<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Applied Bioscience International Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
APPLIED BIOSCIENCE INTERNATIONAL INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 20, 1996
------------------------
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders of
Applied Bioscience International Inc., a Delaware corporation (herein called
"APBI" or the "Company"), will be held at the St. Regis Hotel, 21 East 55th
Street, New York, New York, on June 20, 1996, at 11:00 a.m., Eastern Daylight
Time, to consider and act upon the following matters:
1. To consider and act upon a proposal to amend the Company's
Certificate of Incorporation, as amended, to provide for the annual
election of directors;
2. To elect three directors of the Company; and
3. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record as of the close of business on April 26, 1996,
are entitled to notice of, and to vote at, the meeting and any adjournment
thereof.
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
Dated: April 30, 1996
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Craig E. Chason
By: Craig E. Chason
Corporate Secretary
<PAGE> 3
APPLIED BIOSCIENCE INTERNATIONAL INC.
4350 NORTH FAIRFAX DRIVE
ARLINGTON, VIRGINIA 22203-1627
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 20, 1996
------------------------
GENERAL
This Proxy Statement is furnished to stockholders of Applied Bioscience
International Inc., a Delaware corporation (hereinafter called the "Company" or
"APBI"), in connection with the solicitation of proxies in the form enclosed
herewith for use at the Annual Meeting of Stockholders of the Company to be held
on Thursday, June 20, 1996, or at any adjournment thereof, at 11:00 a.m. for the
purposes set forth in the Notice of Annual Meeting. This Proxy Statement and the
accompanying form of proxy are first being mailed to stockholders on or about
April 30, 1996.
If properly executed and returned to the Company and not revoked, proxies
will be voted at the meeting or any adjournment or adjournments thereof, in
accordance with the instructions contained therein. At any time before it is
voted at the meeting, any proxy may be revoked by the person giving it by (i)
delivering to the Secretary of the Company a written notice stating that the
proxy is revoked, (ii) executing and delivering a later dated proxy, or (iii)
voting in person at the meeting.
VOTING
Only holders of record of shares of the common stock of the Company, par
value $.01 per share (the "Common Stock"), as of the close of business on the
record date, April 26, 1996, are entitled to receive notice of, and to vote at,
the meeting or any adjournment thereof. The Common Stock constitutes the only
class of securities of the Company outstanding and entitled to vote at the
meeting. Each holder of outstanding shares of Common Stock is entitled to one
vote for each share of Common Stock held as of the record date. All shares of
Common Stock that are present at the meeting, in person or represented by proxy,
will count towards determining the presence of a quorum at the meeting. Shares
that are not voted on a particular matter (whether by abstention, broker nonvote
or otherwise), therefore, will have no impact on the determination of the
presence of a quorum. At the close of business on April 26, 1996, 29,531,039
shares of Common Stock were issued and outstanding.
SECURITY OWNERSHIP OF
MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 26, 1996 by (i) each person
who was known by the Company to own beneficially more than five percent (5%) of
the Company's Common Stock then outstanding, (ii) each nominee for election as a
director of the Company, (iii) each director of the Company and each of the
current and former executive officers of the Company named in the Summary
Compensation Table, and (iv) all directors and executive officers of the Company
as a group. Unless otherwise indicated, each of the directors, current and
former
<PAGE> 4
executive officers and stockholders listed below, and the directors and
executive officers as a group, have sole voting power and sole investment power
with respect to the shares beneficially owned by them.
<TABLE>
<CAPTION>
COMMON STOCK OF THE COMPANY,
PAR VALUE $.01 PER SHARE
----------------------------------------
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------------------ -------------------- ----------------
<S> <C> <C>
Merrill Lynch & Co., Inc. (1)............................... 3,876,300 13.1%
ICM Asset Management, Inc. (2).............................. 2,566,825 8.7
Travelers Group Inc. (3).................................... 1,633,358 5.5
State of Wisconsin Investment Board (4)..................... 2,800,000 9.5
Richard J. Hawkins (5)...................................... 1,857,813 6.3
Kenneth H. Harper (6)....................................... 529,220 1.8
Kirby L. Cramer (7)......................................... 54,204 *
Steven A. Fleckman (8)...................................... 2,953 *
Frederick Frank (8)......................................... 2,953 *
Frank E. Loy (8)............................................ 7,453 *
Lawrence C. McQuade (8)..................................... 4,477 *
Thomas J. Russell (8)....................................... 2,953 *
John D. Bryer (9)........................................... 21,666 *
Joseph H. Highland (10)..................................... 578,054 2.0
John H. Timoney (11)........................................ 208,890 *
Stephen L. Waechter (12).................................... 34,188 *
Grover C. Wrenn (13)........................................ 118,518 *
Charles L. Defesche (14).................................... 63,297 *
All directors and current executive officers as a group (12
persons) (15)............................................. 1,447,677 4.8
</TABLE>
- ---------------
* Represents less than 1%
(1) Based on information contained in an amendment to a Schedule 13G filed with
the Securities and Exchange Commission on March 11, 1996. Consists of
shares over which Merrill Lynch & Co., Merrill Lynch Group, Inc., Princeton
Services, Inc. and Merrill Lynch Phoenix Fund, Inc., may be deemed to
exercise shared voting and investment authority. Merrill Lynch & Co., Inc.,
Merrill Lynch Group, Inc., Princeton Services, Inc. and Merrill Lynch
Phoenix Fund, Inc., disclaim beneficial ownership of such shares. The
address of Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc. is World
Financial Center, North Tower, 250 Vesey Street, New York, New York 10281.
The address of Princeton Services, Inc. and Merrill Lynch Phoenix Fund,
Inc. is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(2) Based on information contained in a Schedule 13G filed with the Securities
and Exchange Commission on February 10, 1996. The address of ICM Asset
Management, Inc. is 601 W. Main Avenue, Suite 917, Spokane, Washington
99201.
(3) Based on information contained in a Schedule 13G filed by Travelers Group
Inc. and its subsidiaries, Smith Barney Inc. and Smith Barney Holdings
Inc., on February 2, 1996. Consists of shares as to which Travelers Group
Inc. shares voting and dispositive power. The address of Travelers Group
Inc. is 388 Greenwich Street, New York, New York 10013.
(4) Based on information contained in an amendment to a Schedule 13G filed with
the Securities and Exchange Commission on January 26, 1996. The address of
the State of Wisconsin Investment Board is P.O. Box 7842, Madison,
Wisconsin 53707.
(5) Based on information contained in an amendment to a Schedule 13D filed with
the Securities and Exchange Commission on December 19, 1995. Mr. Hawkins'
address is 324 Eanes School Road, Austin, Texas 78746. Includes 1,189,799
shares owned by Mr. Hawkins' wife, as to which Mr. Hawkins does not
disclaim beneficial ownership.
2
<PAGE> 5
(6) Consists of 529,220 shares which may be acquired within the next 60 days
pursuant to the exercise of options granted under the Company's Stock
Incentive Program (1990). Excludes 50,000 shares of restricted stock
granted under the Company's Stock Incentive Program (1990) which are not
currently vested.
(7) Includes 14,000 shares held through an individual retirement account for
the benefit of Mr. Cramer. Excludes 6,000 shares subject to options granted
under the Company's Option Plan for Outside Directors which are not
currently exercisable and will not become exercisable within the next 60
days.
(8) Includes 2,000 shares which may be acquired within the next 60 days
pursuant to the exercise of options granted under the Company's Option Plan
for Outside Directors. Excludes 4,000 shares subject to options granted
under such plan which are not currently exercisable and will not become
exercisable within the next 60 days.
(9) Consists of 21,666 shares which may be acquired within the next 60 days
pursuant to the exercise of options granted under the Company's Stock
Incentive Program (1990). Excludes 78,334 shares subject to options granted
under such plan which are not currently exercisable and will not become
exercisable within the next 60 days.
(10) Includes 97,500 shares held by the Highland-Mills Foundation, of which Dr.
Highland is an officer and trustee, and 50,760 shares which may be acquired
within the next 60 days pursuant to the exercise of options granted under
the Company's Stock Incentive Program (1990). Excludes 19,344 shares
subject to options granted under the Company's Stock Incentive Program
(1990) which are not currently exercisable and will not become exercisable
within the next 60 days.
(11) Includes 23,298 shares owned jointly by Mr. Timoney and his wife, as to
which they share voting and investment power and 184,792 shares which may
be acquired within the next 60 days pursuant to the exercise of options
granted under the Company's Stock Incentive Program (1990). Excludes 45,296
shares issuable pursuant to a supplemental retirement arrangement
maintained by the Company for Mr. Timoney, 4,000 shares subject to options
granted under the Company's Stock Incentive Program (1990) which are not
currently exercisable and will not become exercisable within the next 60
days, and 10,000 shares of restricted stock granted under the Company's
Stock Incentive Program (1990) which are not currently vested.
(12) Includes 4,000 shares owned jointly by Mr. Waechter and his wife, as to
which they share voting and investment power, 855 shares owned by the
Applied Bioscience International Inc. U.S. Retirement Savings Plan, a
401(k) plan, for the account of Mr. Waechter, and 29,333 shares which may
be acquired within the next 60 days pursuant to the exercise of options
granted under the Company's Stock Incentive Program (1990). Excludes
109,667 shares subject to options granted under the Company's Stock
Incentive Program (1990) which are not currently exercisable and will not
become exercisable within the next 60 days.
(13) Includes 110,094 shares which may be acquired within the next 60 days
pursuant to the exercise of options. Excludes 37,334 shares subject to
options which are not currently exercisable and will not become exercisable
within the next 60 days.
