<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 0-12992
SYNTHETECH, INC.
(Name of small business issuer in its charter)
84-0845771
Oregon
(State or other jurisdiction (I.R.S. Employer Identification
No.)
of incorporation or organization)
1290 Industrial Way, Albany, 97321
Oregon
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number: 541/967-6575
Securities registered pursuant to None
Section 12(b) of the Act:
Securities registered pursuant to
Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
(Title of class)
Check whether issuer (1) filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $8,472,000
As of May 30, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $68,776,654 based upon $8.50 per share (the
average of the closing bid and asked prices reported for such date on Nasdaq).
The number of the shares of the Company's Common Stock outstanding on May 30,
1996 was 13,510,736.
Transitional Small Business Disclosure Format (check one): YES NO X
<PAGE>
PART I
ITEM 1. BUSINESS
Synthetech, Inc., an Oregon corporation (the "Company" or "Synthetech"),
produces Peptide Building Blocks and other fine chemicals using a combination
of organic chemistry and biocatalysis.
PRODUCT OVERVIEW
Peptide Building Blocks. Peptides are short chains of generally less than 50
amino acids and are used primarily in pharmaceuticals. The production of
peptides requires amino acids which have been chemically modified to enable
them to more easily link with other amino acids in a particular sequence to
form the desired peptide. The Company refers to these chemically modified
amino acids as "Peptide Building Blocks" or "PBBs." The amino acids which
are transformed into PBBs may be either natural amino acids (that is, amino
acids which occur in nature) or synthetic amino acids (that is, amino acids
which have a side chain that does not occur in nature).
Synthetech chemically modifies natural amino acids (which it purchases from
multiple suppliers) to produce PBBs. The Company also manufactures synthetic
amino acids, and chemically modifies these synthetic amino acids to produce
PBBs.
The Company has developed and scaled up process technology to produce a wide
range of PBB products at the multi-kilogram to multi-ton scale.
The Company currently offers over 300 different PBB products. For the fiscal
years ended March 31, 1996, 1995, and 1994, the Company's sales of PBBs
represented 99% ($8,412,000), 89% ($4,759,000) and 82% ($3,292,000),
respectively, of the Company's total revenues. For the fiscal years ended
March 31, 1996, 1995 and 1994, sales to overseas customers accounted for
approximately 21%, 19% and 16%, respectively, of the Company's total
revenues. These sales were principally to Europe and Japan.
Other Fine Chemicals. The Company also produces other fine chemical
compounds. These compounds include grignard reagents and other fine
chemicals conforming to the customer's confidential specifications. These
chemicals are generally used by customers for their own internal product
development. However, with the growth in PBB sales, the Company no longer
actively markets grignard and other fine chemical products. These sales have
declined to a nominal level in fiscal 1996. For the fiscal years ended March
31, 1996, 1995 and 1994, the Company's sales of other fine chemicals
represented 1% ($60,000), 10% ($513,000) and 18% ($742,000), respectively, of
the Company's total revenues.
_____________________
The Company continues to produce most bulk orders on an as-ordered basis,
although it does carry an inventory of over 250 PBB products. At May 31,
1996, the dollar amount of backlog orders which the Company believed to be
firm was approximately $5.5 million (May 31, 1995 backlog was $2.6 million).
The May 31, 1996 backlog includes a single order for $2 million, portions of
which are subject to certain cancellation provisions. The Company expects to
fill all backlog orders within the current fiscal year.
In January 1990, the Company entered into supply and technology agreements
with Biomeasure Incorporated, a Boston area biotechnology company and a
subsidiary of Groupe Pharmaceutique Beaufour-Ipsen of France with several
synthetic peptide products under development. Under the supply agreement,
the Company has agreed to supply all of Biomeasure's requirements for a
particular synthetic PBB. This agreement continues from year to year unless
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terminated in writing by one of the parties. The Company and Biomeasure are
also parties to a license agreement giving Biomeasure the option to receive a
license to produce for its own use the PBB which is the subject of the supply
agreement between the parties and Biomeasure must pay certain royalty amounts
based on the amount so produced.
MARKET OVERVIEW
The market for peptide building blocks is driven by the market for the
peptides in which they are incorporated. The size of this market is a
function of the number of peptides which are initially screened for use in
pharmaceuticals, the number of these pharmaceuticals which progress down the
path toward registration and, ultimately, the number which are found to be
therapeutically useful. The size of the market is also a function of the
quantities and varieties of peptide building blocks necessary to produce
these pharmaceuticals. Based on an analysis of fiscal 1996 PBB sales and
information to the extent available from customers, the Company estimates
that approximately 12% of the Company's PBB sales went into marketed or
"approved" drugs, approximately 80% went into drugs in clinical or late pre-
clinical trials and approximately 8% went into drugs at the R&D or discovery
stage of development.
MARKETING
The Company markets its products through attendance at trade shows, listings
in biotechnology and chemical industry directories, advertisements in
chemical trade periodicals and by contacting pharmaceutical and other
companies which it believes might have a need for its products. The Company
also uses one independent sales representative on the East Coast.
CUSTOMERS
Although the Company has over 200 customers, the Company expects that a few
customers will continue to account for a significant portion of revenues each
year. During fiscal 1996, the Company had four customers which accounted for
51% of the Company's revenues and two of those customers accounted for 23%
and 11%, respectively, of the Company's revenues.
COMPETITION
Because peptide-based pharmaceuticals are relatively new, the market in the
past for peptide building blocks has been quite small -- with most sales in
the multi-kilo or smaller size. As a result, the peptide building block
market has not attracted a significant amount of direct competition. As the
market continues to grow with multi-ton order sizes becoming more prevalent,
the Company has begun to see more competition.
Current competition in multi-kilo or smaller quantities of natural amino acid
based peptide building blocks comes primarily from several European fine
chemical companies. Multi-ton order sizes of these natural PBBs have begun to
attract a wider group of domestic and international chemical companies. In
the area of synthetic amino acid based peptide building blocks, the
Company has competition on a selective product basis from fine chemical
producers in Europe and Japan. Competition also increases for supplying
PBBs for drug development programs that reach late clinical trials and move
into approved status as a result of the increased quantities typically
required at these stages and pharmaceutical company requirements
to have second sources of material available. The Company's competitors
have technical, financial, selling and other resources available to them
which are significantly greater than those available to the Company.
The principal methods of competition in the market for peptide building
blocks and other fine chemicals are quality, customer service and price. The
Company believes that it competes effectively in each of these areas. The
Company also believes that its production of a wide range of products gives
it a competitive advantage in the marketplace. In addition, the Company
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believes that most pharmaceutical companies view internal production of
peptide building blocks as a misallocation of resources and, given a reliable
source of a quality product, would rather obtain them from an outside
supplier.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts have focused principally on
process technology improvements. During the fiscal years ended March 31,
1996, 1995 and 1994, the Company's research and development expenses were
$217,000, $169,000 and $144,000, respectively.
EMPLOYEES
As of May 31, 1996, the Company employed thirty-three individuals, two of
whom were part-time.
REGULATORY MATTERS
As the Company's products are intermediates sold to final producers, the
Company has been generally unaffected by FDA regulation which is directed at
final products sold to the public. The Company's customers do, however,
typically impose inspection and quality assurance programs on the Company.
These programs involve materials handling, recordkeeping and other
requirements. As some customers have begun to request the Company to provide
additional processing steps, these programs often include more extensive
requirements. The Company anticipates that the expenses of complying with
such programs will increase in the future.
The Company's business is also subject to substantial regulation in the areas
of safety, environmental release and hazardous waste disposal. As additional
and more extensive regulations are being added in these areas at the federal,
state and local levels, the compliance costs will inevitably continue to
increase. The operation of chemical manufacturing plants entails the
inherent risk of environmental damage or personal injury due to the handling
of potentially harmful substances, and there can be no assurance that
material costs and liabilities will not be incurred in the future because of
an accident or other event resulting in personal injury or an unauthorized
release of such substances to the environment. Also, the Company generates
hazardous and other wastes which are disposed of at various off-site
facilities. The Company may be liable, irrespective of fault, for material
cleanup costs or other liabilities incurred at these disposal facilities due
to releases of such substances into the environment.
The Company maintains property damage and liability insurance. In connection
with an overall review of its risk management program, the Company has also
obtained environmental risk insurance but does not have product liability
insurance.
COMPANY BACKGROUND
The Company was formed in 1981 to develop novel chemical process technology
by combining classical organic chemistry with enzyme-based biocatalysis. For
the first several years, it operated mainly as a research and development
group focused on the production of pharmaceuticals and other fine chemicals.
After its initial public offering in 1984, the Company's research efforts
were concentrated on the development of a proprietary process for aspartame
and L-phenylalanine. Although the Company had entered into one license for
this technology, the Company does not expect additional licensing revenue.
Throughout its development during the 1980s, the Company also offered
contract research services. These research services were typically provided
to pharmaceutical clients and generally involved the development of
biocatalytic processes (that is, chemical processes which are affected by the
use of enzymes or microorganisms). Since the end of fiscal 1990, the Company
has phased out contract research services and does not anticipate receiving
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any significant revenue from research services in the future. By the end of
the 1980s, the Company, building on it prior experience, began to focus on
the production of PBBs and other fine chemicals.
ITEM 2. PROPERTIES
Synthetech's headquarters and production facility is located in Albany,
Oregon. The Company purchased this facility in 1987. This approximately
23,000 square foot facility includes production, pilot plant, laboratory,
warehouse and office space.
The Company also is constructing an additional 20,000 square foot, two-story
production facility at its Albany, Oregon location. The new plant will
substantially increase the Company's capacity to produce PBBs and other
pharmaceutical intermediaries. This facility will have six bays, of which
two will be outfitted immediately with manufacturing equipment and four will
be available for future expansion. The Company estimates that the cost of
the building shell plus the equipment to be used in the first two bays will
be approximately $6 million and will be completed in the Spring of 1997.
Although the Company expects to finance the majority of its capital
improvements from working capital, it is also exploring the possible use of
bank debt and other outside funding sources for a portion of the cost.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded over-the-counter and is listed in the
National Association of Securities Dealers Automated Quotation System
(Nasdaq) under the symbol "NZYM." The following table sets forth the range of
high and low bid quotations for the Common Stock for the two most recent
fiscal years, as reported by Nasdaq. These quotations reflect inter-dealer
prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions. In May 1996, the Company applied for
inclusion of the Company's Common Stock in the Nasdaq National Market.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year Ended March 31,
1996 1995
High Low High Low
First Quarter $3.06 $2.06 $2.63 $2.00
Second Quarter 4.75 3.03 2.56 2.00
Third Quarter 5.25 3.81 2.16 1.69
Fourth Quarter 5.88 4.06 2.19 1.69
</TABLE>
The number of record holders of Common Stock as of May 21, 1996 was
approximately 765.
No dividends on the Company's Common Stock have been paid since inception and
the Company does not anticipate that dividends will be paid in the
foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
revenues represented by each item included in the Statements of Income.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percentage of Revenues
Fiscal Year Ended March 31,
1996 1995 1994
Revenues 100.0% 100.0% 100.0%
Cost of Sales 43.5 48.5 48.5
Gross Profit 56.5 51.5 51.5
Research and Development 2.6 3.2 3.6
Selling, General and 9.8 14.4 16.6
Administrative
Operating Income 44.1 33.9 31.3
Other Income 3.4 1.3 1.6
Interest Expense - 0.5 0.9
Income Before Income Taxes 47.5 34.7 32.0
Provision for Income Taxes 17.1 8.3 3.2
Net Income 30.4 26.4 28.8
</TABLE>
Revenues
Synthetech revenues were $8.47 million, $5.36 million and $4.03 million in
fiscal 1996, 1995 and 1994, respectively. This reflects a 58% increase in
revenues from fiscal 1995 to fiscal 1996 and a 33% increase in revenues from
fiscal 1994 to fiscal 1995. The growth in revenues during the past two years
has been attributable to increased product sales reflecting continued market
development of the product lines of Peptide Building Blocks (PBBs). As a
result of new products and increased volume of existing products, sales of
PBBs, the Company's primary product line, were $8.41 million in fiscal 1996,
up 77% over fiscal 1995 and $4.76 million in fiscal 1995, up 45% over fiscal
1994 revenues of $3.29 million.
