAGE>
<PAGE>1
EXHIBIT 10(o)
MATERIAL CONTRACTS
SECOND NOTE MODIFICATION AGREEMENT
THIS SECOND NOTE MODIFICATION AGREEMENT is made as of the
1st day of August, 1997, by and between PHARMAKINETICS
LABORATORIES, INC., a corporation organized under the laws of the
State of Maryland (the "Borrower") and NATIONSBANK, N.A.
(formerly known as "NationsBank, N.A. (Carolinas)" and successor
by merger to NationsBank, N.A., which was formerly known as
"NationsBank of Virginia, N.A.," NationsBank of Virginia, N.A.
being the successor by merger to NationsBank, N.A. which was
formerly known as "NationsBank of Maryland N.A." and was the
successor by merger to Maryland National Bank), a national
banking association (the "Lender").
WHEREAS, by that certain Note dated May 13, 1993 (as
modified by First Note Modification Agreement dated May 11, 1995
and (as amended, modified, restated, substituted, extended and
renewed at any time and from time to time, the "Note") the
Borrower became indebted to the Lender in an amount not to exceed
$2,400,000 (the "Term Loan Amount") under a line of credit made
by the Lender to the Borrower pursuant to that certain Loan
Agreement dated May 13, 1993 (as amended, modified, substituted,
extended, and renewed from time to time, the "Loan Agreement");
and
WHEREAS, the Lender and Borrower have agreed to amend the
per annum rate of interest as hereinafter more fully set forth.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
That in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Lender and the Borrower covenant and
agree as follows:
1. The Borrower acknowledges that the present principal
balance of the Note is $1,682,753.57 (as of August 15, 1997) and
is due and owing, subject to the terms of repayment hereinafter
set forth, without defense, recoupment, counterclaim or offset.
2. The Note is hereby amended at the section headed
"Interest Rate" by increasing the rate of interest under that
section from the Bank's Prime Rate (as that term is defined in
the Note) plus one-half percent (1/2%) to the Bank's Prime Rate
plus three-quarters percent (3/4%). The Prime Rate does not
necessarily represent the lowest rate of interest charged by the
-1-
</PAGE>
<PAGE>2
Bank to borrowers.
3. The terms, provisions and covenants of the Note are in
all other respects hereby ratified and confirmed and remain in
full force and effect.
4. It is expressly agreed that the indebtedness evidenced by
the Note has not been extinguished or discharged hereby. The
Borrower and the Lender agree that the execution of this
Agreement is not intended to and shall not cause or result in a
novation with regard to the Note.
WITNESS the signatures and seals of the Borrower and the
Lender the day and year first above written.
WITNESS OR ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/ Taryn L. Kunkel By: /s/ James K. Leslie (SEAL)
- ------------------- -----------------------
James K. Leslie
President and
Chief Executive Officer
WITNESS: NATIONSBANK, N.A.
/s/ Katherine Bush By:/s/ James W. Kirschner (SEAL)
- ------------------- -------------------------
James W. Kirschner
Vice President
GUARANTOR ACKNOWLEDGEMENT AND AGREEMENT
The undersigned guaranteed to the Lender all of the
Obligations (as defined in the Loan Agreement), including without
limitation, the per annum rate of interest (as defined in the
annexed First Note Modification Agreement) and hereby covenants
and agrees with the Lender that the execution of the foregoing
First Note Modification Agreement of even date herewith and the
transactions described therein and contemplated thereby do not
and shall not in any manner affect its obligations and
liabilities under its respective guaranty dated May 13, 1993,
(the "Guaranty"), and that the Guaranty is hereby ratified and
confirmed and remains in full force and effect.
Dated effective as of August 1, 1997.
WITNESS: PKLB LIMITED PARTNERSHIP
By: PharmaKinetics Laboratories, Inc.
General Partner
/s/ Taryn L. Kunkel By: /s/ James K. Leslie (SEAL)
- ------------------- ----------------------
James K. Leslie
President and
Chief Executive Officer
-2-
</PAGE>
<PAGE>1
EXHIBIT 10(p)
MATERIAL CONTRACTS
FOURTH AMENDMENT TO LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Agreement")
is made as of the 1st day of August, 1997, by PHARMAKINETICS
LABORATORIES, INC., a corporation organized and existing under
the laws of the State of Maryland (the "Obligor"), and
NATIONSBANK, N.A., a national banking association (formerly known
as "NationsBank, N.A. (Carolinas)" and successor by merger to
NationsBank, N.A., which was formerly know as "NationsBank of
Virginia, N.A.," NationsBank of Virginia, N.A., being the
successor by merger to NationsBank, N.A., which was formerly
known as "NationsBank of Maryland N.A." and was the successor by
merger to Maryland National Bank) (the"Bank").
RECITALS
A. The Obligor and the Bank entered into a Loan Agreement
dated May 13, 1993 (the same, as modified by First Amendment to
Loan Agreement dated May 11, 1995, by Second Amendment to Loan
Agreement dated July 31, 1996, and by Third Amendment to Loan
Agreement dated November 30, 1996, and as amended, modified,
substituted, extended, and renewed from time to time, the "Loan
Agreement"). The Loan Agreement provides for some of the
agreements between the Obligor and the Bank with respect to the
"Loans" (as defined in the Loan Agreement), including revolving
credit facility in an amount not to exceed $500,000 and term
facilities in an original principal amount of $2,400,000.
B. The Obligor has requested that the Bank waive compliance
with the Obligor's Cash Flow Coverage ratio for the period ended
June 30, 1997.