(14) Includes 62,005 shares which may be acquired within the next 60 days
pursuant to the exercise of options and 1,292 shares owned by the Applied
Bioscience International Inc. U.S. Retirement Savings Plan, a 401(k) plan,
for the account of Dr. Defesche. Excludes 72,005 shares subject to options
granted under the Company's Stock Incentive Program (1990) which are not
currently exercisable and will not become exercisable within the next 60
days.
(15) Includes 826,437 shares which may be acquired within the next 60 days
pursuant to the exercise of options granted under the Company's Stock
Incentive Program (1990). Excludes 252,669 shares subject to options
granted under the Company's Stock Incentive Program (1990) which are not
currently exercisable and will not become exercisable within the next 60
days, 45,296 shares issuable pursuant to a supplemental retirement
arrangement maintained by the Company for Mr. Timoney, and 60,000 shares of
restricted stock granted under the Company's Stock Incentive Program (1990)
which are not currently vested. Also excludes shares held by Mr. Wrenn and
Dr. Defesche, who are not currently executive officers or directors of the
Company.
3
<PAGE> 6
APPROVAL OF AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
TO PROVIDE FOR THE ANNUAL ELECTION OF DIRECTORS (ITEM NO. 1)
The Board of Directors has approved and recommends that the stockholders
adopt an amendment to Paragraph A of Article Fifth of the Company's Certificate
of Incorporation, as amended (the "Certificate of Incorporation"), to eliminate
the classification of the Directors and to provide that upon expiration of the
terms for which the current Directors have been elected, their successors shall
be elected for terms of one year. If the stockholders adopt the proposed
amendment at the 1996 Annual Meeting of Stockholders, the persons named in the
enclosed proxy will vote to elect each of the three nominees named in this Proxy
Statement to hold office until the 1997 Annual Meeting of Stockholders and until
each of their respective successors shall be elected and shall qualify. As the
terms of the Directors previously elected expire, their successors will also be
elected for essentially one-year terms so that, if the amendment is adopted by
the stockholders, at the 1998 Annual Meeting of Stockholders all of the
Directors will be elected for one-year terms.
If the proposed amendment is approved by the Company's stockholders,
Paragraph A of Article Fifth of the Certificate of Incorporation would read in
its entirety as follows:
"FIFTH:
A. The business and affairs of the corporation shall be managed by
the Board of Directors. The number of directors of the corporation shall
be fixed from time to time by or pursuant to the by-laws. Each director
elected prior to 1996 shall hold office for the term of years for which
that director was elected and until that director's successor is elected
and qualified or until that director's resignation or removal, and each
director elected after January 1, 1996 shall hold office until the next
annual meeting of stockholders and until that director's successor is
elected and qualified or until that director's earlier resignation or
removal."
If the amendment to Paragraph A of Article Fifth of the Certificate of
Incorporation is approved, the Board of Directors will adopt conforming
amendments to the Company's by-laws.
The Company's Certificate of Incorporation, including Paragraph A of
Article Fifth, was approved in September 1986 in connection with the original
incorporation of the Company. The Company had been organized in contemplation of
participating in an initial public offering and the adoption of a classified
board was viewed as a means both to assure a certain amount of continuity among
the Company's board members and to protect the Company against abusive takeover
practices. The classification of the Board of Directors makes it more difficult
for any stockholder or stockholders to change a majority of the directors by
generally requiring at least two annual meetings of stockholders to effect such
a change.
Since the adoption of a classified Board, certain types of takeover
practices have become less prevalent, and stockholders have generally become
more active in seeking greater direct accountability of management. The Board of
Directors believes that the elimination of the classified board will provide
stockholders with a greater degree of control over management by permitting them
to elect the entire Board each year and to register their views on the
performance of the Board of Directors, collectively, and with respect to each
individual director, on an annual basis.
The Board also believes that in order to provide for an orderly transition,
the classified Board should be phased out over time by electing the nominees at
the 1996 Annual Meeting for a one-year term and by electing the successors to
the current Directors for one-year terms as the three-year terms of the current
Directors expire. Accordingly, if the proposal is approved, approximately
two-thirds of the Directors will be elected for one-year terms at the 1997
Annual Meeting of Stockholders, and all of the Directors will be elected for
one-year terms beginning at the 1998 Annual Meeting of Stockholders. If this
proposal is not approved, each of the nominees at the 1996 Annual Meeting, upon
their election, will hold office until the Company's 1999 Annual Meeting of
Stockholders and until each of their respective successors shall be elected and
shall qualify.
4
<PAGE> 7
VOTE REQUIRED TO AMEND THE CERTIFICATE OF INCORPORATION
The affirmative vote of the holders of a majority of the shares of the
Common Stock outstanding and entitled to vote at the meeting is required to
approve the proposed amendment to the Company's Certificate of Incorporation.
Accordingly, shares that are not voted (whether by abstention, broker nonvote or
otherwise) will have the affect of counting against the approval of the proposed
amendment to the Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO PROVIDE FOR THE ANNUAL ELECTION OF DIRECTORS.
ELECTION OF DIRECTORS (ITEM NO. 2)
The Board of Directors currently consists of seven directors divided into
three classes, with the term of the first class expiring at the 1998 Annual
Meeting of Stockholders, the term of the second class expiring at the 1996
Annual Meeting of Stockholders, and the term of the third class expiring at the
1997 Annual Meeting of Stockholders. Since June 22, 1995, the date of the 1995
Annual Meeting of Stockholders, a majority of the members of the Board of
Directors of the Company have been non-management ("outside") directors and, as
of the date of this Proxy Statement, six of the seven members of the Board of
Directors are outside directors.
Dr. Kenneth H. Harper, Mr. Lawrence C. McQuade and Dr. Thomas J. Russell
are the members of the Board of Directors whose terms expire at the 1996 Annual
Meeting of Stockholders and each of them has been renominated by the Board of
Directors for reelection. If Item No. 1 relating to the elimination of the
classified Board of Directors is approved, upon their election each of such
nominees will hold office until the 1997 Annual Meeting of Stockholders and
until their successors are elected and qualified; otherwise, upon their election
such nominees will continue to hold office as members of the Company's second
class of Directors for a three-year term expiring at the Company's 1999 Annual
Meeting of Stockholders or until each of their respective successors is elected
and qualified.
The persons named in the proxy, unless otherwise directed, will vote each
proxy for the election of Dr. Harper, Mr. McQuade and Dr. Russell. If, for any
presently unforeseen reason, such nominee(s) shall become unavailable to stand
for election, the persons named in the proxy will have the right to use their
discretion to vote for substitute nominee(s).
The following table sets forth, with respect to each current director and
executive officer of the Company, the name, age and all positions and offices
with the Company currently held by each such person:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
- -------------------------------------- --- -------- --------------------------------------
<S> <C> <C> <C>
Kenneth H. Harper (1)(2).............. 64 1986 President, Chief Executive Officer and
Chairman of the Board of Directors
Kirby L. Cramer (1)(3)(5)............. 59 1995 Director
Steven A. Fleckman (1)(3)(4).......... 46 1993 Director
Frederick Frank (1)(3)(5)............. 63 1988 Director
Lawrence C. McQuade (1)(2)(3)......... 68 1995 Director
Frank E. Loy (1)(3)(4)................ 67 1991 Director
Thomas J. Russell, Jr. (1)(2)(3)...... 64 1986 Director
John D. Bryer......................... 62 -- President and Chief Executive Officer
of the Company's Pharmaco
International Inc. subsidiary
Carol P. Hanna........................ 33 -- Controller and Director of Corporate
Taxation
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
- -------------------------------------- --- -------- --------------------------------------
<S> <C> <C> <C>
Joseph H. Highland.................... 51 -- Chief Executive Officer of the ENVIRON
division of the Company's APBI
Environmental Sciences Group, Inc.
subsidiary
John H. Timoney....................... 62 -- Senior Vice President of the Company,
Secretary of the Company's APBI
Investor Relations, Inc. subsidiary
and Chief Executive Officer of the
Company's Clinix International Inc.
subsidiary
Stephen L. Waechter................... 46 -- Senior Vice President, Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(1) Member of the Nominating Committee.
(2) Term as director expires in 1996.
(3) Member of the Audit Committee and the Compensation and Stock Plans
Committee.
(4) Term as a director expires in 1997.
(5) Term as a director expires in 1998.
Under the terms of his employment agreement, upon expiration of the initial
term or any subsequent term of service as a director of the Company that is
within the term of the employment agreement, the Company has agreed to use its
best efforts to cause its Board of Directors to nominate Dr. Harper for
reelection as a director of the Company.
VOTE REQUIRED TO ELECT NOMINEES OF THE BOARD OF DIRECTORS AS DIRECTORS OF THE
COMPANY
The affirmative vote of the holders of a plurality of the shares of Common
Stock cast on the matter at a meeting at which a quorum is present is required
to elect each director of the Company. "Plurality" means that the individuals
who receive the largest number of votes cast are elected as directors, up to the
maximum number of directors to be elected at the meeting. Accordingly, shares
that are not voted (whether by abstention, broker nonvote or otherwise) have no
impact on the election of directors except to the extent that such failure to
vote for a particular individual results in another individual receiving a
larger number of votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE
AS A DIRECTOR OF THE COMPANY.
BIOGRAPHICAL INFORMATION
Dr. Kenneth H. Harper was a co-founder of Pharmaco LSR Ltd. (formerly Life
Science Research Limited), a United Kingdom subsidiary of the Company until it
was sold to Huntingdon International Holdings plc on November 21, 1995. Dr.
Harper served as the Managing Director and Chairman of Life Science Research
Limited from the time of its formation in 1972 until the Company became publicly
held in 1987. From 1987 to 1991, Dr. Harper served as President and Chief
Executive Officer of the Company. In 1991, Dr. Harper was appointed Chairman of
the Board of the Company and continued to serve as Chief Executive Officer of
the Company until January 1, 1993. In February of 1995, Dr. Harper was
reappointed to serve as President and Chief Executive Officer of the Company.