In fiscal 1996, based on an analysis of the Company's sales and information
to the extent available from customers, the Company estimates that
approximately 12% of the Company's PBB sales went into marketed or "approved"
drugs, approximately 80% went into drugs in clinical or late pre-clinical
trials and approximately 8% went into drugs at the R&D or discovery stage.
In both fiscal 1995 and fiscal 1994, the Company estimates that approximately
one-sixth of the Company's PBB sales went into marketed or "approved" drugs,
approximately two-thirds went into drugs in clinical or late pre-clinical
trials, and approximately one-sixth went into drugs at the R&D discovery
stage. Accordingly, revenues in fiscal 1996, as compared to the prior two
years, increased substantially in the clinical or late pre-clinical trial
phases, increased moderately for approved drugs, and were relatively stable
for R&D.
Revenues for fiscal 1996 included sales associated with one PBB order of
$1.97 million being used in late stage clinical trials by a pharmaceutical
company compared to revenues of $47,000 for that PBB in fiscal 1995. Sales
of this magnitude relative to the Company's aggregate revenues demonstrate
the continuing potential for fluctuations in revenues from period to period.
The Company has not yet established a stable baseload of demand for its
products. The Company's products are part of a new and emerging market with
sizable fluctuations in orders between periods. In most instances, order or
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reorder cycles for products are not predictable. Demand for PBBs is
extremely variable since individual clinical trial programs are always
subject to significant risk of suspension or early cancellation and only a
small percentage of drugs in clinical trial programs are ultimately approved
for market use. As a result, the Company expects to continue to see
fluctuations in its revenues from period to period. See "Industry Factors."
Sales of grignard reagents and other fine chemicals were $60,000 in fiscal
1996 compared to $513,000 in fiscal 1995 and $742,000 in fiscal 1994. With
the growth of PBB sales, the Company no longer actively markets grignard and
other fine chemical products.
Gross Profit
Gross profit was $4.79 million, $2.76 million and $2.08 million in fiscal
1996, 1995 and 1994, respectively. This reflects a 74% increase in gross
profit from fiscal 1995 to fiscal 1996 and a 33% increase in gross profit
from fiscal 1994 to fiscal 1995. As a percent of sales, gross profits were
56.5%, 51.5% and 51.5% in fiscal 1996, 1995 and 1994, respectively.
Increased revenues positively affect gross profit margins since a portion of
the Company's manufacturing overhead costs are relatively fixed. The mix of
products sold during any period can also significantly affect gross profit
margins either positively or negatively. The increase in the gross profit
margins for fiscal 1996 over fiscal 1995 resulted from the increased level of
revenues combined with the mix of products. Although in fiscal 1995 and
fiscal 1994, gross profit as a percentage of sales was flat, the quarter to
quarter percentages ranged from 44% to 60%, illustrating the impact of
revenues and product mix. Similarly, the quarter to quarter percentages
during fiscal 1996 ranged from 49% to 66%. The Company expects revenues and
product mix to continue to fluctuate from period to period and cause
variation in gross profit margins.
Operating Expenses
Research and development ("R&D") expense increased to $217,000 or 2.6% of
sales in 1996 from $169,000 or 3.2% of sales in 1995. R&D expense was
$144,000 or 3.6% in fiscal 1994. The increase in R&D expense since fiscal
1994 primarily reflects the October 1994 hiring of an additional technical
employee in the R&D area.
Selling, general and administrative ("SG&A") expense was $833,000, $774,000
and $671,000 in fiscal 1996, 1995 and 1994, respectively. SG&A expense in
fiscal 1996 and fiscal 1995 were relatively stable with the modest increase
in fiscal 1996 resulting from a one-time property assessment which the
Company expensed and slight increases in other expenses resulting from the
significant increase in sales. The increase in SG&A in fiscal 1995 from
fiscal 1994 principally reflected base salary and bonus increases. As a
percentage of sales, SG&A, however, has consistently decreased. SG&A as a
percentage of sales was 9.8%,14.4% and 16.6% for fiscal 1996, 1995 and 1994,
respectively.
Operating Income
Operating income was $3.74 million in fiscal 1996, $1.82 million in fiscal
1995 and $1.26 million in fiscal 1994. In fiscal 1996 labor costs increased
21%, roughly half of such increase was attributable to salary increases and
the remainder resulted from an increase in employee hiring beginning in the
second half of fiscal 1995. As a percentage of revenues, operating income
increased to 44.1% in fiscal 1996 compared to 33.9% in fiscal 1995 and
31.3% in fiscal 1994. The increase in operating margin reflected the
ability of the Company to significantly increase its revenues and
product volume without corresponding increases in operating costs.
Other Income
The $285,000 net other income in fiscal 1996 primarily resulted from $242,000
of interest earnings and $43,000 of recognized gain on the sale of securities
available for sale. The $70,000 net other income in fiscal 1995 primarily
included $162,000 of interest earnings, reduced by $38,000 in realized losses
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from the sale of marketable trading securities, and a $56,000 write down of
the Company's holdings of marketable trading securities. In January 1995,
the Company discontinued its active trading policy with respect to its
marketable securities (see Note B to the Financial Statements for a more
detailed discussion).
Interest expense was $0 in fiscal 1996, $27,000 in fiscal 1995, and $35,000
in fiscal 1994. Interest expense was principally attributable to interest
payments on the Company's SBA loan which was repaid in full in February 1995.
Since February 1995, the Company has not incurred any long-term debt.
Net Income
In fiscal 1996, the Company earned $4.02 million before income taxes. A
provision for income taxes of $1.45 million resulted in net income of
$2.57 million. The provision for income taxes in fiscal 1996 included a one-
time credit of $132,000 from the State of Oregon. In fiscal 1995, the
Company earned $1.86 million before income taxes. A provision for income
taxes of $444,000 resulted in net income of $1.42 million. The provision for
income taxes for fiscal 1995 included utilization of all remaining federal
net operating loss carryforwards.
In fiscal 1994, the Company earned $1.29 million before income taxes. A
provision for income taxes of $129,000 resulted in net income of
$1.16 million. The provision for income taxes for fiscal 1994 included
utilization of $440,000 in tax benefits derived from federal net operating
loss carryforwards.
INDUSTRY FACTORS
The market for PBBs is driven by the market for the peptide-based drugs in
which they are incorporated. Since there are only a handful of approved
peptide-based drugs on the market today, this market is still very early in
development and a substantial amount of the activity is occurring at the
earlier stages of research and development and clinical trials. Developments
of new biological information, based on rational drug design and
combinatorial chemistry, are creating additional peptide-based drug
candidates. Cost pressures in the pharmaceutical industry, however, have
tightened the criteria used to assess drug prospects at all phases of drug
development programs. Cost pressures in the pharmaceutical industry can also
cause pharmaceutical companies to investigate alternative drug manufacturing
processes which may not include the Company's products as an intermediate.
As a supplier of building blocks for peptide-based drugs, Synthetech's
revenues will be affected by these industry factors. The high cancellation
rate for drug development programs results in a significant likelihood that
there will be no subsequent or "follow-on" PBB sales for any particular drug
development program. Since Synthetech's revenue comes predominantly from
PBBs used in drug development programs, the overall impact on Synthetech's
business from the cancellation rate will depend, to a large extent, on the
rate of new drug development efforts being commenced.
The advancement of a drug for which Synthetech is providing PBBs from a drug
development program into an "approved" status by the FDA could also
significantly affect Synthetech's business if Synthetech is able to continue
to supply the PBB for the approved drug. With the increased volume typically
associated with "approved" drugs, the Company, however, expects to face
increased competition for this business.
These industry factors combined with timing of customer and regulatory
decisions and other unanticipated events may produce substantial fluctuations
in Synthetech's revenues for the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $8.16 million compared
to $3.57 million at March 31, 1995 and $4.12 million at March 31, 1994. The
increase in working capital reflects the higher level of revenues in 1996 and
the exercise by a warrant holder of a warrant to purchase common stock,
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pursuant to which the Company received $993,000. The Company's cash, cash
equivalents and short-term securities available for sale at March 31, 1996
totaled $5.44 million. In addition, the Company has a $1,000,000 bank line
of credit. This line of credit is secured by the Company's chattel paper,
accounts, contract rights and general intangibles. As of March 31, 1996
there was no amount outstanding under the bank line.
The increase in accounts receivable to $1.36 million at March 31, 1996 from
$840,000 at March 31, 1995 and $512,000 at March 31, 1994 reflects the higher
level of revenues in fiscal 1996 compared to prior years. Inventory
increased to $1.92 million at March 31, 1996 from $1.58 million at March 31,
1995 and $1.5 million at March 31, 1994. These increases also reflected the
increased level of revenues.
In September 1995, in response to approaching manufacturing capacity
constraints in its existing facility, the Company announced plans to
construct a new plant to increase its capacity to produce PBBs and other
pharmaceutical intermediates. The Company is currently in the later stages
of plant design and expects overall engineering, construction and equipment
costs to be approximately $6 million. The expected completion date for the
new plant is spring of 1997. The Company has also added a third production
shift at its present facility. See Item 2, "Properties."
The Company's capital expenditures were approximately $461,000 during fiscal
1996. In addition to the new plant, the Company currently anticipates
acquiring approximately $500,000 of additional equipment and upgrades for the
existing plant and equipment during fiscal 1997. The Company expects to
finance a majority of these capital expenditures from internal cash flow, but
it is also exploring bank financing and other outside funding sources.
The Company owns its headquarters plant and all of its equipment. See Note D
of the Notes to Financial Statements for a description of the Company's
property, plant and equipment.
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ITEM 7. FINANCIAL STATEMENTS
Index
Page
Report of Independent Public Accountants for the years
ended March 31, 1996, 1995 and 1994.... 12
Financial Statements:
Balance Sheets as of March 31, 1996 and 1995.......... 13-14
Statements of Income for the years ended March 31,
1996, 1995 and 1994................................. 15
Statements of Shareholders' Equity for the years
ended March 31, 1996, 1995 and 1994................. 16
Statements of Cash Flows for the years ended
March 31, 1996, 1995, and 1994...................... 17
Notes to Financial Statements:
Note A - General and Business......................... 18
Note B - Summary of Significant Accounting Policies... 18
Note C - Inventories.................................. 19
Note D - Property, Plant and Equipment................ 19
Note E - Income Taxes................................. 20
Note F - Line of Credit............................... 20
Note G - Shareholders'Equity.......................... 21-22
Note H - 401(k) Profit Sharing Plan................... 22
Note I - Segment Information.......................... 22
11
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Synthetech, Inc.:
We have audited the accompanying balance sheets of Synthetech, Inc. (an
Oregon corporation) as of March 31, 1996 and 1995, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit 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 Synthetech, Inc. as of March
31, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 1996 in conformity with
generally accepted accounting principles.
Portland, Oregon,
May 16, 1996
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SYNTHETECH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
For the Years Ended March 31
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,049,000 $ 1,199,000
Securities available for sale 395,000 250,000
Accounts receivable, less allowance for
doubtful accounts of $15,000 and $13,000
for 1996 and 1995 1,355,000 840,000
Inventories 1,924,000 1,581,000
Prepaid expenses 71,000 54,000
Income tax receivable 152,000 -
Deferred income taxes 59,000 39,000
Other current assets 1,000 7,000
TOTAL CURRENT ASSETS 9,006,000 3,970,000
PROPERTY, PLANT AND EQUIPMENT, at cost,net 1,311,000 1,052,000
SECURITIES AVAILABLE FOR SALE 626,000 1,619,000
OTHER ASSETS 16,000 20,000
TOTAL ASSETS $10,959,000 $ 6,661,000
=========== ===========
</TABLE>
See notes to financial statements.