C. The Bank is willing to agree to the Obligor's request on
the condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, receipt of which is hereby
acknowledged, the Obligor and the Bank agree as follows:
1. The Obligor and the Bank agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined
in this Agreement, terms defined in the Loan Agreement shall have
the same meaning under this Agreement.
-1-
</PAGE>
<PAGE>2
2. The Obligor and the Bank agree that on the date hereof
the aggregate outstanding principal balance under the Revolving
Credit Note (subject to change for returned items and other
adjustments made in the ordinary course of business) is $0. The
Obligor agrees that the Bank shall not be obligated to make any
further advances under the Revolving Credit Note unless all
obligations with respect thereto are fully secured by a
perfected, unavoidable, first lien pledge of cash deposits held
by the Bank.
3. It is a condition of the Bank's agreements under this
Agreement and under the Second Note Modification dated the same
date as this Agreement (the "Second Term Note Modification")
between the Bank and the Obligor that the Maryland Industrial
Development Financing Authority (the "Authority") in writing:
(a) consent to the execution the execution and delivery
of this Second Amendment to Term Note and this Agreement; and
(b) acknowledge that, with respect to the Amended and
Restated Insurance Agreement dated May 13, 1993 (as modified by
Modification to Amended and Restated Insurance Agreement dated
July 17, 1995, and amended, modified, restated, substituted,
extended and renewed at any time and from time to time, the
"Insurance Agreement") between the Authority and the Bank, (i)
there is no Authority's Insurance Premium (as that term is
defined in the Insurance Agreement) required under the Insurance
Agreement, (ii) the Authority shall refund the Authority's
Insurance Premium paid by the Bank in 1997 upon the Authority's
receipt of satisfactory proof of such payment, and (iii) if there
is any Authority's Insurance Premium in the future such payment
shall be due from the Obligor alone and not the Bank.
4. On the condition that the Obligor shall have complied
with the terms and conditions of Paragraph 3 of this Agreement,
the Lender hereby waives compliance with the Obligor's Cash Flow
Coverage ratio for the period ended June 30, 1997; provided,
however that this Paragraph shall not be deemed to waive any
defaults under that ratio after the date of this Agreement or
after the period stated, or any other defaults arising out of
non-compliance by the Obligor with the Loan Agreement or any
other agreement, whether or not the events, facts or
circumstances giving rise to such non-compliance existed on or
prior to the date hereof.
5. The Obligor hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Loan
Agreement, as amended hereby. The Obligor agrees that this
Agreement is not intended to and shall not cause a novation with
respect to any or all of the Obligations.
-2-
</PAGE>
<PAGE>3
6. The Obligor acknowledges and warrants that the Bank has
acted in good faith and has conducted in a commercially
reasonable manner in its relationships with the Obligor in
connection with this Agreement and generally in connection with
the Loan Agreement and the Obligations, the Obligor hereby
waiving and releasing any claims to the contrary.
7. This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate
originals or counterparts shall be deemed to be an original and
all taken together shall constitute but one and the same
instrument. The Obligor agrees that the Bank may rely on a
telecopy of any signature of any Obligor. The Bank agrees that
the Obligor may rely on a telecopy of this Agreement executed by
the Bank.
IN WITNESS WHEREOF, the Obligor and the Bank have executed
this Agreement under seal as of the date and year first written
above.
WITNESS OR ATTEST: PHARMAKINETICS LABORATORIES, INC.
/s/ Taryn L. Kunkel By:/s/ James K. Leslie (SEAL)
- ------------------- ----------------------
James K. Leslie
President and
Chief Executive Officer
WITNESS: NATIONSBANK, N.A.
/s/ Katherine Bush By: /s/ James W. Kirschner (SEAL)
- ------------------- --------------------------
James W. Kirschner
Vice President
AGREEMENT OF GUARANTOR
The undersigned is the "Guarantor" under a Guaranty of
Payment Agreement, dated May 13, 1993 (as amended, modified,
substituted, extended and renewed from time to time, the
"Guaranty"), in favor of the foregoing Bank. In order to induce
the Bank to enter into the foregoing Agreement, the undersigned
(a) consents to the transactions contemplated by, and agreements
made by the Obligor under, the foregoing Agreement, and (b)
ratifies, confirms and reissues the terms, conditions, promises,
covenants, grants, assignments, security agreements, agreements,
representations, warranties and provisions contained in the
Guaranty. Without limiting the foregoing, the undersigned
acknowledges and agrees that the Obligations (defined in the Loan
Agreement) include, without limitation, the amendments described
-3-
</PAGE>
<PAGE>4
in the foregoing Agreement and that the Obligations are covered
by the Guaranty.
WITNESS signature and seal of the undersigned as of the date of
the Agreement.
WITNESS: PKLB LIMITED PARTNERSHIP
By: PharmaKinetics Laboratories, Inc.
General Partner
/s/ Taryn L. Kunkel By: /s/ James K. Leslie (SEAL)
- ------------------- -----------------------
James K. Leslie
President and
Chief Executive Officer
-4-
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EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
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We consent to the incorporation by reference in the registration
statement of PharmaKinetics Laboratories, Inc. on Form S-8 (File No.
333-19865) of our report, dated August 14, 1997, on our audits of the
financial statements and financial statement schedule of PharmaKinetics
Laboratories, Inc. as of June 30, 1997 and 1996, and for each of the
three years ended in the period ended June 30, 1997, which report is
included in this Annual Report on Form 10-K.
Baltimore, Maryland
September 29, 1997
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