Dr. Harper received his Ph.D. in Pathology from the University of London. He is
also a graduate of the Advanced Management Program of the Harvard Business
School.
Kirby L. Cramer has served as a Director since December 1995. Mr. Cramer is
the Chairman Emeritus of Hazleton Laboratories Corporation, a contract
biological and chemical research laboratory, which was acquired by Corning
Incorporated in 1987. He is Chairman of the Board of Northwestern Trust Company
and also President of Keystone Capital Company, an investment company. Mr.
Cramer received his Bachelor of Arts degree from Northwestern University and
Master of Business Administration degree from the University
6
<PAGE> 9
of Washington and is a graduate of the Harvard Business School's Advanced
Management Program. In 1988, he received an honorary Doctor of Laws degree from
James Madison University. Mr. Cramer is a member of the University of Washington
Foundation and also is Chairman of the Advisory Board of the University of
Washington School of Business Administration. He is the past President and
Trustee Emeritus of the Darden School Foundation of the University of Virginia.
Mr. Cramer is a member of the Boards of Directors of Northwestern Trust Company,
Immunex Corporation, Unilab Corporation, The Commerce Bank of Washington, N.A.,
Landec Corporation, Advanced Technology Laboratories and International
Technology Corp.
Steven A. Fleckman was a partner in the law firm of Arnold & Fleckman from
1988 to 1991. Since 1991, Mr. Fleckman has been a partner in the law firm of
Fleckman & McGlynn (formerly Fleckman & Schless and, prior to that, Fleckman,
Johnson & Passman) and currently is the managing partner of the firm. Mr.
Fleckman received his Juris Doctorate from Harvard Law School in 1975.
Frederick Frank has been an investment banker with Lehman Brothers since
1969, and is currently Vice Chairman of the firm. Previously, Mr. Frank served
as a Managing Director of Lehman Brothers from 1972 to 1993, and as Senior
Managing Director from 1993 to 1995. Mr. Frank also serves on the Boards of
Directors of R.P. Scherer Corporation, Diagnostic Products and Physicians'
Computer Network Inc. Mr. Frank received his Master of Business Administration
from Stanford University in 1958.
Frank E. Loy is currently the Chairman of the Board of Directors of the
League of Conservation Voters. Mr. Loy served as President of the German
Marshall Fund of the United States from 1981 to 1995. Previously, he served as
Director of the Bureau of Refugee Programs and as Deputy Assistant Secretary for
Economic Affairs of the United States Department of State, as President and
Chief Operating Officer of the Penn Central Corporation and the Pennsylvania
Company, and as Senior Vice President of Pan American Airways.
Lawrence C. McQuade has served as a Director of the Company since June
1995. From 1988 to 1995, Mr. McQuade served as the Vice Chairman of Prudential
Mutual Fund Management, Inc., a subsidiary of Prudential Securities and
Prudential Insurance Co. that manages and administers investment companies. Mr.
McQuade previously served as the Executive Vice President and a member of the
Board of Directors of W.R. Grace & Co. from 1975 to 1987. Mr. McQuade received a
Bachelor of Arts degree from Yale University, a Bachelor of Arts degree
(Jurisprudence) and a Master of Arts from Oxford University, and an LLB degree
from the Harvard Law School. Mr. McQuade serves on the Boards of many public
service organizations, including serving as a member of the Council on Foreign
Relations, a director of the Atlantic Council of the United States, a director
of the Foreign Bondholders Protective Council, a director of The American Forum
(Education in a Global Age), a director of the International Management &
Development Institute, a member of The Bretton Woods Committee, a member of the
Advisory Committee on Overseas Development Council, and the Chairman of the
Committee on Multinational Enterprises and Investment of the U.S. Council for
International Business. In addition, Mr. McQuade currently is a member of the
Boards of Directors of Bunzl Plc, Quixote Corporation and Country Baskets Index
Fund, Inc.
Dr. Thomas J. Russell founded Bio/dynamics, Inc. (formerly a subsidiary of
the Company) in 1961 and, following the acquisition of Bio/dynamics by IMS in
1973, served as President of the division of IMS which included Bio/dynamics and
Life Science Research Limited until the Company became publicly held in 1987.
Dr. Russell served as a director of IMS from 1984 to 1988, and as Chairman of
the Board of IMS from 1987 to 1988. Dr. Russell was Chairman of the Board of the
Company from 1986 to 1991. He holds a doctorate degree in Biochemistry and
Physiology from Rutgers University. Dr. Russell also serves on the Boards of
Directors of Cordiant Plc, Uniroyal Technology Corporation, Adidas AG and Emcore
Corp.
John D. Bryer served, from 1988 to 1994, as the President of Lexis
Pharmaceuticals Inc. From 1985 to 1988, Mr. Bryer was the President of Ivy
Laboratories, Inc. Mr. Bryer served as Area Director and a member of the Board
of Boots International Limited from 1982 through 1984 and was the Chief
Executive Officer and a member of the Board of Boots Pharmaceuticals, Inc. (a
wholly subsidiary of Boots Plc) from 1976 through 1982. Mr. Bryer joined
Pharmaco International Inc. in June 1994 and in February 1995 he was appointed
President and Chief Executive Officer of Pharmaco International Inc. Mr. Bryer
holds a business degree from Manchester University.
7
<PAGE> 10
Carol P. Hanna was appointed as the Controller and Director of Corporate
Taxation of the Company in January 1996. From 1992 to 1996, Ms. Hanna served as
the Tax Manager of the Company and in August 1995, she also was appointed to
serve as the Controller of Clinix International Inc. ("Clinix"), a wholly owned
subsidiary of the Company formed to acquire the business and assets of the
Chicago Center for Clinical Research. Previously, from 1985 to 1992, she was a
certified public accountant with the firm of Arthur Andersen LLP. She received
her Bachelor of Accountancy degree from the George Washington University in
1985. Ms. Hanna is a certified public accountant and a member of the American
Institute of Certified Public Accountants and the Maryland Association of
Certified Public Accountants.
Dr. Joseph H. Highland co-founded ENVIRON in 1982. He is currently the
Chief Executive Officer of the ENVIRON division of APBI Environmental Sciences
Group, Inc., which was formerly Environ International Corporation, a subsidiary
of the Company, and has served as such since February 1992. Dr. Highland also
served as a director of the Company from 1990 to June 1995. Dr. Highland, who
holds a Ph.D. in Biochemistry from the University of Minnesota's School of
Medicine, served as co-director of the Hazardous Waste Research Program at
Princeton University before joining ENVIRON.
John H. Timoney served as Controller of the division of IMS which included
Bio/dynamics and Life Science Research Limited from 1978 to 1987. From 1987 to
1992, Mr. Timoney served as the Vice President-Finance, Treasurer and Secretary
of the Company. In May 1992, Mr. Timoney was appointed to serve as Senior Vice
President of the Company and the Secretary of APBI Investor Relations, Inc., a
subsidiary of the Company. He also has served as the Chief Executive Officer of
the Company's Clinix subsidiary since March 1996. Mr. Timoney also served as a
director of the Company from 1986 to June 1995. Mr. Timoney is responsible for
the Company's investor relations and is involved in strategic planning and in
merger and acquisition activity. Mr. Timoney also serves on the Board of
Directors of EnSys Environmental Products, Inc.
Stephen L. Waechter served, from 1989 to 1993, as the Vice
President -- Finance for GE Information Services, a division of General Electric
Company, which provides enhanced computer-based communications services to
commercial and industrial customers through a worldwide network. From 1987 to
1989, Mr. Waechter served as the Manager of Operations Analysis for GE
Electrical Distribution and Control, a division of General Electric Company. In
September 1993, Mr. Waechter was appointed Vice President, Chief Financial
Officer and Treasurer of the Company and in October 1994 he was promoted to
Senior Vice President of the Company. Mr. Waechter also served as a director of
the Company from 1993 to June 1995. Mr. Waechter received his Master of Business
Administration from Xavier University in 1974.
There are no family relationships among any of the directors and executive
officers of the Company.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership of such equity securities with the
Securities and Exchange Commission (the "SEC"). Such persons are also required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that, with respect to the period from January 1, 1995 through December
31, 1995, its directors, executive officers and 10% beneficial owners complied
with all Section 16(a) filing requirements except as follows. Effective with
last years' Annual Meeting of Stockholders held on June 22, 1995, non-employee
("outside") directors of the Company were paid an annual fee of $15,000 with
$5,000 of such fee to be paid in shares of the Company's common stock. Shares of
common stock were issued to Mr. Fleckman, Mr. Frank, Mr. Loy, Mr. McQuade and
Dr. Russell, the then current outside directors, in October 1995 with the
issuances of such shares subsequently reported on Statements of Changes in
Beneficial Ownership on Form 4 filed in December 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has appointed a standing Audit Committee, which is
responsible for reviewing with the Company's independent auditors their audit
plans and the results of their audit (including their recommendations regarding
internal controls), and which exercises general oversight over the Company's
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<PAGE> 11
system of internal audit controls and the accounting principles employed by the
Company in its financial reporting. During the past fiscal year, the Audit
Committee met five times. Mr. Loy (Chairman), Mr. Fleckman, Mr. Frank and Dr.
Russell served as members of the Audit Committee during all of fiscal year 1995
and Mr. McQuade and Mr. Cramer were appointed to serve on the Committee at the
time of their election to the Board of Directors in June 1995 and December 1995,
respectively. Messrs. Cramer, Fleckman, Frank, Loy, McQuade and Russell are the
current members of the Audit Committee.