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SYNTHETECH, INC.
BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Years Ended March 31
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 271,000 $ 179,000
Accrued compensation 479,000 160,000
Income taxes payable - 47,000
Other accrued liabilities 1,000 10,000
Deferred revenue 98,000 -
TOTAL CURRENT LIABILITIES 849,000 396,000
DEFERRED INCOME TAXES 10,000 6,000
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding,
13,475,000 and 12,054,000 shares 13,000 12,000
Paid-in capital 6,589,000 5,196,000
Employee notes receivable and deferred
compensation (130,000) -
Unrealized gain on securities available
for sale 30,000 27,000
Retained earnings 3,598,000 1,024,000
TOTAL SHAREHOLDERS' EQUITY 10,100,000 6,259,000
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,959, 000 $ 6,661,000
============ ===========
See notes to financial statements.
</TABLE>
14
<PAGE>
SYNTHETECH, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the Years Ended March 31 1996 1995 1994
REVENUES $8,472,000 $5,357,000 $4,034,000
Cost of sales 3,685,000 2,598,000 1,956,000
GROSS PROFIT 4,787,000 2,759,000 2,078,000
Research and development 217,000 169,000 144,000
Selling, general and
administrative 833,000 774,000 671,000
OPERATING EXPENSES 1,050,000 943,000 815,000
OPERATING INCOME 3,737,000 1,816,000 1,263,000
OTHER INCOME, net 285,000 70,000 65,000
INTEREST EXPENSE - 27,000 35,000
INCOME BEFORE INCOME TAXES 4,022,000 1,859,000 1,293,000
PROVISION FOR INCOME TAXES 1,448,000 444,000 129,000
NET INCOME $2,574,000 $1,415,000 $1,164,000
========== ========== ==========
NET INCOME PER COMMON SHARE $0.19 $0.11 $0.09
===== ===== =====
SHARES USED IN PER SHARE
CALCULATION 13,727,960 12,969,701 13,166,363
========== ========== ==========
See notes to financial statements.
</TABLE>
15
<PAGE>
SYNTHETECH, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended March 31
<TABLE>
<CAPTION>
<S> <C><C> <C> <C> <C><C>
EMPLOYEE NOTES GAIN ON RETAINED
COMMON STOCK RECEIVABLE SECURITIES EARNINGS
PAID-IN & DEFERRED AVAILABLE (ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION FOR SALE (DEFICIT)
------ ------ ------- ------------ --------- ------------
BALANCE, March 31, 1993 11,955,000 $12,000 $5,098,000 $ -- $ -- ($1,555,000)
Issuance of stock for the
exercise of stock options 56,000 -- 54,000 -- -- -- --
Net income -- -- -- -- -- 1,164,000
---------- ------- ---------- ------------ ---------- -----------
BALANCE, March 31, 1994 12,011,000 $12,000 $5,152,000 $ -- $ -- ($391,000)
Issuance of stock for the
exercise of stock options 43,000 -- 37,000 -- -- --
Income tax benefit of
disqualifying dispositions -- -- 7,000 -- -- --
Unrealized gain on
marketable securities
available for sale -- -- -- -- 27,000 -- --
Net income -- -- -- -- -- 1,415,000
---------- ------- ---------- ------------ ----------- ---------
Balance, March 31, 1995 12,054,000 $12,000 $5,196,000 $ -- $ 27,000 $1,024,000
Issuance of stock for the
exercise of stock options 421,000 -- 255,000 -- -- --
Issuance of stock for the
exercise of stock warrant 1,000,000 1,000 992,000 -- -- --
Issuance of stock options
at below fair value -- -- 70,000 (70,000) -- --
Amortization of deferred
compensation -- -- -- 20,000 -- --
Employee notes receivable -- -- -- (80,000) -- --
Income tax benefit of
disqualifying dispositions -- -- 76,000 -- -- --
Unrealized gain on securities
available for sale -- -- -- -- 3,000 --
Net income -- -- -- -- -- 2,574,000
--------- ------- ---------- ------------ ------------ ----------
BALANCE, March 31, 1996 13,475,000 $13,000 $6,589,000 ($130,000)$ 30,000 $3,598,000
========== ======= ========== ============ ============ ========== ========
See notes to financial statements.
</TABLE>
16
<PAGE>
SYNTHETECH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<Catpion>
<S> <C> <C> <C>
For the Years Ended March 31
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
(NOTE B):
Net income $2,574,000 $1,415,000 $1,164,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, amortization and other 205,000 165,000 104,000
Amortization of deferred compensation 20,000 - -
Gain on sales of property, plant and
equipment - (18,000) (17,000)
Loss on marketable trading securities - 95,000 56,000
Purchases of marketable trading securities - (944,000)(4,844,000)
Proceeds from sale of marketable trading
securities - 906,000 3,756,000
Accrued interest on securities available
for sale 13,000 - -
Realized gain on securities available
for sale (43,000) - -
Deferred taxes (16,000) (22,000) (11,000)
(Increase) decrease in assets:
Accounts receivable, net (515,000) (328,000) 238,000
Inventories (343,000) (84,000) (384,000)
Prepaid expenses (17,000) 2,000 (15,000)
Income tax receivable (152,000) - -
Other assets 6,000 (6,000) 45,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 355,000 (6,000) (37,000)
Deferred revenue 98,000 - -
Net cash provided by operating
activities 2,185,000 1,175,000 55,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment purchases (461,000) (218,000) (396,000)
Proceeds from sales of property, plant
and equipment - 18,000 17,000
Proceeds from sale/maturities of securities
available for sale 882,000 - -
Employee notes receivable (80,000) - -
Net cash provided by (used by) investing
activities 341,000 (200,000) (379,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt
obligations - (399,000) (29,000)
Proceeds from stock option exercises and
disqualifying dispositions 331,000 44,000 53,000
Proceeds from stock warrant exercise 993,000 - -
Net cash provided by (used in) financing
activities 1,324,000 (355,000) 24,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,850,000 620,000 (300,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 1,199,000 579,000 879,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $5,049,000 $1,199,000 $ 579,000
========== ========== ==========
NON-CASH INVESTING ACTIVITIES:
Unrealized gain on securities available
for sale $ 3,000 27,000 -
Issuance of stock options at below fair
value $ 70,000 - -
</TABLE>
See notes to financial statements.
17
<PAGE>
SYNTHETECH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A. GENERAL AND BUSINESS
Synthetech, Inc., an Oregon corporation, produces specialty amino
acids and other fine chemicals using a combination of organic
chemistry and biocatalysis. The Company's primary product emphasis
is on specialty amino acids referred to as Peptide Building Blocks
which are sold domestically and internationally to companies
developing peptide-based pharmaceuticals.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of 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 results could differ from those
estimates.
Cash and Cash Equivalents: Cash and cash equivalents include
demand cash and all investments purchased with an original maturity
of three months or less.
Securities Available For Sale: In 1993, the Financial Accounting
Standards Board issued Statement No. 115 (SFAS 115), Accounting for
Certain Investments in Debt and Equity Securities. Although
adoption of SFAS 115 is not required until fiscal years beginning
after December 15, 1993, the Company elected earlier adoption in
fiscal 1994. The adoption of SFAS 115 did not have a material
impact on the Company's financial position or results of
operations. In January, 1995, the Company discontinued its active
trading policy with respect to its marketable securities, due to
current market conditions. The Company no longer intends to
actively trade these marketable securities. The securities may be
held until maturity depending upon the Company's cash flow needs or
until changes in the investment markets dictate otherwise.
Accordingly, all investments as of March 31, 1996 and 1995 have
been reflected as securities available for sale and any unrealized
gain or loss reflected as a separate component of shareholders'
equity in accordance with SFAS 115. Prior to January 1, 1995 and
since adoption of SFAS 115, the Company had accounted for its
investments as trading securities with unrealized gains and losses
recorded in the statement of income.
Securities available for sale consist mostly of government
obligations which mature during 1997, 1998 and 1999. The Company
determines cost basis in its investments using the specific
identification method.
Property, Plant and Equipment: Property, plant and equipment are
recorded at cost. Depreciation and amortization are provided on
the straight-line method over seven to forty years for buildings
and land improvements, and five to seven years on all other
property. When property is sold or retired, the cost and
accumulated depreciation reserves are removed from the accounts and
the resulting gain or loss is included in income.
Revenue Recognition: Sales of products are recognized when
products are shipped.
Research and Development Costs: Research and development costs are
expensed as incurred.
Other Assets: Other assets primarily represent patent costs, which
are amortized over the useful life of the patent.
Earnings Per Share: Earnings per share are computed using the
weighted average number of shares and common stock equivalents
(stock options and warrants) outstanding during the period. The
shares used in the basic earnings per share calculation for 1996,
1995 and 1994 were 12,255,635, 12,029,908, and 12,002,135,
respectively, while the shares used in the earnings per share
calculation for 1996, 1995 and 1994 were 13,727,960, 12,969,701,
and 13,166,363, respectively.
<TABLE>
<CAPTION>
Supplemental cash flow disclosures are as follows:
Cash Paid During The Year For:
<S> <C> <C> <C>
1996 1995 1994
Income Taxes $1,586,000 $ 430,000 $ 157,000
Interest - $ 29,000 $ 31,000
</TABLE>
18
<PAGE>
NOTE C. INVENTORIES
Inventories are stated at the lower of cost or market, determined
on the first-in, first-out (FIFO) basis. Cost utilized for
inventory purposes include labor, material, and manufacturing
overhead.
The major components of inventories are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31,
1996 1995
Finished products $ 685,000 $ 888,000
Work-in-process 414,000 106,000
Raw materials 825,000 587,000
$1,924,000 $1,581,000
========== ==========
</TABLE>
NOTE D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31,
1996 1995
Land $ 91,000 $ 91,000
Buildings 594,000 569,000
Machinery and equipment 1,115,000 1,003,000
Laboratory equipment 276,000 213,000
Furniture and fixtures 106,000 81,000
Vehicles 26,000 26,000
Construction in progress 259,000 23,000
2,467,000 2,006,000
Less:
Accumulated depreciation 1,156,000 954,000
$1,311,000 $1,052,000
========== ==========
</TABLE>
19
<PAGE>
NOTE E. INCOME TAXES
In the first quarter of fiscal year 1994, the Company adopted
Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes. Under the asset and liability method
prescribed by SFAS 109, deferred income taxes are recognized for
the future tax consequences attributable to temporary differences
between the financial statement carrying amounts and tax balances
of existing assets and liabilities. Deferred tax assets and
liabilities are measured using the enacted rates expected to apply
to taxable income in the years which those temporary differences
are expected to be recovered or settled.
The provision for income taxes in fiscal 1996, 1995 and 1994
include deferred tax credits of $16,000, $22,000 and $11,000
respectively.
Total deferred tax assets and liabilities at March 31, 1996, were
$59,000 and $10,000, respectively. Total deferred tax assets and
liabilities at March 31, 1995, were $60,000 and $27,000,
respectively. There were no individually significant temporary
differences at March 31, 1996 or 1995.
The reconciliation between the effective tax rate and the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
Statutory federal tax rate 34.0% 34.0% 34.0%
Federal net operating loss utilized - (5.9)% (34.0)%
Federal general business credit utilized - (6.9)% -
Federal alternative minimum tax (credit) - (1.7)% 1.4%
State taxes 2.0% 4.4% 8.6%
----- ----- -----
Effective tax rate 36.0% 23.9% 10.0%
===== ===== =====
</TABLE>
NOTE F. LINE OF CREDIT
The Company has a line of credit available with a bank in the
amount of $1 million with an applicable interest rate of 9.0% at
March 31, 1996. There were no amounts outstanding under this loan
at the end of the fiscal year. This line of credit is renewable on
an annual basis.
20
<PAGE>
NOTE G. SHAREHOLDERS' EQUITY
Under the Amended and Restated 1990 Stock Option Plan 1,600,000
shares have been authorized for issuance. A total of 589,790
options have been exercised and 46,910 options have been canceled
as of March 31, 1996 under the plan since its inception.
The 1995 Incentive Compensation Plan authorized 902,000 shares of
the Company's stock to be issued. This Plan is the successor to
the Amended and Restated 1990 Stock Option Plan. No further grants
will be made under the original Plan.
Activity under the Amended and Restated 1990 Stock Option Plan and
1995 Incentive Compensation Plan over the last three fiscal years
is summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Option Price
______________________
Number Per
of Shares Share Total
___________________________________________________________________
Options outstanding at
March 31, 1993 686,390 $ .66 - 1.25 $ 622,000
Options granted 271,960 1.72 468,000
Options exercised (55,731) .61 - 1.25 (54,000)
Options canceled - - -
Options outstanding at
March 31, 1994 902,619 .61 - 1.72 1,036,000
Options granted 200,000 2.22 444,000
Options exercised (43,120) .61 - 1.25 (37,000)
Options canceled - - -
Options outstanding at
March 31, 1995 1,059,499 .61 - 2.22 1,443,000
Options granted 269,000 .30 - 2.84 718,000
Options exercised (450,789) .30 - 2.22 (382,000)
Options canceled (5,750) 2.22 - 2.84 (15,000)
Options outstanding at
March 31, 1996 871,960 $ .30 - 2.84 $1,764,000
========= ============ ==========
Options becoming exercisable
during fiscal 1996 239,980 $ .30 - 2.22 $ 457,000
========= ============ ==========
</TABLE>
As of March 31, 1996, options to purchase 512,710 shares of Common
Stock were exercisable under these Plans.
21
<PAGE>
NOTE G. SHAREHOLDERS' EQUITY (CONTINUED)
On March 27, 1995, JB Partners exercised the warrant purchased as
part of a stock and warrant sale in 1991. The exercise price of
the 5-year, nontransferable warrant was $1.00 per share and the net
proceeds to the Company were $993,000.
On January 7, 1992, the Board of Directors authorized the issuance
of a warrant to Page E. Golsan, III. Mr. Golsan is a member of the
Board of Directors. The warrant is for the purchase of up to
25,000 shares of the Company's common stock at a purchase price of
$1.81 per share, the market value on January 7, 1992. The warrant
expires on December 31, 1996.
On February 5, 1992, the Board of Directors authorized the issuance
of a warrant to Emanuel and Company. The warrant is for retention
of Emanuel and Company as the Company's investment banker. The
warrant is for the purchase of 100,000 shares of the Company's
stock at an exercise price of $2.22 per share, the market value on
February 5, 1992. The warrant expires on December 31, 1996.
The Financial Accounting Standards Board has issued SFAS 123,
"Accounting for Stock-Based Compensation" which establishes a fair
value approach to measuring compensation expense related to
employee stock plans. In fiscal 1997, the Company must either
account for awards granted under employee stock plans after January
1, 1995 under the provisions of SFAS 123 or provide detailed
disclosures in lieu of adoption. The Company plans to only adopt
the disclosure provisions of SFAS 123.
NOTE H. 401(k) PROFIT SHARING PLAN
The Company established a 401(k) Profit Sharing Plan on April 1,
1992. This plan is offered to eligible employees, who may elect to
contribute up to 15% of compensation, and includes a Company
matching contribution of $.50 for each $1.00 contributed by the
employee up to 10% of compensation. The Company contribution
becomes fully vested for each employee after 5 years of employment.
The Company matching contribution for fiscal years 1996, 1995, and
1994 was $42,000, 37,000 and $32,000, respectively. Beginning in
April 1996, the Company has amended the Plan to change the matching
contribution to $.50, $.75 and $1.00 for each $1.00 contributed up
to 10% of compensation corresponding to length of service with the
Company.
NOTE I. SEGMENT INFORMATION
Significant Customers: During fiscal year 1996, two customers
accounted for 23% and 11% of revenues. During fiscal year 1995, two
customers accounted for 27% and 11% of revenues. During fiscal
year 1994, two customers accounted for 22% and 11% of total
revenues.
The following table reflects foreign sales and percent of total
sales by country:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1996 1995 1994
Europe $1,252,000 14.8% $ 762,000 14.2% $ 527,000 13.1%
Japan $ 528,000 6.2% $ 258,000 4.8% $ 128,000 3.2%
</TABLE>
22
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
The following table sets forth certain information concerning the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position
M. ("Sreeni") Sreenivasan 47 President, Chief Executive
Officer and Director
Philip L. Knutson 46 Vice President of Research
and Development
Charles B. Williams 49 Vice President of
Administration and
Finance, Chief Financial
Officer, Secretary and
Treasurer
Paul C. Ahrens 44 Chairman of the Board
Howard L. Farkas 72 Director
Page E. Golsan, III 58 Director
</TABLE>
The following is a brief account of the business experience of each executive
officer and director of the Company.
M. "Sreeni" Sreenivasan. Mr. Sreenivasan has served as President and Chief
Executive Officer since March 31, 1995 and as Chief Operating Officer from
1990 through March 31, 1995. Mr. Sreenivasan has also served as a director
since 1995. From 1988 to 1990 he was Executive Vice President and General
Manager and from 1987 to 1988 he was Director of Manufacturing. Previously,
he worked for Ruetgers-Nease Chemical Co. (bulk pharmaceuticals and other
fine chemicals) for 13 years in various technical and manufacturing
management capacities, including 7 years as Plant Manager of their Augusta,
Georgia plant. Mr. Sreenivasan received his M.S. in Chemical Engineering
from Bucknell University and his M.B.A. from Penn State University.
Philip L. Knutson, Ph.D. Dr. Knutson has served as Vice President of
Research and Development since 1988. Dr. Knutson is responsible for process
development, "kilo lab" production and production support. From 1986 to
1988, he was a Senior Research Chemist with the Company. Prior thereto, Dr.
Knutson was a Senior Research Chemist at Ash Stevens, Inc. in Detroit,
Michigan for 7 years. He received his B.A. degree from Luther College,
Decorah, Iowa and his M.A. and Ph.D. in Organic Chemistry from the
University of Missouri - Columbia.
Charles B. Williams. Mr. Williams has served as Vice President of
Administration and Finance and Treasurer since 1990. In 1995, he became the
Secretary of the Company and in July 1996, he also became Chief Financial
Officer. Mr. Williams is responsible for accounting, administration,
finance, personnel and information systems. From 1988 to 1990, Mr. Williams
served as the Controller. Prior thereto, he was Controller for White's
Electronics, Inc. of Sweet Home, Oregon for 5 years. His responsibilities at
White's Electronics included accounting, data processing, personnel and
23
<PAGE>
finance. From 1976 to 1983, he held several accounting and financial
positions with Teledyne Wah Chang, a metals producer in Albany, Oregon.
Mr. Williams earned his B.S. in Economics and M.B.A. from Oregon State
University.
Paul C. Ahrens. Mr. Ahrens has been a Director of the Company since its
inception in 1981 and became Chairman of the Board effective March 31, 1995.
Mr. Ahrens, a founder of the Company, served as President and Chief Executive
Officer from 1989 through March 1995. From 1981 through 1989 he was the Vice
President of Technology. He also served as Secretary of the Company from
1981 through 1995. From 1979 to 1980, Mr. Ahrens served as Vice President of
Engineering of Colorado Organic Chemical Company, an organic chemical
manufacturing company located in Commerce City, Colorado. Prior thereto,
Mr. Ahrens spent five years with Allied Chemical and CIBA-Geigy in various
engineering and research capacities. Mr. Ahrens holds B.S. and M.S. degrees
in Chemical Engineering from M.I.T.
Howard L. Farkas. Mr. Farkas has served as a Director of the Company since
1985. He is the President of Farkas Group, Inc., successor to Farkas Realty,
which is engaged in general real estate brokerage and management activities
since 1981 and a managing director in Manistee Gas Limited Liability Company,
which is in the gas production and processing business. Since 1986,
Mr. Farkas has also served as Secretary and a Director of Acquisition
Industries, Inc., a publicly owned acquisition and merger company.
Mr. Farkas serves as the Chairman of the Board of Logic Devices, Inc., a
Sunnyvale, California company specializing in CMOS digital signal process
semiconductor and SRAM chips, and as a Director in various natural resource
and other commercial companies. Mr. Farkas is also a vice president of
G.A.S. Corp., which is a general partner of an Oklahoma limited partnership,
Gas Acquisition Services, which filed for bankruptcy under Chapter 11.
Though not presently in public or private practice, he has been a certified
public accountant since 1951. Mr. Farkas received a B.S. (B.A.) from the
University of Denver.
Page E. Golsan, III. Mr. Golsan has served as a Director of the Company
since 1991. He is a principal of Golsan Management Company, an investment
advisory company. From 1990 to 1992, Mr. Golsan was a senior advisor with
Bane Barham & Holloway, registered investment advisors under the Investment
Advisor Act of 1940. Since 1990 Mr. Golsan has been President and Chief
Executive Officer of Bridgetown Capital, Inc., an investment company. From
1987 to 1989 he was the Executive Vice President of Calumet Industries, Inc.,
Chicago, Illinois (manufacturer and marketer of petro-chemicals and other
fine chemicals). Prior to 1987, he was the President and Chief Operating
Officer of the K&W Products Division (specialty chemical manufacturing) of
Berkshire Hathaway, Inc. Mr. Golsan also currently serves as a director of
Panef Corporation, Milwaukee, Wisconsin, (a privately-held pharmaceutical and
specialty chemical packaging company). Mr. Golsan holds an M.A. in Finance
from Claremont Graduate School of Business and a Doctorate in Pharmacy and a
B.A. in Chemistry and Zoology, both from the University of Southern
California.
In connection with the issuance of common stock and a warrant to JB Partners,
an investment partnership affiliated with Peter B. Cannell & Co. Inc., a New
York investment management firm, the directors and officers of Synthetech
(other than Mr. Golsan who was not a director at the time) have entered into
an agreement to vote shares of Synthetech owned by them for the election of a
nominee to the Board of Directors selected by JB Partners. Unless terminated
earlier under certain circumstances, this agreement will continue until 1998.
JB Partners has advised Synthetech that it will not select a nominee for
election at the upcoming Annual Meeting of Shareholders.
24
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation paid by the Company to those persons who were at March 31, 1996,
the Company's Chief Executive Officer, the two other executive officers of
the Company and one other Company employee whose salary and bonus exceeded
$100,000 during the last fiscal year (the "Named Persons") for the fiscal
years ended March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
<S><C> <C> <C> <C> <C> <C>
Summary Compensation Table
Long-Term All Other
Annual Compensation Compensation Compensation
Name and
Principal Position Year(1) Salary($) Bonus($) Stock Options(#) ($)(2)
M. ("Sreeni") 1996 132,000 60,000 66,000 3,203
Sreenivasan 1995 113,400 28,000 52,000 4,688
President & 1994 108,000 7,500 73,000 4,827
Chief Executive
Officer
Philip L. 1996 95,000 43,000 50,000 3,531
Knutson 1995 87,150 24,000 40,000 4,672
Vice President 1994 83,000 7,000 56,240 4,755
of Research and
Development
Charles B. 1996 75,000 35,000 34,000 3,122
Williams 1995 67,200 20,000 25,000 3,130
Vice President 1994 64,000 6,000 34,720 3,800
of Finance and
Administration
Jay A. Bouwens 1996 74,000 35,000 15,000 1,863
Director of 1995 34,149(3) 8,750(3) --- ---
Manufacturing
</TABLE>
_______________________
(1) Fiscal year ended March 31.
(2)Represents Company contributions to the account of the Named Persons
under the Company's 401(k) plan.
(3)Mr. Bouwens was hired in September 1994.