The Compensation and Stock Plans Committee is responsible for reviewing and
approving compensation arrangements, including bonuses and incentive programs,
and stock option and restricted stock awards, for senior management of the
Company. The Committee also is generally responsible for granting stock awards
and stock options under the Company's stock option plans. During 1995, the
Committee met four times. Dr. Russell (Chairman), Mr. Fleckman, Mr. Frank and
Mr. Loy served as members of the Compensation and Stock Plans Committee during
all of fiscal year 1995 and Mr. McQuade and Mr. Cramer were appointed to serve
on the Committee at the time of their election to the Board of Directors in June
1995 and December 1995, respectively. Messrs. Cramer, Fleckman, Frank, Loy,
McQuade and Russell are the current members of the Compensation and Stock Plans
Committee.
The Board of Directors has appointed a Nominating Committee, in part, to
seek to increase outside director participation on the Board. The Nominating
Committee is responsible for proposing to the Board of Directors a slate of
nominees for election by the stockholders of the Company at each annual meeting
and for proposing candidates to fill any vacancies on the Board of Directors.
The Nominating Committee will give appropriate consideration to qualified
persons recommended by stockholders for nomination as directors, provided that
such recommendations are accompanied by sufficient information to enable the
Nominating Committee to evaluate the qualifications of such person and provided
that the following requirements are met. The Certificate of Incorporation of the
Company requires the stockholder to give written notice to the Secretary of the
Corporation of its intention to make such nomination or nominations, either by
personal delivery, or by mail, postage prepaid, not later than ninety (90) days
prior to the date that is one year from the date of the immediately preceding
annual meeting of stockholders. The notice must set forth (a) the name and
address of the stockholder, (b) a representation that the stockholder is a
holder of record of stock of the Company entitled to vote generally in the
election of directors at such meeting and that such stockholder intends to
appear at such meeting to nominate the person or persons specified in the
notice, (c) the name, age, business and residence addresses and principal
occupation or employment of each proposed nominee, (d) a description of all
arrangements or understandings between the stockholder and the proposed nominee
with respect to such person's nomination, (e) such other information regarding
the proposed nominee as would be required to be included in a proxy statement
under the rules of the Securities and Exchange Commission, and (f) the written
consent of the proposed nominee to serve as a director. The full Board of
Directors currently serves as the Nominating Committee. Dr. Harper (Chairman),
Mr. Fleckman, Mr. Frank, Mr. Loy and Dr. Russell served on the Committee during
all of fiscal year 1995, and Mr. McQuade and Mr. Cramer became members of the
Nominating Committee upon their election to the Board of Directors in June 1995
and December 1995, respectively. The Nominating Committee met four times in
1995.
DIRECTOR COMPENSATION AND BOARD AND COMMITTEE ATTENDANCE
During the past fiscal year, the Board of Directors met nine times. Each of
the incumbent directors of the Company attended at least 75% of the aggregate of
all meetings of the Board of Directors and of each committee of which such
director was a member, held while such member was a director during the past
fiscal year.
The Company pays the expenses of all directors in connection with
attendance at meetings of the Board of Directors and committees thereof. In
addition, in 1995, non-employee directors who are not officers of the Company or
any of its subsidiaries were paid a fee of $15,000 per year, of which
approximately one-third was paid in the form of shares of the Company's Common
Stock, plus $1,500 for each in-person regular and special meeting of the Board
of Directors, $750 for each telephonic regular and special meeting of the Board
of Directors and $850 for each meeting of any committee of the Board of
Directors (but no fees were paid for
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<PAGE> 12
committee meetings held on the same day as board meetings). In addition, each
outside chairman of a committee is paid an annual fee of $1,000.
COMPENSATION AND STOCK PLANS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation and Stock Plans Committee (the "Compensation Committee" or
"Committee") of the Board of Directors of the Company is responsible for
determining the compensation arrangements for the Company's senior executive
officers and administering the APBI Stock Incentive Program (1990). During 1995,
the Company's senior executive officers consisted of the Company's chief
executive officer and two senior vice presidents, the chief executive officer of
Pharmaco International, the chief executive officer of ENVIRON and two other
senior corporate officers of the Company.
The Company, in conjunction with the Compensation Committee, implemented a
number of senior management changes in 1995. In February 1995, Dr. Kenneth H.
Harper, the Company's chairman, was reappointed to the position of president and
chief executive officer of the Company. Dr. Harper had previously served in
these positions from 1987 through the end of 1992. Also, in February 1995, a new
chief executive officer of Pharmaco International was appointed. Finally, in
connection with repositioning the Company's environmental business, the position
of president of the Company's environmental sciences group was eliminated in
January 1995.
The Committee strives to attract and retain key executives, who are
important to the continued success of the Company and its operating subsidiaries
and divisions. The Committee seeks to provide strong financial incentives to its
senior management at a reasonable cost to the Company's stockholders and uses
certain components of compensation to provide senior management with incentives
to enhance the long-term value of the stockholders' investment in the Company.
At the beginning of 1995, the Committee was comprised of the Company's four
outside directors. During the year, two additional outside directors, Mr.
Lawrence C. McQuade and Mr. Kirby L. Cramer, were elected to the Board of
Directors of the Company. Contemporaneous with their election, they were
appointed to the Compensation Committee. The Compensation Committee is currently
comprised of all six outside directors.
THE ECONOMIC VALUE ADDED AND OTHER COMPENSATION PROGRAMS
EVA Compensation Program. The Company's senior executive officers and
certain other officers and employees of the Company and its subsidiaries are
compensated primarily under the Company's "Economic Value Added" ("EVA")
compensation program. During 1995, company-wide, a total of 325 officers and
employees received bonuses under the Company's EVA program.
There are three components of compensation under the EVA program: a base
salary, an annual bonus or incentive award (a portion of which may be deferred),
and stock option awards. The EVA program, which was initially adopted by the
Committee in 1993, is designed to provide incentive compensation to senior
management, based on an objective measure of the Company's or a business unit's
performance that correlates with increases in stockholder value.
Generally, the Committee's objectives under the EVA program are to provide
the Company's senior executive officers with base salaries that roughly
approximate the median base salaries paid to similarly situated executive
officers at comparable companies, although the Committee takes into
consideration other factors, including corporate performance and the
individual's experience, in setting annual base salaries. Changes in base salary
may also result from promotions and changes in the responsibilities of
executives. The bonus or incentive portion of compensation earned by program
participants under the EVA program is intended to be higher than the median
incentive payments of comparable companies in years in which the Company's
performance (or that of an individual business unit) exceeds certain
predetermined performance
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<PAGE> 13
targets and is intended to be lower than the median incentive paid by comparable
companies when the Company's performance (or that of an individual business
unit) is below performance targets.
Annual bonuses generally are awarded to program participants based on the
improvement in EVA for the participant's business unit (or, in the cases of
certain executive officers of the Company, the overall improvement in EVA for
the Company). (EVA is equal to the difference between (i) net operating income,
defined as operating income adjusted to eliminate the impact of certain
accounting charges such as goodwill amortization, and (ii) a capital charge,
defined as capital employed times the weighted average cost of capital.) Target
bonus awards are generally specified as a percentage of the participant's base
salary, and such percentages are typically set by organizational level within
the Company. For the individuals that comprised the Company's senior executive
officers in 1995 (a group of seven individuals), target bonus awards were set at
a range of 30% to 80% of annual base salary.
Stock option awards have typically been used by the Committee as the third
compensation component under the EVA program. These are intended to closely
align management's interest with that of the Company's stockholders. Option
grants under the EVA program have been designed to retain management by having
them vest ratably over a period of time, generally set at three years. In 1995,
the Committee elected to use restricted stock awards, in lieu of stock option
grants, to compensate two senior executive officers. Both the option grants
under the EVA program and the restricted stock awards were made under the APBI
Stock Incentive Program (1990).
As part of the administration of the EVA program, the Company's chief
executive officer makes annual compensation recommendations to the Committee for
the Company's senior executive officers (other than with respect to CEO
compensation). The 1995 annual compensation recommendations were based, in part,
on the 1994 compensation review conducted by the Alexander & Alexander
Consulting Group ("Alexander & Alexander"), an outside compensation consulting
firm. The Alexander & Alexander review used general industry survey data for
comparable size companies which included both professional service businesses
and clinical service businesses. Because the Company's operations are conducted
in two business segments, environmental and health-care related contract
services, it was difficult at the date of the Alexander & Alexander review, and
continues to be difficult, to identify other companies whose mix of operations
are comparable to the Company's (and until 1995 there were few contract research
organizations that were publicly traded corporations). The Company has not
sought specifically to review salary information for the companies included in
either the Nasdaq Health Services Index or the Peer Group Index, both of which
the Company's performance is compared with in the performance graph. See
"Performance Graph."
ENVIRON Deferred Compensation Plan. During 1995, the Committee, in
consultation with Alexander & Alexander and ENVIRON's senior management,
reviewed the overall incentive compensation programs for the ENVIRON business
unit. This review, which was undertaken in part because of retention concerns
related to the expiration of the employment agreements with the four remaining
ENVIRON founders, resulted in the adoption of the ENVIRON Deferred Compensation
Plan (the "ENVIRON Plan").