25
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table provides information, with respect to the Named Persons,
concerning the grant of stock options during fiscal year 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Stock Options Grants in the Last Fiscal Year(1)
% of
Total Fair
Options Options Exercise Market
Name Granted Granted or Value Expiration
(#) to Base at Date
Employe Price of Date
es in ($/Sh) Grant(3)
Fiscal
Year(2) ($)
____________ ______ ______ _____ _____ ____
M. ("Sreeni") 66,000 25% $2.84 $2.84 May 2000
Sreenivasan
Philip L. 50,000 19% $2.84 $2.84 May 2000
Knutson
Charles B. 34,000 13% $2.84 $2.84 May 2000
Williams
Jay A. Bouwens 10,000 4% $2.84 $2.84 May 2000
5,000 2% $0.30 $2.91 May 2005
</TABLE>
(1) The Company has not granted any stock appreciation rights (SARs).
(2) Based on an aggregate of 269,000 options being granted to all
employees during the fiscal year ended March 31, 1996.
(3) The average of closing bid and asked prices on the date of grant.
26
<PAGE>
Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Stock Option
Values
The following table provides information, with respect to the Named Persons,
concerning the options granted to them during the last fiscal year and the
options held by them at March 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year End Stock Option Value
Shares
Acquired
on Value Number of Value of
Exercise Realized Unexercised Unexercised In-
Name Options at the-Money
(#) ($) Fiscal Year Options at
End Fiscal Year
End ($)(1)
Exerci- Unexer- Exerci- Unexer-
sable cisable sable cisable
M. ("Sreeni") 145,200 $518,232 160,000 92,000 $945,600 $543,720
Sreenivasan
Philip L. 117,800 $425,650 123,240 70,000 $728,348 $413,700
Knutson
Charles B. 70,400 $251,264 76,220 46,500 $450,460 $274,815
Williams
Jay A. Bouwens --- --- 2,500 12,500 $14,775 $73,875
(1) The average of the closing bid and asked prices of the Common Stock on
March 31, 1996 was $5.91.
</TABLE>
Compensation of Directors
The Company's directors have not received an annual fee for their service as
directors in the past. The Company reimburses directors for travel and other
out of pocket expenses of attending meetings.
27
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL OWNERS OF COMMON STOCK
The following table sets forth the number of shares of Common Stock and
percentage of outstanding shares of Common Stock of the Company owned as of
April 25, 1996, by persons who hold of record or are known to beneficially
own 5% or more of the outstanding common stock of the Company, each director
of the Company, certain officers and all officers and directors as a group.
<TABLE>
<CAPTION>
<S><C> <C> <C>
Name and Address of Amount and Percent
Beneficial Owner Nature of of
Beneficial Class
Ownership
Paul C. Ahrens 1,551,491 11.5%
1290 Industrial Way
Albany, OR
Michael A. Mitton 978,799 7.2%
Suite 22
6300 Estate Frydenhoj
416-1
St. Thomas, U.S.V.I.
M. ("Sreeni") 641,100(1) 4.7%(2)
Sreenivasan
1290 Industrial Way
Albany, OR
Howard L. Farkas 50,000 *
5460 South Quebec
Street, Suite 300
Englewood, CO
Page E. Golsan, III 38,000(3) *
3205 Canterbury Drive,
South
Salem, OR
JB Partners 2,000,000 14.8%
919 Third Avenue
New York, NY
Philip L. Knutson, 406,040(4) 3.0%(2)
Ph.D.
1290 Industrial Way
Albany, OR
Charles B. Williams 272,195(5) 2.0%(2)
1290 Industrial Way
Albany, OR
Jay A. Bouwens 7,500(6) *
1290 Industrial Way
Albany, OR
All Officers and 2,958,826(3)(4)(5) 21.1%(2)
Directors as
a Group (6 persons)
</TABLE>
*less than 1%.
(1) Includes 219,000 shares of common stock which Mr. Sreenivasan has the
right to acquire immediately or within sixty (60) days pursuant to employee
stock options. Excludes 33,000 shares of common stock issuable pursuant to
stock options held by Mr. Sreenivasan which are not exercisable now or
within sixty (60) days.
(2) The denominator used in calculating the percentage is equal to the
number of shares outstanding plus the number of shares the beneficial owner
(or group of beneficial owners) has a right to acquire immediately or
within sixty days pursuant to warrants or options.
(3) Includes 25,000 shares of common stock issuable under a warrant.
28
<PAGE>
(4) Includes 168,240 shares of common stock which Dr. Knutson has the
right to acquire immediately or within sixty (60) days pursuant to employee
stock options. Excludes 25,000 shares of common stock issuable pursuant to
stock options held by Dr. Knutson which are not exercisable now or within
sixty (60) days.
(5) Includes 105,720 shares of common stock which Mr. Williams has the
right to acquire immediately or within sixty (60) days pursuant to employee
stock options. Excludes 17,000 shares of common stock issuable pursuant
to stock options held by Mr. Williams which are not exercisable now or
within sixty (60) days.
(6) Includes 7,500 shares of common stock which Mr. Bouwens has the right
to acquire immediately or within sixty (60) days pursuant to employee stock
options. Excludes 7,500 shares of common stock issuable pursuant to stock
options held by Mr. Bouwens which are not exercisable now or within sixty
(60) days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1995, Mr. Ahrens resigned his positions as President and Chief
Executive Officer of the Company and became Chairman of the Board. At that
time, Mr. Ahrens established an independent research and development effort
to investigate new applications of novel amino acids and peptides. In
connection with this transition, the Company and Mr. Ahrens entered into an
agreement (the "Agreement") pursuant to which Mr. Ahrens agreed to provide
consulting services to the Company and to provide the Company with licensing
rights for any invention he might develop during the year which involved
amino acids and/or peptide-based materials (the "Amino Acid Technology"). In
March 1996, at the conclusion of the consulting services and research period,
Mr. Ahrens advised the Company that he did not intend to continue further
laboratory research. At that time, the Company requested, and Mr. Ahrens
agreed to, an Addendum to the Agreement to expand the Company's licensing
rights to any Amino Acid Technology that he may discover at any time in the
future. The Company also agreed to reimburse Mr. Ahrens for his expenses
associated with his attendance on behalf of the Company at technical research
symposiums.
Certain directors and officers of the Company have entered into an agreement
to vote shares of Synthetech Common Stock owned by them for the election of a
nominee to the Board of Directors selected by JB Partners, an investor in the
Company. See Item 9.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as part of this Annual
Report on Form 10-KSB:
3(i)(1) Articles of Incorporation of Synthetech, Inc., as amended
3(ii)(7) Bylaws of Synthetech, Inc., as amended
10.1(2,3) License Agreement dated March 16, 1990 between Synthetech, Inc. and
Miwon Co. Ltd.
10.2(2,4) Supply Agreement dated January 3, 1989 between Synthetech, Inc. and
Biomeasure, Incorporated
10.3(2,4) License Agreement dated January 3, 1989 between Synthetech, Inc. and
Biomeasure, Incorporated
10.4(2,+) Synthetech, Inc. Amended and Restated 1984 Stock Option and Bonus
Plan
10.5(5,+) Synthetech, Inc. 1990 Stock Option Plan
10.6(6) Stock and Warrant Purchase Agreement dated as of August 23, 1991
between the Company and JB Partners, a general partnership formed
under the laws of the State of New York ("JB")
10.7 Amendment No. 1 to Stock and Warrant Purchase Agreement between the
Company and JB dated as of March 26, 1996
29
<PAGE>
10.8(6) Agreement dated September 30, 1991 Among Certain Shareholders of the
Company
10.9(6) Warrant dated January 7, 1992 to purchase 25,000 shares of Common
Stock issued to Page E. Golsan, III
10.10(8) Agreement and Release dated as of March 31, 1995 between Synthetech,
Inc. and Paul C. Ahrens (the "Ahrens Agreement")
10.11 Addendum to Ahrens Agreement dated as of April 1, 1996
10.12(8,+)1995 Incentive Compensation Plan
10.13 Warrant dated _______ to purchase 100,000 shares of common stock
issued to Emanuel & Company
10.14 U.S. Bank Line of Credit
23 Consent of Arthur Andersen LLP
__________________________
(+) Management contract or compensatory plan.
(1) Incorporated by reference to the exhibits filed with registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1991.
(2) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1990.
(3) Confidential treatment of certain portions of this document was granted by
the Commission on May 7, 1990 (File No. 33-27566).
(4) Confidential treatment of certain portions of this document was granted by
the Commission on January 10, 1990 (File No. 33-27566).
(5) Incorporated by reference to Exhibit A to the definitive copy of
registrant's Proxy Statement (dated October 23, 1990) for the 1990
Annual Meeting of Shareholders.
(6) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1992.
(7) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1994.
(8) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1995.
(b) Reports on Form 8-K
None.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: June 4, 1996 SYNTHETECH, INC.
(Registrant)
By /s/ M. Sreenivasan
M. ("Sreeni") Sreenivasan
President and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ M. Sreenivasan President, Chief May 31, 1996
M. ("Sreeni") Sreenivasan Executive Officer
(Principal Executive
Officer) and Director
/s/ Charles B. Williams Vice President of Finance May 31, 1996
Charles B. Williams and Administration, Chief
Financial Officer,
Secretary and Treasurer
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ Paul C. Ahrens Chairman of the Board May 31, 1996
Paul C. Ahrens
/s/ Howard L. Farkas Director May 31, 1996
Howard L. Farkas
/s/ Page E. Golsan, III Director May 31, 1996
Page E. Golsan, III
31
<PAGE>
INDEX TO EXHIBITS
Sequential
Page No.
3(i)(1)1 Articles of Incorporation of Synthetech, Inc., as
amended
3(ii)(7) Bylaws of Synthetech, Inc., as amended
10.1(2,3) License Agreement dated March 16, 1990 between
Synthetech, Inc. and Miwon Co. Ltd.
10.2(2,4) Supply Agreement dated January 3, 1989 between
Synthetech, Inc. and Biomeasure, Incorporated
10.3(2,4) License Agreement dated January 3, 1989 between
Synthetech, Inc. and Biomeasure, Incorporated
10.4(2,+) Synthetech, Inc. Amended and Restated 1984 Stock
Option and Bonus Plan
10.5(5,+) Synthetech, Inc. 1990 Stock Option Plan
10.6(6) Stock and Warrant Purchase Agreement dated as of
August 23, 1991 between the Company and JB
Partners, a general partnership formed under the
laws of the State of New York ("JB")
10.7 Amendment No. 1 to Stock and Warrant Purchase
Agreement between the Company and JB dated as of
March 26, 1996 34
10.8(6) Agreement dated September 30, 1991 Among Certain
Shareholders of the Company
10.9(6) Warrant dated January 7, 1992 to purchase 25,000
shares of Common Stock issued to Page E. Golsan,III
10.10(8)Agreement and Release dated as of March 31, 1995
between Synthetech, Inc. and Paul C. Ahrens (the
"Ahrens Agreement")
10.11 Addendum to Ahrens Agreement dated as of April 1,
1996 36
10.12(8,+) 1995 Incentive Compensation Plan
10.13 Warrant dated _______ to purchase 100,000 shares
of common stock issued to Emanuel & Company 38
10.14 U.S. Bank Line of Credit 44
24 Consent of Arthur Andersen LLP 55
__________________________
(+) Management contract or compensatory plan.
32
<PAGE>
(1) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1991.
(2) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1990.
(3) Confidential treatment of certain portions of this document was granted by
the Commission on May 7, 1990 (File No. 33-27566).
(4) Confidential treatment of certain portions of this document was granted by
the Commission on January 10, 1990 (File No. 33-27566).
(5) Incorporated by reference to Exhibit A to the definitive copy of
registrant's Proxy Statement (dated October 23, 1990) for the 1990
Annual Meeting of Shareholders.
(6) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1992.
(7) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1994.
(8) Incorporated by reference to the exhibits filed with registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1995.
33
<PAGE>
Exhibit 10.7
to Form 10KSB
AMENDMENT NO. 1 TO
STOCK AND WARRANT PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK AND WARRANT PURCHASE AGREEMENT is made as
of the 27th day of March, 1996 by and between Synthetech, Inc., an Oregon
corporation (the "Company"), and JB Partners, a limited partnership formed
under the laws of the State of New York (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights.
Section 6.1(c) of the Agreement shall be restated in its entirety as
follows:
"(c) The term "Holder" means the Investor and any assignees
pursuant to Section 6.7; and"
2. Request for Registration.
2.1 Section 6.2(a) of the Agreement shall be amended in its entirety as
follows:
"(a) (i) Subject to the terms and conditions set forth in
Section 6, if the Company shall receive at any time after
April 1, 1996, but on or before December 31, 1996, a written
request from the Holder that the Company file a registration
statement under the Act covering the registration of at least
twenty percent (20%) of the Registrable Securities, the
Company shall effect as soon as practicable, and in any event
shall use its best efforts to effect within ninety (90) days
of the receipt of such request, the registration under the Act
of all Registrable Securities which the Holder requests to be
so registered; provided that the Company shall be under no
obligation to register the Registrable Securities pursuant to
this Section 6 or otherwise if (A) Form S-3 is not then
available for such registration, or (B) the Company during the
period has already filed a Form S-3 with the SEC and permitted
the Holders to participate in such registration.
(ii) Subject to the terms and conditions set forth in
Section 6, if the Company shall receive at any time after
April 1, 1996, but on or before September 30, 1999, a written
request from the Holder that the Company file a registration
statement under the Act covering the registration of at least
twenty percent (20%) of the Registrable Securities, the
Company shall effect as soon as practicable, and in any event
shall use its best efforts to effect within ninety (90) days
of the receipt of such request, the registration under the Act
of all Registrable Securities which the Holder requests to be
so registered; provided that the Company shall be under no
obligation to register the Registrable Securities pursuant to
this Section 6 or otherwise if Form S-3 is not then available
for such registration.
34
<PAGE>
(iii) Notwithstanding the foregoing, there shall be
no registration right under this Section 6 for Registrable
Securities which are eligible for immediate sale by the
Holders pursuant to Rule 144 or its successor rule."
2.2 Section 6.2(c) of the Agreement shall be amended in its entirety as
follows:
"(c) The Company is obligated to effect no more than two (2)
registrations pursuant to this Section 6.2."
3. Assignment of Registration Rights.
Section 6.7 of the Agreement shall be amended in its entirety as
follows:
"The rights to cause the Company to register Registrable
Securities pursuant to this Section 6 may not be assigned or
transferred, except to the partners of the Investor in
connection with the distribution of the Registrable Securities
to such partners, provided that each partner agrees to be
bound by the obligations of the Investor as set forth herein."
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
SYNTHETECH, INC.
By:
Title:
JB PARTNERS, a limited partnership formed
under the laws of the State of New York
By:
Peter B. Cannell,
Managing Partner
35
<PAGE>
Exhibit 10.11
to Form 10KSB
ADDENDUM
This Addendum is entered into effective as of April 1, 1996 (the
"Effective Date") by and between Synthetech, Inc., an Oregon corporation (the
"Company") and Paul C. Ahrens ("Ahrens").
RECITALS
WHEREAS, the Company and Ahrens entered into an Agreement and Release
dated as of March 31, 1995 (the "Agreement").
WHEREAS, the parties desire to enter into this Addendum to the
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt of
which each of the parties hereto acknowledge, it is hereby agreed as follows:
1. Reimbursement for Technology Conferences
The Company agrees to reimburse Ahrens for reasonable expenses
associated with his attendance at technology conferences during the period
April 1, 1996 through March 31, 1997 (the Company's fiscal year). Such
expenses shall include registration fees, travel, meals and lodging.
2. Licensing Rights
In consideration of the Company's reimbursement of expenses and other
good and valuable consideration, Ahrens agrees to extend the Company's right
to obtain licensing rights set forth in Section 3.5 of the Agreement to any
invention involving amino acid and/or peptide based materials as follows:
The Company shall have the right upon written notice to Ahrens
at any time now or in the future to obtain from Ahrens on
commercially reasonable terms a worldwide, irrevocable, perpetual,
exclusive license, with right to sublicense, to make, have made,
use, sell and distribute any Invention (as defined below) and any
product or service based on such Invention discovered by Ahrens at
any time after March 31, 1995 which involves amino acids and/or
peptide based materials (the "License"). The License shall include
a royalty based on sales of the Invention (or products
incorporating the Invention) of between 2% and 10%, inclusive, as
mutually determined between the Company and Ahrens. In the event
the parties are unable to agree on a royalty rate or any other term
or condition to the License, they shall submit the matter to
binding arbitration to be conducted by an arbiter with appropriate
36
<PAGE>
industry and technology licensing knowledge and expertise. If the
parties cannot agree on such an individual within thirty (30) days
after the delivery by one party to the other party of its or his
written proposal naming such an arbiter (such delivery date
hereinafter referred to as the "Initial Date"), then each party
shall select one such arbiter within sixty (60) days after the
Initial Date and those two arbiters shall select a third arbiter
with such qualification within ninety (90) days after the Initial
Date. If either party fails to select an arbiter within the 60-day
period after the Initial Date, the other party's selection shall be
the sole arbiter. For purposes of this Agreement, an "Invention"
shall mean any discovery, development, improvement, design,
process, procedure, machine, product, composition of matter,
formula, computer program, technique or other invention, whether or
not patentable or copyrightable, arising from Mr. Ahrens' research
and investigation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
SYNTHETECH, INC.
By:
Paul C. Ahrens Name:
Title:
37
<PAGE>
Exhibit 10.13
to Form 10KSB
THIS WARRANT IS NONTRANSFERABLE.
No. WC-003 Warrant to Purchase 100,000 Shares of Common Stock
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
SYNTHETECH, INC.
THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAW. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
________________________________
This certifies that, for value received, Emanuel and Company, a corporation
formed under the laws of the State of New York ("Holder"), is entitled,
subject to the terms set forth below, to purchase from Synthetech, Inc., an
Oregon corporation (the "Company"), One Hundred Thousand (100,000) shares of
Common Stock of the Company, as constituted on the date hereof, upon
surrender hereof, at the principal office of the Company referred to below,
with the exercise form attached hereto duly executed and other required
documents, and simultaneous payment therefor in lawful money of the United
States, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall
include this Warrant, and any warrants delivered in substitution or exchange
therefor as provided herein.
This Warrant is issued in connection with the retention of the Holder as the
corporation's investment banker.
1. Term of Warrant. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole (and not in part), during the
term commencing on the date hereof. The purchase right represented by this
Warrant shall terminate on December 31, 1996, at 5 p.m., Portland, Oregon
time.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised is $2.22 per share of Common Stock, as adjusted from time to time
pursuant to Section 10 hereof.
3. Exercise of Warrant.
(a) Procedure. The purchase rights represented by this Warrant are
exercisable by the Holder in whole (and not in part), at any time, during the
term hereof as described in Section 1 above, by the delivery at the office of
the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company) of (i) this Warrant, (ii) the exercise
form annexed hereto duly completed and executed on behalf of the Holder,
(iii) the appropriate payment in cash or by check acceptable to the Company,
(iv) if requested by the Company, representations regarding the Holder's
sophistication, investment intent, acquisition for its own account and such
other matters requested, and (v) if requested by Company, an opinion of
counsel satisfactory to the Company that registration is not required under
the Federal or state securities laws.
(b) Certificate. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its delivery, as
provided above, and the Holder shall be treated for all purposes as the
holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date and in any event within thirty
(30) days thereafter, the Company at its expense shall issue and deliver to
the Holder a certificate or certificates for the number of shares issuable
upon such exercise (the "Warrant Shares").
38
<PAGE>
(c) Securities Act Legend. The Company may place conspicuously upon each
certificate representing the Warrant Shares a legend substantially in the
following form, the terms of which are agreed to by the Holder:
"THESE SECURITIES ARE NOT REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY APPLICABLE STATE LAW. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THESE SECURITIES UNDER SUCH ACT OR
LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED."
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise
be entitled, the Company shall make a cash payment equal to the Exercise
Price multiplied by such fraction.
5. Loss of Warrant. Upon receipt by the Company of satisfactory evidence
of the loss, theft, destruction or mutilation of this Warrant and either (in
the case of loss, theft or destruction) reasonable indemnification and, if
reasonably requested by the Company, a bond satisfactory to the Company, or
(in the case of mutilation) the surrender of this Warrant for cancellation,
the Company will execute and deliver to the Holder, without charge, a new
Warrant of like denomination.
6. Limited Rights of Warrant Holder. The Holder shall not, solely by
virtue of being the Holder of this Warrant, have any of the rights of a
holder of Common Stock of the Company, either at law or equity, until such
Warrant shall have been duly exercised pursuant to Section 3 and the Holder
shall be deemed to be the holder of record of Warrant Shares as provided in
this Warrant, at which time the Holder shall be deemed the holder of record
of such shares for all purposes.
7. Validity and Reservation of Warrant Shares. The Company covenants that
all Warrant Shares will, when issued, be validly issued, fully paid,
nonassessable and free of preemptive rights. The Company agrees that, as
long as this Warrant may be exercised, the Company will have authorized and
reserved for issuance upon exercise of this Warrant a sufficient number of
Warrant Shares to provide for exercise in full of this Warrant.
8. Transfer Restriction.
(a) Warrant. Neither this Warrant or any interest therein may be assigned,
sold, transferred, hypothecated or otherwise disposed of without the written
consent of the Company.
(b) Warrant Shares. The Warrant Shares may not be assigned, sold,
transferred, hypothecated or otherwise disposed of, except in compliance with
the provisions of the legend set forth in Section 3(c) hereof.
9. Sale/Merger, etc. In case of any merger, consolidation or
reorganization of the Company with or into one or more other corporations,
which results in the holders of the Company's voting securities immediately
prior to such event owning less than a majority interest of the voting
securities of the surviving corporation immediately following such event, or
in the case of any stock issuance or any other transaction or series of
related transaction in which more than 50% of the voting power of the
corporation is transferred, or in case of any sale, lease, transfer or
conveyance to another corporation of all or substantially all of the assets
of the Company, then in any such event, the Holder shall be given notice of
such proposed action at approximately the same time and in substantially the
same manner as the holders of the Company's Common Stock. If the proposed
action is approved according to applicable law, the Holder shall be so
notified in writing by the Company by registered or certified mail, or by
overnight delivery service, and thereupon, this Warrant, to the extent not
then exercised, shall automatically become null and void on or before 5:00
p.m., Portland, Oregon time, on the tenth day following the delivery of such
notice (the "Notice").
39
<PAGE>
10. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Split, Subdivision or Combination of Shares. If the Company at any time
while this Warrant, or any portion thereof, remains outstanding and unexpired
shall split, subdivide or combine the securities as to which purchase rights
under this Warrant exist, into a different number of securities of the same
class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased
in the case of a combination.
(b) Reclassification, etc. If the Company, at any time while this Warrant,
or any portion thereof, remains outstanding and unexpired by reclassification
of securities or otherwise, shall change any of the securities as to which
purchase rights under this Warrant exist into the same or a different number
of securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would
have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted.
(c) Number of Warrant Shares Adjusted. After any adjustment of the Exercise
Price pursuant to Section 10(a) or 10(b), the number of Warrant Shares
issuable at the new Exercise Price shall be adjusted to the number obtained
by (i) multiplying the number of Warrant Shares issuable upon exercise of the
Warrant immediately before such adjustment by the Exercise Price in effect
immediately before such adjustment and (ii) dividing the product so obtained
by the new Exercise Price.
(d) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 10, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to the Holder a certificate setting forth such adjustment
or readjustments.
11. Registration Rights.
11.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) "Holder" shall mean Emanuel and Company.
(d) "Registrable Securities" shall mean (i) shares of Common Stock issuable
upon exercise of this Warrant and (ii) any Common Stock issued as a dividend
or other distribution with respect to or in exchange for or in replacement of
the shares referenced in (i) above, provided, however, that Registrable
Securities shall not include any shares of Common Stock which have previously
been registered or which have been sold to the public.