The ENVIRON Plan, which was implemented in August 1995, provides for both
deferred cash compensation and stock option awards. The option awards are
granted under the APBI Stock Incentive Program (1990). In adopting the ENVIRON
Plan, the Committee approved an initial deferred cash compensation award of $1.0
million to be allocated among ENVIRON's senior management and certain key
employees. Individual cash awards under the ENVIRON Plan vest 10% on the first
anniversary date, 20% as of each of the second, third and fourth anniversaries
of the grant date and 30% as of the fifth anniversary of the grant date. Vesting
is contingent on continuing employment with ENVIRON. The Committee also approved
the reservation of stock options to purchase 200,000 shares of the Company's
stock to be awarded to participants in the ENVIRON Plan. Of these, a total of
174,000 stock options were awarded in 1995. The stock options vest ratably over
a five-year period from the date of grant. The deferral features of both the
cash and option awards are to encourage employee retention and are in lieu of
any ongoing employment agreements with ENVIRON senior management. During 1995, a
total of 19 employees received deferred cash awards and stock option grants
under the ENVIRON Plan.
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The Committee, in adopting the ENVIRON Plan, has indicated that any future
cash or option awards will be dependent upon the performance of ENVIRON and the
Company's stock.
1995 EXECUTIVE OFFICER COMPENSATION
During 1995, the Company's compensation for its senior executive officers
consisted primarily of a combination of base salary, bonuses and stock incentive
awards (stock options or restricted stock units). Because base salaries for
senior executive officers were reviewed in September 1994, the Committee, with
several exceptions, did not adjust base salary levels in 1995. Similarly, target
bonuses for individual senior executive officers, which were set in 1994 at a
range of 30% to 80% of annual base salaries, remained at the same levels in
1995. Although in 1994, the senior executive officers received either relatively
small bonuses or no bonuses under the EVA program (with the exception of the
executive officers of the Company who were responsible for APBI Environmental
Sciences Group or the ENVIRON division), bonuses for senior executive officers
in 1995 ranged from $15,000 to $134,000.
Base Salaries. With several exceptions, the base salary levels for the
Company's senior executive officers which were approved in September 1994 were
essentially carried forward throughout fiscal 1995. The Company's 1994 salary
review was conducted in consultation with the consulting firm of Alexander &
Alexander and consistent with the objectives of the EVA program, the Committee
generally sought to set salaries by position at a level roughly equivalent to
the median salary levels of executives at comparable companies although other
factors were considered. Overall, this review resulted in either no increases or
relatively small increases for the individuals then comprising the Company's
senior executive officers (other than the then chief executive officer).
As noted above, during 1995 the Company's senior management underwent
significant change. In addition to the Company's appointment of a new chief
executive officer, the Company appointed Mr. John D. Bryer as the chief
executive officer and president of Pharmaco International and Mr. John H.
Timoney, a Senior Vice President of the Company, was required to assume
significant additional operational responsibilities within the Company. In
implementing these changes, Mr. Bryer's annual base salary was set at $225,000
and Mr. Timoney's annual base salary was increased from $159,000 to $180,000. In
the case of Mr. Bryer, his salary was set at approximately 10% higher than the
mid-point of the salary range for his counterparts in comparable companies
comprising the surveyed companies used by Alexander & Alexander in their 1994
compensation review. This was based on his significant prior senior management
experience and the Committee's view of the required level of effort to continue
the turnaround in Pharmaco International's business operations. In the case of
Mr. Timoney, the Committee took into consideration his expanded duties and
responsibilities while also considering that he had not had a salary increase
for the past three years.
Finally, among the Company's senior executive officers, Dr. Joseph H.
Highland's annual base salary, as the chief executive officer of ENVIRON, was
increased from $214,000 to $223,626 or roughly a 4.4% increase in 1995. This
increase reflected the consistent, sustained profitability of the Company's
ENVIRON division.
Annual Bonus Awards. As discussed above, under the EVA program, target
bonus awards are generally specified as a percentage of the participant's base
salary, with more senior officers having a higher percentage of their salary as
the target award. During 1995, target bonuses as a percentage of base salary (in
declining order) for Messrs. Bryer, Waechter, Highland and Timoney were 65%,
60%, 50% and 40%, respectively. For the Company's chief executive officer,
senior vice presidents and other corporate officers, bonuses are based on the
Company's overall performance. In the case of Mr. Bryer and Dr. Highland, their
bonuses are based on the performance of Pharmaco International and ENVIRON,
respectively.
As a group, the senior executive officers who are also the Company's
corporate officers, a total of four individuals (excluding the chief executive
officer), received bonuses in 1995, totaling $158,000 in the aggregate. Included
in that group is Mr. Waechter, who received a bonus of $70,000 and Mr. Timoney,
who received a bonus of $48,000. In each case, these bonuses, which were based
on the Company's overall performance, reflected approximately 65% of their
target bonuses. Mr. Bryer, the chief executive officer of Pharmaco, received a
bonus of $60,000 in 1995 under the EVA program or approximately 42% of his
target bonus amount. Dr. Highland and the other executive officers of the
Company's ENVIRON division were paid
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<PAGE> 15
bonuses under the EVA program in 1995 that were roughly equivalent to their full
target bonuses. In addition to his EVA based bonus in 1995 Dr. Highland was
awarded a deferred cash bonus of $90,000 under the ENVIRON Deferred Compensation
Plan which vests over a five-year period.
Stock Incentive Awards. In 1995, the Committee used both stock options and
restricted stock grants to compensate the Company's senior executive officers.
Dr. Harper and Mr. Timoney received restricted stock grants covering 50,000 and
10,000 shares of the Company's common stock, respectively. Under the terms of
the stock awards, Dr. Harper's and Mr. Timoney's rights to the restricted stock
vest only at such time as the average trading price of APBI common stock equals
or exceeds $10 per share for a ten-day period. The restricted stock grants
expire by their terms if vesting has not occurred by December 31, 1997. The
Company's trading price as of the date of the awards was $5.25 per share.
Mr. Waechter, Mr. Bryer and Dr. Highland received option grants covering
60,000, 50,000 and 10,000 shares respectively of the Company's common stock. Mr.
Waechter's option grant reflected the Committee's desire to encourage Mr.
Waechter, as the Company's senior financial officer, to remain with the Company
in the event the Company subsequently experienced a "change in control." As a
form of incentive, Mr. Waechter was awarded the options that the Alexander &
Alexander report otherwise suggested that he be awarded over the next three-year
period under the Company's EVA plan in one single award with all vesting
accelerated upon any change of control. The Committee viewed Mr. Waechter's
cooperation as crucial in any change of control, while also acknowledging that
his position was the most likely to be eliminated were a change of control to
occur. Mr. Bryer's option award was made in connection with his promotion to
chief executive officer of Pharmaco International and again was based on Mr.
Bryer's significant prior senior management experience, as well as the
Committee's view of the level of effort required to continue the turnaround of
Pharmaco International's business operations. Mr. Highland's option award was
made under the ENVIRON Plan.
The Committee believes that both stock grants and option awards are an
important component of compensation because they provide management with a
strong incentive to maximize the Company's performance that is aligned with the
interests of the Company's stockholders.
1995 CHIEF EXECUTIVE OFFICER COMPENSATION
In February 1995, Dr. Kenneth H. Harper, the Company's chairman, was
reappointed to the position of president and chief executive officer of the
Company. Dr. Harper, in reassuming the chief executive officer position,
received the same compensation, in terms of base salary and bonus opportunity,
as the former chief executive officer.
Effective February 1995, in connection with his reappointment as president
and chief executive officer of the Company, Dr. Harper's base salary was
increased to $250,000 and his target bonus was subsequently set at 80% of base
salary. The salary and bonus levels for the position of chief executive officer
reflect an extensive review of chief executive officer compensation during 1994.
During this period, the Committee engaged Alexander & Alexander to obtain
additional information regarding salaries of chief executive officers at
comparable companies. Pursuant to such engagement, Alexander & Alexander
indicated that a median base salary for the position of chief executive officer
was $300,000 per annum. Because the Committee perceived that the Company is
still in a turnaround situation, but at the same time believed that the
Company's then chief executive officer was under-compensated compared to
similarly situated executives, it approved a salary increase to the level of
$250,000 per annum. As noted above, in conjunction with Dr. Harper's
reappointment to the position of chief executive officer, the Committee approved
the same salary and bonus arrangement as had been approved for his predecessor.
Dr. Harper's bonus with respect to 1995 was $134,000. The Committee, in
approving this EVA-based bonus, cited Dr. Harper's outstanding performance in
connection with the Company's toxicology divestiture.
During 1995, as noted above, the Committee made a 50,000 share restricted
stock grant to Dr. Harper. The vesting of the award is tied directly to
appreciation in the Company's common stock price. Moreover, all rights to the
restricted stock award terminate if the required stock appreciation does not
occur by the end of 1997.
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Mr. Grover C. Wrenn served as the Company's chief executive officer until
February 1995. Mr. Wrenn's annual base salary for 1992, 1993 and the initial
nine months of 1994 was $181,000. As noted above, following the Alexander &
Alexander review, Mr. Wrenn's annual base salary was increased to $250,000 in
October 1994. In connection with his stepping down from the position of chief
executive officer and his separation from the Company, the Company agreed to
continue to pay Mr. Wrenn the equivalent of his annual base salary for a
twelve-month period ending February 12, 1996. The term of Mr. Wrenn's former
employment agreement with the Company was through September 7, 1995 and the
continuation of such payments to Mr. Wrenn beyond this period was subject to his
compliance with a non-competition agreement in favor of the Company. The terms
of his separation agreement with the Company are separately described in
"Executive Compensation and Other Information -- Severance Benefits."
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Federal tax legislation enacted in 1993 limits to $1 million per executive
officer the federal income tax deduction for compensation paid to executive
officers named in the Summary Compensation Table by publicly held companies.