(e) The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(f) "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees and
expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Holder (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
(g) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(h) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
11.2 Company Registration
(a) If the Company shall determine to register any of its securities either
for its own account or the account of a security holder or holders other than
a registration relating solely to employee benefit plans, the Company will:
(i) promptly give to Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any
related qualification under blue sky laws or other compliance), except as set
forth in Section 11.2(b) below, and in any underwriting involved therein, all
the Registrable Securities specified in a written request or requests, made
by Holder within twenty (20) days after the written notice from the Company
described in clause (i) above is given. Such written request may specify all
or a part of a Holder's Registrable Securities.
(b) If the registration of which the Company gives notice is for a registered
public offering involving an underwriting, the Company shall so advise Holder
as a part of the written notice given pursuant to Section 11.2(a)(i). In such
event, the right of Holder to registration pursuant to this Section shall be
conditioned upon Holder's participation in such underwriting and the
inclusion of Holder's Registrable Securities in the underwriting to the
extent provided herein. If Holder proposes to distribute the Registrable
Securities through such underwriting, it shall (together with the Company and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected by the Company.
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Notwithstanding any other provision of this Section 11.2, if the
representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting.
The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated first to the
Company for securities being sold for its own account and thereafter as set
forth in Section 11.7. If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the
Company or the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
If shares are so withdrawn from the registration or if the number of shares
of Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an
aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in
accordance with Section 11.7 hereof.
11.3 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 11.2 hereof and reasonable fees of one counsel for the selling
stockholders shall be borne by the Company. All Selling Expenses relating to
the Registrable Securities so registered shall be borne by Holder pro rata on
the basis of the number of shares of securities so registered on its behalf.
11.4 Indemnification.
(a) The Company will indemnify Holder, each of its officers, directors and
partners, legal counsel, and accountants and each person controlling Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification, or compliance has been effected pursuant to this
Section 11, and each underwriter, if any, and each person who controls within
the meaning of Section 15 of the Securities Act any underwriter, against all
expenses, claims, losses, damages, and liabilities (or actions, proceedings,
or settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse Holder, each of its
officers, directors, partners, legal counsel, and accountants and each person
controlling Holder, each such underwriter, and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by Holder or such
underwriter and stated to be specifically for use therein. It is agreed that
the indemnity agreement contained in this Section 11.4(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company
(which consent has not been unreasonably withheld).
(b) Holder will, if Registrable Securities held by it are included in the
securities as to which such registration, qualification, or compliance is
being effected, indemnify the Company, each of its directors, officers,
partners, legal counsel, and accountants and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act, and each other stockholder, and each of their
officers, directors, and partners, and each person controlling such other
stockholder, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular, or other document, or
any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and other stockholders, directors,
officers, partners, legal counsel, and accountants, persons, underwriters, or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular, or other document in reliance upon and in conformity with
written information furnished to the Company by the Holder and stated to be
specifically for use therein provided, however, that the obligations of the
Holder hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages, or liabilities (or actions in respect thereof) if
such settlement is effected without the consent of the Holder (which consent
shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 11.4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 11.4, to the extent such failure is not prejudicial. No Indemnifying
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Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in writing
and as shall be reasonably required in connection with defense of such claim
and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 11.4 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and
of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
11.5 Information by Holder. Holder shall furnish to the Company such
information regarding Holder and the distribution of Registrable Securities
proposed by Holder as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration,
qualification, or compliance referred to in Section 11.
11.6 Transfer or Assignment of Registration Rights. The rights to cause the
Company to register securities granted to Holder by the Company under
Section 11 may not be transferred or assigned by Holder.
11.7 Allocation of Registration Opportunities. In any circumstance in which
all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion
of shares of any currently unissued series of Preferred Stock of the Company)
with registration rights (the "Other Shares") requested to be included in a
registration on behalf of Holder or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number
of shares of Registrable Securities and Other Shares that may be so included
shall be determined in the sole discretion of the Company.
11.8 Delay of Registration. Holder shall have no right to take any action to
restrain, enjoin, or otherwise delay any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 11.
12. Miscellaneous.
(a) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON AS SUCH LAWS ARE APPLIED TO
AGREEMENTS BETWEEN OREGON RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY
WITHIN OREGON.
(b) Headings. The headings herein are for convenience only and are not part
of this Warrant and shall not affect the interpretation thereof.
(c) Jurisdiction; Venue; Service. The parties each consent to the venue and
jurisdiction of any state or federal court located in Multnomah County,
Oregon. Each party agrees that service of process may be made upon it
wherever it can be located or by certified mail directed to its address for
notices under this Agreement. This provision is permissive, not mandatory,
and each party reserves the right to bring any action, proceeding, or other
matter arising directly or indirectly hereunder against the other party
wherever they might be found or might otherwise be subject to jurisdiction.
IN WITNESS WHEREOF, SYNTHETECH, INC. has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated as of ____________________.
SYNTHETECH, INC.
By:_________________________________
Paul C. Ahrens, President
Synthetech, Inc.
1290 Industrial Way
Albany, OR 97321
ACKNOWLEDGED AND AGREED TO
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EMANUEL AND COMPANY
By:_____________________________
Title:__________________________
NOTICE OF EXERCISE
To: SYNTHETECH, INC.
(1) The undersigned hereby elects to purchase 100,000 shares of Common Stock
of SYNTHETECH, INC., pursuant to the terms of the attached Warrant, and tenders
herewith, such other documents required to be delivered under the terms of
the Warrant and payment of the purchase price for such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock to be issued upon conversion
thereof are being solely for the account of the undersigned and no as a
nominee for any other party, and for unvestment, and that the undersigned
will not offer, sell or otherwise dispose of any such shares of Common Stock
except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned:
Date:____________________ EMANUEL AND COMPANY
By:___________________
(Name)
Title:________________
43
Exhibit 10.14
of Form 10KSB
COMMERCIAL SECURITY AGREEMENT
Borrower: SYNTHETECH, INC. Lender: United States National Bank of
Oregon
1290 INDUSTRIAL WAY Mid-Willamette Commercial Banking Center
ALBANY, OR 97321 PL-7 Oregon Corporate Loan Servicing
555 S. W. Oak
Portland, OR 97204
THIS COMMERCIAL SECURITY AGREEMENT is entered into between SYNTHETECH, INC.
(referred to below as "Grantor"); and United States National Bank of Oregon
(referred to below as "Lender"). For valuable consideration, Grantor grants
to Lender a security interest in the Collateral to secure the Indebtedness
and agrees that Lender shall have the rights stated in this Agreement with
respect to the Collateral, in addition to all other rights which Lender may
have by law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All chattel paper, accounts, contract rights and general
intangibles
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All accessions, accessories, increases, and additions to and all
replacements of and substitutions for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, contract rights, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described
in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means SYNTHETECH, INC., its successors and
assigns
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
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Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or any one or
more of them, to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such indebtedness may be or hereafter
may become barred by any statute of limitations: and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means United States National Bank of Oregon,
its successors and assigns.
Note. The word "Note" means the note or credit agreement dated
September 8, 1995, in the principal amount of $1,000,000.00 from Grantor
to Lender, together with all renewals of, extensions of, modifications
of, refinancings of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts
Grantor may open in the future, excluding however all IRA, Keogh, and trust
accounts. Grantor authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Grantor's
incorporation. Grantor has its chief executive office at 1290
INDUSTRIAL WAY, ALBANY, OR 97321. Grantor will notify Lender of any
change in the location of Grantor's chief executive office.
Authorization. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Grantor or (b) any law, governmental regulation,
court decree, or order applicable to Grantor.
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby
appoints Lender as its irrevocable attorney-in-fact for the purpose of
executing any documents necessary to perfect or to continue the security
interest granted in this Agreement. Lender may at any time, and without
further authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as
a financing statement. Grantor will reimburse Lender for all expenses
for the perfection and the continuation of the perfection of Lender's
security interest in the Collateral. Grantor promptly will notify
Lender before any change in Grantor's name including any change to the
assumed business names of Grantor. This is a continuing Security
Agreement and will continue in effect even though all or any part of the
Indebtedness is paid in full and even though for a period of time
Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, contract rights, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated on
the Collateral have authority and capacity to contract and are in fact
obligated as they appear to be on the Collateral. At the time any
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<PAGE>
account becomes subject to a security interest in favor of Lender, the
account shall be a good and valid account representing an undisputed,
bona fide indebtedness incurred by the account debtor, for merchandise
held subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services theretofore
performed by Grantor with or for the account debtor; there shall be no
setoffs or counterclaims against any such account; and no agreement
under which any deductions or discounts may be claimed shall have been
made with the account debtor except those disclosed to Lender in
writing.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown above,
or at such other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of inventory,
Grantor shall not remove the Collateral from its existing locations
without the prior written consent of Lender. To the extent that the
Collateral consists of vehicles, or other titled property, Grantor shall
not take or permit any action which would require application for
certificates of title for the vehicles outside the State of Oregon,
without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business, Grantor
shall not sell, offer to sell, or otherwise transfer or dispose of the
Collateral. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest,
encumbrance, or charge, other than the security interest provided for in
this Agreement, without the prior written consent of Lender. This
includes security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands
of all other persons.
Collateral Schedules and Locations. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require, including
without limitation names and addresses of account debtors and agings of
accounts and general intangibles. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection, repossession, loss
or damage of or to any Collateral; of any request for credit or
adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the
Collateral or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor is
in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as
an additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
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Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation, manufacture,
storage, transportation, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined
in the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing or intended to
protect human health or the environment ("Environmental Laws"). The
terms "hazardous waste" and "hazardous substance" shall also include,
without limitation, petroleum and petroleum by-products or any fraction
thereof and asbestos. The representations and warranties contained
herein are based on Grantor's due diligence in investigating the
Collateral for hazardous wastes and substances. Grantor hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other
costs under any Environmental Laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement, or as a result of a
violation of any Environmental Laws. This obligation to indemnify shall
survive the payment of the Indebtedness and the satisfaction of this
Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages and
basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender and not including
any disclaimer of the insurer's liability for failure to give such a
notice. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in
the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor falls to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay or
reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to
pay all of the Indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid.
If fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender.
The reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for
Grantor, and Lender is not the agent of Grantor for payment of the
insurance premiums required to be paid by Grantor. The responsibility
for the payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of determining
that value; and (f) the expiration date of the policy. In addition,
Grantor shall upon request by Lender (however not more often than
annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts and above in the
paragraph titled "Transactions Involving Collateral", Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to
possession and beneficial use shall not apply to any Collateral where
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possession of the Collateral by Lender is required by law to perfect Lender's
security interest in such Collateral. Until otherwise notified by Lender,
Grantor may collect any of the Collateral consisting of accounts. At any
time and even though no Event of Default exists, Lender may exercise its
rights to collect the accounts and to notify account debtors to make payments
directly to Lender for application to the Indebtedness. If Lender at any
time has possession of any Collateral, whether before or after an Event of
Default, Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole
discretion, shall deem appropriate under the circumstances, but failure to
honor any request by Grantor shall not of itself be deemed to be a failure to
exercise reasonable care. Lender shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior parties, nor
to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also
will secure payment of these amounts. Such right shall be in addition to all
other rights and remedies to which Lender may be entitled upon the occurrence
of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when
due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender. However, this Event of Default
shall not apply if there is a good faith dispute by Grantor as to the
validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Grantor gives Lender written
notice of the creditor or forfeiture proceeding and deposits with Lender
monies or a surety bond for the creditor or forfeiture proceeding, in an
amount determined by Lender, in its sole discretion, as being an
adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Oregon Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following
rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
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covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made unless Grantor has signed, after an Event
of Default occurs, a statement renouncing or modifying Grantor's right
to notification of sale. The requirements of reasonable notice shall be
met if such notice is given at least ten (10) days before the time of
the sale or disposition. All expenses relating to the disposition of
the Collateral, including without limitation the expenses of retaking,
holding, insuring, preparing for sale and selling the Collateral, shall
become a part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become pad of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance
policies, instruments, chattel paper, choses in action, or similar
property, Lender may demand, collect, receipt for, settle, compromise,
adjust, sue for, foreclose, or realize on the Collateral as Lender may
determine, whether or not indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor,
receive, open and dispose of mail addressed to Grantor; change any
address to which mail and payments are to be sent; and endorse notes,
checks, drafts, money orders, documents of title, instruments and items
pertaining to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and obligors on
any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after application
of all amounts received from the exercise of the rights provided in this
Agreement. Grantor shall be liable for a deficiency even if the
transaction described in this subsection is a sale of accounts or
chattel paper.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Oregon. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of Multnomah County, State of Oregon. Subject to the
provisions on arbitration, this Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon.