This limitation imposed by Section 162(m) of the Internal Revenue Code first
became effective for fiscal year 1994. However, the Company was not affected by
such limitation since the compensation paid to the Company's executive officers
in 1994 and 1995 did not exceed the $1 million limit per officer. Regulations
proposed by the Internal Revenue Service interpreting Section 162(m) provide
that stock option plans that comply with the requirements of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, will not be considered in
applying the limitation of Section 162(m) until 1997. The Company's Stock Option
Plan is qualified under Rule 16b-3. As a result, the Committee does not
anticipate that Section 162(m) will be applicable to stock options outstanding
in 1994 or 1995.
Kirby L. Cramer
Steven A. Fleckman
Frederick Frank
Frank E. Loy
Lawrence C. McQuade
Thomas J. Russell, Jr.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
Dr. Thomas J. Russell, Jr., who was a member of the Compensation and Stock
Plans Committee during 1995, was the Chairman of the Board of the Company from
1986 to 1991. None of the other members of the Compensation and Stock Plans
Committee is a current or former officer or employee of the Company or any of
its subsidiaries.
Lehman Brothers, of which Mr. Frederick Frank is the Vice Chairman,
provided financial advisory and investment banking services to the Company
during 1995 and will continue to provide such services to the Company in 1996.
During fiscal year 1995, Lehman Brothers provided services to the Company in
connection with the disposition of its toxicology laboratories, for which Lehman
Brothers received customary fees and reimbursement of expenses. The Company has
retained Lehman Brothers to provide general advisory services in 1996 and 1997.
In addition, the Company has separately engaged Lehman Brothers to evaluate
whether shareholder value would be enhanced through a separation of the Company
into its two operating groups, and if the evaluation is positive, to advise it
regarding mechanisms through which separation could be best achieved.
Mr. Steven A. Fleckman is a partner and the managing director of the law
firm of Fleckman & McGlynn, which rendered legal services to Pharmaco
International Inc. and its subsidiaries during fiscal year 1995. It is
anticipated that Fleckman & McGlynn will continue to render legal services to
Pharmaco and its subsidiaries during fiscal year 1996. The total amount paid by
Pharmaco and its subsidiaries to Fleckman & McGlynn did not exceed 5% of that
firm's gross revenues for fiscal year 1995.
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PERFORMANCE GRAPH
Comparison of Five Year Cumulative Total Return: APBI, Nasdaq Market,
Nasdaq Health Services Industry & Peer Group Indices
<TABLE>
<CAPTION>
Applied Bio- Nasdaq Health
Measurement Period science Inter- Nasdaq Stock Services
(Fiscal Year Covered) national Market Stocks Peer Group
<S> <C> <C> <C> <C>
12/31/90 100.0 100.0 100.0 100.0
12/31/91 143.4 159.6 222.6 162.2
12/31/92 94.3 185.2 230.6 159.5
12/31/93 51.6 214.4 266.0 120.4
12/31/94 55.3 207.4 285.4 128.6
12/31/95 67.9 288.2 364.6 151.4
</TABLE>
The above graph compares the performance of Applied Bioscience
International Inc. with that of the Total Return Index for the Nasdaq Stock
Market (United States and foreign companies), the Nasdaq Health Services
Industry Index (United States and foreign companies), which is a published
industry index, and a composite index based on a group of nine publicly-traded
contract research organization, toxicology and/or environmental companies (the
"Peer Group Index"). The Peer Group Index is comprised of ClinTrials Research
Inc., Corning Incorporated, E.A. Engineering Science & Technology, Inc.,
Huntingdon International Holdings, Plc, IBAH, Inc., International Research &
Development Corp., International Technology Corp., Quintiles Transnational
Corp., and Roy F. Weston, Inc.
The comparison of total return on investment (change in year end stock
price plus reinvested dividends) for each of the periods assumes that $100 was
invested on December 31, 1990, in each of Applied Bioscience International Inc.,
the Total Return Index for the Nasdaq Stock Market, the Nasdaq Health Services
Industry Index and the Peer Group Index. While in previous years the Company has
included the Nasdaq Health Services Industry Index, this is the first year in
which the Company has used a self-selected peer group index. Because the
Company's operations are conducted in two business segments, environmental and
health-care related contract services, the Company does not believe that the
Nasdaq Health Services Industry Index or any other published industry or
line-of-business index provides a particularly useful basis for evaluating the
Company's performance. Historically the Nasdaq Health Services Industry Index
was included, in part, because the limited number of contract research
organizations that were publicly traded corporations made it difficult to
compile a meaningful peer group index. The Company believes there are now a
sufficient number of both environmental and contract research organizations that
are operated by publicly traded corporations to compile a peer group index.
Accordingly, information with respect to the Nasdaq Health Services Industry
Index will not be presented in next year's proxy statement.
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<PAGE> 18
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid by the Company
and its subsidiaries for or with respect to the fiscal years ended December 31,
1993, 1994 and 1995, to (i) each individual who served as the Company's chief
executive officer during fiscal year 1995, (ii) the Company's four most highly
compensated executive officers of the Company, other than the Chief Executive
Officer, who were serving as executive officers at December 31, 1995, and (iii)
one additional executive officer of the Company for whom disclosures would have
been provided pursuant to paragraph (ii) except that such individual was not
serving as an executive officer at December 31, 1995, in each case for all
capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------
---------------------------------------- SECURITIES ALL OTHER
BONUS OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) COMPENSATION ($) OPTIONS/SARS (#) ($)(2)
- ------------------------------------- ---- ---------- -------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth H. Harper (3)................ 1995 $230,359 $134,000 $-- -- $172,206
President, Chief Executive Officer
and Chairman of the Board of
Directors
John D. Bryer (4).................... 1995 $220,713 $ 60,000 $-- 50,000 $ 2,720
President and Chief Executive 1994 77,128 -- -- -- 128
Officer
of Pharmaco International Inc.
Joseph H. Highland................... 1995 $222,025 $110,000 $-- 10,000 $ 23,701
Chief Executive Officer of the 1994 211,667 150,000 -- 8,000 25,183
ENVIRON division of APBI 1993 200,000 60,889 -- 6,666 18,673
Environmental Sciences Group, Inc.
John H. Timoney (5).................. 1995 $177,500 $ 48,000 $-- -- $ 5,749
Senior Vice President, Secretary of 1994 159,000 15,000 -- 6,000 5,611
APBI Investor Relations, Inc. and 1993 159,000 -- -- 13,000 5,619
Chief Executive Officer of Clinix
International Inc.
Stephen L. Waechter (6).............. 1995 $186,000 $ 70,000 $-- 60,000 $ 5,923
Senior Vice President, Chief 1994 163,125 25,000 -- 20,000 5,051
Financial 1993 48,513 15,000 -- 24,000 1,292
Officer and Treasurer
Grover C. Wrenn (7).................. 1995 $ 29,452 $ -- $-- 147,428 $322,803
1994 198,625 -- -- 50,000 22,645
1993 181,500 -- -- 52,000 19,858
Charles Defesche (8)................. 1995 $240,000 $ -- $-- -- $ 33,409
1994 229,828 -- -- 134,010 11,488
1993 225,000 -- -- -- 29,814
</TABLE>
- ---------------
(1) With the exception of Mr. Waechter's bonus in 1994 and 1993, the annual
bonus amounts with respect to fiscal years 1995, 1994 and 1993 were
determined under the EVA compensation program. Mr. Waechter received a
signing bonus of $15,000 when he joined the Company in September 1993 and
was guaranteed a minimum cash bonus of $25,000 for fiscal year 1994, which
was slightly higher than the bonus Mr. Waechter otherwise would have
received under the Company's EVA compensation program. In 1995, in addition
to his EVA based bonus, Dr. Highland received a $90,000 deferred cash award
under the ENVIRON Deferred Compensation Plan which vests over a five-year
period. See "Compensation and Stock Plans Committee Report on Executive
Compensation."
(2) The total amounts shown in the "All Other Compensation" column with respect
to fiscal year 1995 consist of the following: (i) $171,562 (converted from
pounds sterling to U.S. dollars based on an exchange rate of 1.5792 U.S.
dollars per pound sterling, which is the average of the 13 rates in effect
on January 1, 1995 and at the end of each calendar month in 1995, as quoted
in the Wall Street Journal) represents the payment of pension benefits to
Dr. Harper during fiscal year 1995 under the Company's
16
<PAGE> 19
defined benefit pension plan for certain employees resident in the United
Kingdom (see "-- Retirement Plans -- U.K. Pension Plan") and $644 represents
the taxable benefit to Dr. Harper of premiums paid by the Company for group
term life insurance on his behalf; (ii) $2,720 represents the taxable
benefit to Mr. Bryer of premiums paid by the Company for group term life
insurance on his behalf; (iii) $2,039 represents the taxable benefit to Dr.
Highland of premiums paid by the Company for group term life insurance on
his behalf, $2,805 represents the taxable benefit to Dr. Highland of amounts
paid by the Company for wrap-around medical insurance coverage on his
behalf, $4,500 represents Company matching contributions to the APBI U.S.
Retirement 401(k) Savings Plan, a defined contribution plan, on behalf of
Dr. Highland, and $14,357 represents Company contributions to the APBI
Environmental Sciences Group, Inc. Pension Plan, a money purchase plan, on
behalf of Dr. Highland; (iv) $3,901 represents the taxable benefit to Mr.
Timoney of premiums paid by the Company for group term life insurance on his
behalf and $1,848 represents matching Company contributions to the APBI U.S.