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Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement,
and Grantor shall pay the costs and expenses of such enforcement. Costs
and expenses include Lender's attorneys' fees and legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Grantor also shall pay all court costs
and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited in
the United States mail, first class, postage prepaid, addressed to the
party to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor agrees to keep Lender informed at all times of Grantor's current
address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution to
do the following: (a) to demand, collect, receive, receipt for, sue and
recover all sums of money or other property which may now or hereafter
become due, owing or payable from the Collateral; (b) to execute, sign
and endorse any and all claims, instruments, receipts, checks, drafts or
warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and, in the
place and stead of Grantor, to execute and deliver its release and
settlement for the claim; and (d) to file any claim or claims or to take
any action or institute or take part in any proceedings, either in its
own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power
is given as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full force and
effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be within
the limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid
and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this Agreement.
No prior waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights or of any
of Grantor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of such
consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in
all cases such consent may be granted or withheld in the sole discretion
of Lender.
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PROMISSORY NOTE
Principal Loan Date Maturity Loan No. Call CollateralAccount Officer Initials
$1,000,000 09-08-1995 19 0380 8741855333 21728
Borrower: SYNTHETECH, INC. Lender: United States National Bank
of Oregon
1290 INDUSTRIAL WAY Mid-Willamette Commercial
Banking Center
ALBANY, OR 97321 PL-7 Oregon Corporate Loan Servicing
555 S. W. Oak
Portland, OR 97204
Principal Amount: $1,000,000.00 Initial Rate: 9.500% Date of Note:
September 8, 1995
PROMISE TO PAY. SYNTHETECH, INC. ("Borrower") promises to pay to United
States National Bank of Oregon ("Lender"), or order, in lawful money of the
United States of America, on demand, the principal amount of One Million &
00/100 Dollars ($1,000,000.00) or so much as may be outstanding, together
with interest on the unpaid outstanding principal balance of each advance.
Interest shall be calculated from the date of each advance until repayment of
each advance.
PAYMENT. Borrower will pay this loan immediately upon Lender's demand. In
addition, Borrower will pay regular monthly payments of all accrued unpaid
interest due as of each payment date, beginning October 5, 1995, with all
subsequent interest payments to be due on the same day of each month after
that. Interest on this Note is computed on a 365/360 simple interest basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Lender's Prime
Rate. This is the rate of interest which Lender from time to time
establishes as its Prime Rate and is not, for example, the lowest rate of
interest which Lender collects from any borrower or class of borrowers (the
"Index'). The interest rate shall be adjusted without notice effective on
the day Bank's prime rate changes. Lender will tell Borrower the current
Index rate upon Borrower's request. Borrower understands that Lender may
make loans based on other rates as well. The interest rate change will not
occur more often than each Day. The Index currently is 8.750% per annum.
The interest rate to be applied to the unpaid principal balance of this Note
will be at a rate of 0.760 percentage points over the Index, resulting in an
initial rate of 9.500% per annum.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject
to refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower falls to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the
time and strictly in the manner provided in this Note or any agreement
related to this Note, or in any other agreement or loan Borrower has with
Lender. (c) Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any material
respect. (d) Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (e) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (f) Any of the events described in this default section occurs with
respect to any guarantor of this Note. (g) Lender in good faith deems itself
insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within fifteen
(15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
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reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice, and then Borrower will pay that amount. Upon default,
including failure to pay upon final maturity, Lender, at its option, may
also, if permitted under applicable law, do one or both of the following: (a)
increase the variable interest rate on this Note to 5.750 percentage points
over the Index, and (b) add any unpaid accrued interest to principal and such
sum will bear interest therefrom until paid at the rate provided in this Note
(including any increased rate). The interest rate will not exceed the
maximum rate permitted by applicable law. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also will
pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether
or not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. This Note has
been delivered to Lender and accepted by Lender in the State of Oregon. If
there is a lawsuit, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of Multnomah County, the State of Oregon. Subject
to the provisions on arbitration, this Note shall be governed by and
construed in accordance with the laws of the State of Oregon.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, convoys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA,
Keogh, and trust accounts. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's accounts,
may be requested orally or in writing by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender, regardless of the fact that persons
other than those authorized to borrow have authority to draw against the
accounts. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor
has with Lender, including any agreement made in connection with the signing
of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan
with Lender; (d) Borrower has applied funds provided pursuant to this Note
for purposes other than those authorized by Lender; or (e) Lender in good
faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Note or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement.
This includes, without limitation, obtaining injunctive relief or a temporary
restraining order; foreclosing by notice and sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any collateral securing this Note,
including any claim to rescind, reform, or otherwise modify any agreement
relating to the collateral securing this Note, shall also be arbitrated,
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of any party. Judgment upon any award rendered by
any arbitrator may be entered in any court having jurisdiction. Nothing in
this Note shall preclude any party from seeking equitable relief from a court
of competent jurisdiction. The statute of limitations, estoppel, waiver,
laches, and similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable in any arbitration proceeding,
and the commencement of an arbitration proceeding shall be deemed the
commencement of an action for these purposes. The Federal Arbitration Act
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
LATE CHARGE. If a payment is 19 days or more past due, Borrower will be
charged a late charge of 5% of the delinquent payment.
CREDIT ACT - CHECKING ACCOUNT NUMBER 022-0016-224 LOCATED AT THE ALBANY
COMMUNITY BRANCH. Borrower has requested and been granted Lender's
Commercial Line of Credit Automatic Cash Transfer Service ("Credit ACT"). So
long as this Note is in place, Borrower authorizes Lender to draw from
Borrower's available line of credit and transfer funds automatically to
Borrower's commercial checking account described in the heading of this
paragraph ("Checking Account") in accordance with this section. So long as
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this agreement is in place, Lender agrees to make an automatic cash transfer
from Borrower's line of credit to its Checking Account in increments of
$500.00, to pay checks that would otherwise overdraw Borrower's Checking
Account by $100.00 or more, up to Borrower's available credit limit. The
amount of each Credit ACT transfer will be an advance under the terms of this
Note. There is no charge for using Credit ACT. Borrower agrees to pay
prevailing overdraft or other applicable checking account charges then in
effect if an overdraft may not be paid because an ACT in the required
increment of $500.00 to pay the full amount of the overdraft would exceed
Borrower's credit limit. If Borrower's credit limit has been exceeded, and
no other ACT privileges are available to Borrower, any check presented for
payment from Checking Account will, at the sole option of Lender, either be
paid, thus overdrawing Checking Account, or dishonored. Lender may change
the terms of Credit ACT at any time by giving Borrower written notice, sent
to the Borrower's address as shown in Lender's records, prior to the
effective date of the change.
Lender reserves the right to discontinue this service upon giving written
notice to the Borrower, at Borrower's address shown in Lender's records,
under the following circumstances: (1) Lender reasonably believes that
Borrower will be unable to fulfill its repayment obligations because of a
material adverse change in Borrower's financial circumstances. (2) Borrower
fails to promptly provide financial information that Lender has requested.
(3) Borrower is in default of a material provision of any promissory note or
loan agreement with Lender.
If Lender discontinues further Credit ACT services due to any of these
circumstances, Lender will mail Borrower written notice of the
discontinuation and the reasons therefor. After such notice is given,
Borrower must request in writing that its Credit ACT be reinstated. Before
Credit ACT privileges are reinstated, Lender may ask Borrower to provide new
information, at Borrower's expense. If Borrower shows Lender that the
circumstances that caused cancellation of Credit ACT services have ceased to
exist, Credit ACT will be reinstated at Lender's sole option and discretion
upon written notice to Borrower.
PERIODIC REVIEW. Lender will review the loan periodically. At the time of
the review, Borrower will furnish Lender with any additional information
regarding Borrower's financial condition and business operations that Lender
requests. This information may include, but is not limited to, financial
statements, tax returns, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets and forecasts. If
upon review, Lender, in its sole discretion, determines that there has been a
material adverse change in Borrower's financial condition, Borrower will be
in default. Upon default, Lender shall have all rights specified herein.
DEMAND NOTE. BORROWER ACKNOWLEDGES AND AGREES THAT (A) THIS NOTE IS A DEMAND
NOTE, AND LENDER IS ENTITLED TO DEMAND BORROWER'S IMMEDIATE PAYMENT IN FULL
OF ALL AMOUNTS OWING HEREUNDER, (B) NEITHER ANYTHING TO THE CONTRARY
CONTAINED HEREIN OR IN ANY OTHER LOAN DOCUMENTS (INCLUDING BUT NOT LIMITED
TO, PROVISIONS RELATING TO DEFAULTS, RIGHTS OF CURE, DEFAULT RATE OF
INTEREST, INSTALLMENT PAYMENTS, LATE CHARGES, PERIODIC REVIEW OF BORROWER'S
FINANCIAL CONDITION, AND COVENANTS) NOR ANY ACT OF LENDER PURSUANT TO ANY
SUCH PROVISIONS SHALL LIMIT OR IMPAIR LENDER'S RIGHT OR ABILITY TO REQUIRE
BORROWER'S PAYMENT IN FULL OF ALL AMOUNTS OWING HEREUNDER IMMEDIATELY UPON
LENDER'S DEMAND, AND (C) UPON LENDER MAKING ANY SUCH DEMAND, LENDER SHALL
HAVE NO OBLIGATION TO MAKE ANY ADVANCE UNDER THIS NOTE OR UNDER THE LOAN
DOCUMENTS.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Note on its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Note without losing
them. Borrower and any other person who signs, guarantees or endorses this
Note, to the extent allowed by law, waive presentment, demand for payment,
protest and notice of dishonor. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may re-new or
extend (repeatedly and for any length of time) this loan, or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent
of or notice to anyone other than the party with whom the modification is
made.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US
(LENDER) AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY
THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE
SIGNED BY US TO BE ENFORCEABLE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
53
<PAGE>
BORROWER:
SYNTHETECH, INC.
\s\ Charles B. Williams, VP \s\ Philip Knutson, VP
X X
Authorized Officer Authorized Officer
LENDER:
United States National Bank of Oregon
By
Authorized Officer
54
<PAGE>
Exhibit 23
to Form 10KSB
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated May 16, 1996 included in this Form 10-K for the year ended
March 31, 1996, into Synthetech, Inc.'s previously filed Registration
Statement Nos. 33-45913 and 33-64621.
Portland, Oregon,
June 4, 1996
55
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1996 10KSB Balance Sheets, Income Statements, and Cash Flow Statements,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 5049000
<SECURITIES> 395000
<RECEIVABLES> 1355000
<ALLOWANCES> 0
<INVENTORY> 1924000
<CURRENT-ASSETS> 9006000
<PP&E> 1311000
<DEPRECIATION> 0
<TOTAL-ASSETS> 10959000
<CURRENT-LIABILITIES> 849000
<BONDS> 0
<COMMON> 13000
0
0
<OTHER-SE> 10100000
<TOTAL-LIABILITY-AND-EQUITY> 10959000
<SALES> 8472000
<TOTAL-REVENUES> 8472000
<CGS> 3685000
<TOTAL-COSTS> 4735000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4022000
<INCOME-TAX> 1448000
<INCOME-CONTINUING> 2574000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2574000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