Retirement 401(k) Savings Plan, a defined contribution plan, on behalf of
Mr. Timoney; (v) $1,423 represents the taxable benefit to Mr. Waechter of
premiums paid by the Company for group term life insurance on his behalf and
$4,500 represents Company matching contributions to the APBI U.S. Retirement
401(k) Savings Plan, a defined contribution plan, on behalf of Mr. Waechter;
(vi) $2,728 represents the taxable benefit to Mr. Wrenn of premiums paid by
the Company for group term life insurance on his behalf, $4,500 represents
Company matching contributions to the APBI U.S. Retirement 401(k) Savings
Plan, a defined contribution plan, on behalf of Mr. Wrenn, $331 represents
the taxable benefits to Mr. Wrenn of amounts paid by the Company for
wrap-around medical insurance coverage on his behalf, $16,455 represents
Company contributions to the APBI Environmental Sciences Group, Inc. Pension
Plan, a money purchase plan, on behalf of Mr. Wrenn, $20,000 represents
legal fees and expenses incurred by Mr. Wrenn for which he was reimbursed by
the Company, in connection with his separation from the Company, $58,241
represents a one-time severance payment to Mr. Wrenn in connection with his
separation from the Company and $220,548 represents a severance payment to
Mr. Wrenn in the form of salary continuation from February 12, 1995 through
December 31, 1995; (vii) $1,206 represents the taxable benefit to Dr.
Defesche of premiums paid by the Company for group term life insurance on
his behalf, $2,250 represents Company matching contributions to the APBI
U.S. Retirement 401(k) Savings Plan, a defined contribution plan, on behalf
of Dr. Defesche, $8,885 represents payments to Dr. Defesche for unused
vacation benefits, and $21,068 represents the amount of relocation expenses
paid by the Company on behalf of Dr. Defesche.
(3) Compensation information for Dr. Harper for the years 1994 and 1993 is
omitted because Dr. Harper did not serve as the Chief Executive Officer of
the Company during any portion of those years. At December 31, 1995, Dr.
Harper held a restricted stock award relating to 50,000 shares of Common
Stock, the vesting of which is subject to the condition that the average
closing price of the Company's Common Stock equal or exceed $10.00 per share
for a specified period.
(4) Mr. Bryer joined the Company in June, 1994 as the Senior Vice
President-Marketing of Pharmaco and was appointed the President and Chief
Executive Officer of Pharmaco in February 1995.
(5) At December 31, 1995, Mr. Timoney held a restricted stock award relating to
10,000 shares of Common Stock, the vesting of which is subject to the
condition that the average closing price of the Company's Common Stock equal
or exceed $10.00 per share for a specified period.
(6) Mr. Waechter joined the Company in September 1993 as the Chief Financial
Officer and Treasurer of the Company. In October 1994, he also became a
Senior Vice President of the Company.
(7) Mr. Wrenn served as the President and Chief Executive Officer of the Company
until February 1995 and as a director of the Company until April 1995. The
options to acquire 147,428 shares of Common Stock granted to Mr. Wrenn in
fiscal year 1995 consisted of replacement stock options granted to him in
lieu of and in substitution for his existing options in connection with his
separation from the Company.
(8) The options to acquire 134,010 shares of Common Stock awarded to Dr.
Defesche in fiscal year 1994 consisted of options to acquire 104,010 shares
of Common Stock awarded to Dr. Defesche in substitution for the options to
acquire 170,076 shares of Common Stock awarded to Dr. Defesche in fiscal
year 1992 and options to acquire 30,000 shares of Common Stock awarded to
Dr. Defesche under the Company's
17
<PAGE> 20
annual compensation program. Dr. Defesche served as the President and Chief
Executive Officer of Pharmaco until February 1995 and as a director of the
Company until April 1995.
STOCK OPTION GRANTS IN FISCAL 1995
The following table sets forth certain information concerning the grant of
stock options during the fiscal year ended December 31, 1995 to each of the
executive officers and former executive officers of the Company named in the
Summary Compensation Table to whom stock options were granted during fiscal year
1995. All options were granted under the Company's Stock Incentive Program
(1990), except for the options granted to Mr. Wrenn.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
NUMBER OF PERCENT OF GRANT DATE
SECURITIES TOTAL OPTIONS VALUE
UNDERLYING GRANTED TO -------------
OPTIONS EMPLOYEES IN EXERCISE OR GRANT DATE
GRANTED FISCAL YEAR BASE PRICE EXPIRATION PRESENT VALUE
NAME (#) (2) ($/SH) DATE ($)(3)
- ------------------------------------ ---------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
John D. Bryer (4)................... 50,000 11.5% $ 4.875 6/14/2005 $ 163,700
Joseph H. Highland (5).............. 10,000 2.3 4.625 8/15/2005 31,300
Stephen L. Waechter (6)............. 60,000 13.7 4.875 6/14/2005 196,440
Grover C. Wrenn (7)................. 20,000 4.6 15.875 2/11/2001 47,000
25,428 5.8 13.3125 2/11/2001 68,656
52,000 11.9 5.625 2/11/2001 232,856
50,000 11.5 5.875 2/11/2001 219,650
</TABLE>
- ---------------
(1) The Company's Stock Incentive Program (1990) is administered by the
Compensation and Stock Plans Committee of the Board of Directors. The
exercise price per share of all options granted under the Stock Incentive
Program (1990) is equal to or greater than the fair market value per share
of the Company's Common Stock on the date of grant, and the options are
exercisable over a term of ten years from the date of grant.
(2) The Company granted options to employees to acquire 436,428 shares of Common
Stock during fiscal year 1995, including options to acquire 147,428 shares
of Common Stock granted to Mr. Wrenn which were not granted under the
Company's Stock Incentive Program (1990). The Company also granted options
to acquire 36,000 shares of Common Stock to outside directors of the Company
under the Stock Option Plan for Outside Directors.
(3) The "Grant Date Present Value" is a hypothetical value determined under the
Black-Scholes Option Pricing Model. It is one of the methods permitted by
the Securities and Exchange Commission for estimating the present value of
options. The Company's stock options are not transferable, and the actual
value of the stock options that an executive officer may realize, if any,
will depend on the excess of the market price on the date of exercise over
the exercise price. The Black-Scholes Option Pricing Model is based on
assumptions as to certain variables such as the volatility of the Company's
stock price and prevailing interest rates, so there is no assurance that any
individual will actually realize the option values presented in this table.
The Company has based its assumption for stock price volatility on the
variance of closing prices of the Company's stock for the five years prior
to the grant date of the option award (the five-year volatility range was
from .45 to .50). In addition, the pricing model assumes (i) a risk-free
rate of return equal to the rate of return for ten years U.S. Government
obligations on the grant date, which ranged from 5.99% to 6.41%, (ii) no
future dividend payments and (iii) that all options will be held for full
ten year terms. No discount was applied to the value of the grants for
non-transferability or risk of forfeiture.
(4) These options were granted on June 14, 1995 and vest ratably over a
three-year period on the anniversary date of grant.
18
<PAGE> 21
(5) These options were granted on August 15, 1995 and vest ratably over a
five-year period on the anniversary date of grant.
(6) These options were granted on June 14, 1995 and vest as follows: options to
acquire 6,667 shares vest as of June 14, 1996; options to acquire 13,333
shares vest as of June 14, 1997; options to acquire 20,000 shares vest as of
June 14, 1998; options to acquire 13,333 shares vest as of June 14, 1999;
and the remaining options to acquire 6,667 shares vest as of June 14, 2000.
(7) In connection with his separation from the Company, the Company canceled Mr.
Wrenn's outstanding stock options and granted to him, as of September 19,
1995, an equal number of replacement stock options in lieu of and
substitution for his then existing options. Such options were granted on
substantially the same terms as the then existing stock options, provided
that such options expire on the earlier of the date shown in the above table
or the day immediately following any period of 20 consecutive trading days
in which the last sale for shares of APBI's Common Stock (as adjusted for
stock splits, dividends and similar events for each of such trading days)
equaled or exceeded $20 per share as quoted on the Nasdaq National Market
System. Of the 147,428 replacement options granted, 92,761 options are fully
vested, 17,333 options will vest on June 25, 1996, 4,000 options will vest
on July 8, 1996, 16,667 options will vest on September 13, 1996 and 16,667
options will vest on September 13, 1997.
OPTION EXERCISES AND HOLDINGS
No stock options held by any director or executive officer of the Company
were exercised during fiscal year 1995. The following table sets forth
information as of December 31, 1995, regarding the number and value of options
held by each of the current and former executive officers of the Company named
in the Summary Compensation Table. None of the named current or former executive
officers held any stock appreciation rights ("SARs") as of such date.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
YEAR-END (#) AT FISCAL YEAR-END (1)($)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth H. Harper........................... 529,220 -- $ 257,750 $ --
John D. Bryer............................... 5,000 60,000 4,375 102,500
Joseph H. Highland.......................... 48,538 21,556 7,332 28,417
John H. Timoney............................. 180,458 8,334 269,249 8,376
Stephen L. Waechter......................... 22,666 81,334 23,833 133,167
Grover C. Wrenn............................. 92,761 54,667 58,583 48,667
</TABLE>
- ---------------
(1) Based on the closing price per share of the Company's Common Stock of $6.75
on the National Association of Securities Dealers' Automated Quotation
National Market System on December 31, 1995.
LONG-TERM INCENTIVE PLAN AWARDS
The following table sets forth certain information regarding the grant to
Dr. Harper and Mr. Timoney of restricted stock awards under the Company's Stock
Incentive Program (1990). On June 22, 1995, the date of grant of the restricted
stock awards, the closing price per share of the Company's common stock was
$5.25. Such restricted stock awards will vest at the time the average closing
price for the Company's Common Stock equals or exceeds $10.00 per share for a
period of ten consecutive trading days. Such restricted stock awards also vest
upon a change in control of the Company. The restricted stock awards are
forfeited on December 31, 1997, if they have not vested by that date. No other
executive officer of the Company or former executive
19
<PAGE> 22
officer of the Company named in the Summary Compensation Table received an award
under any plan that constitutes a long-term incentive plan during fiscal year
1995.
LONG-TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES, UNITS PERFORMANCE OR OTHER PERIOD
NAME OR OTHER RIGHTS (#) UNTIL MATURATION OR PAYOUT (1)
- ----------------------------------------------- ----------------------- --------------------------------
<S> <C> <C>
Kenneth H. Harper.............................. 50,000 December 31, 1997
John H. Timoney................................ 10,000 December 31, 1997
</TABLE>
- ---------------
(1) As noted above, the restricted stock awards vest at the time the average
closing price for the Company's Common Stock equals or exceeds $10.00 per
share for a specified period, or upon a change in control of the Company.
The restricted stock awards will be forfeited on December 31, 1997 if they
are not vested by that date. Neither Dr. Harper nor Mr. Timoney are required
to pay any consideration in exchange for the restricted stock awarded if the
stock price performance criteria is met.
EMPLOYMENT AGREEMENTS
The Company and Dr. Harper initially entered into a five-year employment
agreement dated September 7, 1990, pursuant to which he was to serve as
chairman, chief executive officer and president of the Company. At the end of
1992, Dr. Harper voluntarily stepped down from the positions of president and
chief executive officer of the Company and in connection with his more reduced
responsibilities his employment agreement was amended. The principal amendments
were to reflect his change of position, that any monies he received from the
Company's United Kingdom contributory defined benefit pension plan would be
credited against his base salary, that his services could either be performed
from the Company's Princeton offices or the United Kingdom and that for a
five-year period following the expiration of his employment term he would be
engaged as a part-time employee of the Company receiving $10,000 per annum. In
1995, in connection with the reappointment of Dr. Harper as the Company's chief
executive officer and president, the Company and Dr. Harper entered into an
amendment agreement dated September 1, 1995, pursuant to which Dr. Harper's
employment agreement was extended for an additional one-year period ending
September 6, 1996. Under the terms of his employment extension, Dr. Harper's
annual base salary is set at $250,000 with his annual bonus to be determined by
the Company's Compensation Committee. Dr. Harper's annual pension benefits are
no longer credited against his base salary. Upon the expiration of his full-time
employment, the terms of his five-year part-time employment arrangement
continues to be in effect.
The Company and Mr. Timoney entered into a five-year employment agreement
dated September 7,1990, pursuant to which he served as vice president-finance,
treasurer, secretary and a director of the Company. During 1992, Mr. Timoney
voluntarily stepped down from the position of financial officer and treasurer of
the Company and assumed a more significant role with the Company's investor
relations function. In connection with his new duties, his employment agreement
was amended. The principal amendments were to reflect his change of position,
and that for a five-year period following the expiration of his employment term
he would be engaged as a part-time employee of the Company receiving $10,000 per
annum. In 1995, Mr. Timoney was asked to assume significantly more operational
responsibilities and his base salary was increased. Mr. Timoney entered into an
amendment agreement dated September 1, 1995, pursuant to which Mr. Timoney's
employment agreement was extended for an additional one-year period ending
September 6, 1996. Under the terms of his employment extension, Mr. Timoney's
annual base salary is set at $180,000 with his annual target bonus set at 40% of
his base pay. Upon the expiration of his full-time employment, the terms of his
five-year part-time employment arrangement continue to be in effect.
In June 1995, Dr. Harper and Mr. Timoney were each awarded restricted stock
grants for 50,000 and 10,000 shares, respectively, of the Company's Common
Stock. Vesting of the awards is contingent on the Company's Common Stock trading
at or above $10.00 per share for a specified period and occurs automatically
upon a change in control of the Company. See "Long-Term Incentive Plan Awards."
20
<PAGE> 23
In June 1995, the Company entered into an agreement with Mr. Waechter which
provides for certain severance benefits in the event that his employment is
terminated by the Company within a twelve-month period following a change in
control of the Company (as defined in the agreement). Under such agreement, Mr.
Waechter is entitled to receive as severance benefits, his full base salary,
together with benefits for a twelve-month period or in lieu thereof he may elect
to receive a single lump sum payment equal in amount to his full base salary but
forfeit any continuing benefits. Under the terms of this agreement, Mr. Waechter
was also granted 60,000 options which vest over a five-year period. Vesting is
accelerated upon a change of control.
SEVERANCE BENEFITS
The Company and Mr. Grover C. Wrenn, the Company's former chief executive
officer, are parties to a separation agreement dated August 25, 1995. Under the
terms of the agreement, the Company agreed that, subject to continuing
compliance with certain non-compete provisions, Mr. Wrenn would continue to
receive his base salary and all benefits for a one-year period from the
effective date of his resignation from the Company on February 12, 1995. The
agreement also provides for Mr. Wrenn to receive a one-time severance payment of
$58,241, to be reimbursed for up to $20,000 in legal fees and to receive
substitute stock options in cancellation of the existing stock options that Mr.
Wrenn had received under the APBI Stock Incentive Plan (1990). The substitute
stock options were granted on essentially the same terms as Mr. Wrenn's existing
options but by their terms vesting is no longer contingent on Mr. Wrenn's
continued employment with the Company.
The Company and Dr. Charles L. Defesche, the former chief executive officer
of Pharmaco International Inc. and Clinix International Inc., agreed to the
termination of his employment effective February 1, 1996. Under the terms of the
agreement, the Company agreed that Dr. Defesche would be entitled to continue to
receive his base salary and benefits through July 31, 1996 and, if he is unable
to secure employment by such date, such compensation will be continued for up to
an additional two-month period.
RETIREMENT PLANS
U.K. Pension Plan. The Company maintains a United Kingdom contributory
defined benefit pension plan (the "U.K. Pension Plan") for qualified United
Kingdom resident employees and directors of the Company, which is approved by
the Inland Revenue of the United Kingdom. The U.K. Pension Plan provides for
normal retirement benefits at age 65 for certain male employees and at age 60
for female employees, directors and certain other senior members of management.
Benefits under the U.K. Pension Plan are based on the average of a participant's
highest three consecutive years of earnings during the thirteen United Kingdom
fiscal years preceding retirement or cessation of qualifying employment. The
benefit payable at normal retirement date for a director is two-thirds of such
director's final pensionable salary, and is increased annually by a cost of
living factor, up to a maximum of five percent (5%) per year. The benefit
payable at normal retirement age for employees is one-sixtieth of final
pensionable salary, multiplied by years of participation, not to exceed
two-thirds of final pensionable salary.
Dr. Harper is the only executive officer who is a participant in or
receives benefits under the U.K. Pension Plan. During 1992, in connection with
his decision to step down from the positions of chief executive officer and
president of the Company, Dr. Harper began to receive the stated pension benefit
payable to him under the U.K. Pension Plan which was based on his being credited
with approximately 18 years of service under such plan. During 1995, Dr. Harper
received $171,562 (converted from pounds sterling to U.S. dollars based on an
exchange rate of 1.5792 U.S. dollars per pound sterling, which is the average of
the 13 rates in effect on January 1, 1995 and at the end of each calendar month
in 1995, as quoted in The Wall Street Journal) as pension benefits under the
U.K. Pension Plan.
Supplemental Retirement Arrangements. The Company maintains a supplemental
retirement arrangement for Mr. Timoney. Under his supplemental retirement
arrangement, Mr. Timoney was credited with 45,296 "Restricted Stock Units,"
which are a form of unfunded deferred compensation (phantom stock) that, subject
to the satisfaction of vesting requirements, will be settled by the delivery of
one share of the Company's Common Stock for each vested Restricted Stock Unit.
The Company has reserved 45,296 shares
21
<PAGE> 24
for issuance under the supplemental retirement arrangement with Mr. Timoney. The
Restricted Stock Units become fully vested on the earliest to occur of the
following: the attainment of age 63, the death or disability of the executive,
the termination of the executive's employment other than for "cause" (as defined
in the agreement), and the election by the executive to terminate his employment
for "good reason" within two years after a "change in control" of the Company
(as those terms are defined in the agreement). The Company will credit Mr.
Timoney with dividend equivalents which may be paid out currently or deferred,
in the discretion of the Company, until termination of employment. The
arrangement is an unfunded, unsecured obligation of the Company and is
administered by the Compensation and Stock Plans Committee of the Board of
Directors.
CERTAIN TRANSACTIONS
During fiscal year 1995, Lehman Brothers, of which Mr. Frank is Vice
Chairman, provided investment banking and financial advisory services to the
Company in connection with the disposition of its toxicology laboratories, for
which Lehman Brothers received customary fees and reimbursement of expenses. The
Company has retained Lehman Brothers to provide general advisory services in
1996 and 1997. In addition, in December 1995, the Company retained Lehman
Brothers to evaluate whether shareholder value would be enhanced through a
separation of the Company into its two operating groups, and, if the evaluation
is positive, to advise it regarding mechanisms through which separation could be
best achieved. Lehman Brothers will continue to provide services to the Company
in connection with this retention in 1996.
Mr. Fleckman is a partner and the managing director of the law firm of
Fleckman & McGlynn, which rendered legal services to Pharmaco International Inc.
and its subsidiaries during fiscal year 1995. It is anticipated that Fleckman &
McGlynn will continue to render legal services to Pharmaco and its subsidiaries
during fiscal year 1996. The total amount paid by Pharmaco and its subsidiaries
to Fleckman & McGlynn did not exceed 5% of that firm's gross revenues for fiscal
year 1995.
AUDITORS
The Company's outside auditors for the purpose of auditing and reporting
upon the financial statements of the Company for the fiscal year ended December
31, 1995 are Arthur Andersen LLP. At this time, the Company does not intend to
have representatives of Arthur Andersen LLP present at the meeting.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the Company's 1997
Annual Meeting of Stockholders must be received by the Secretary of the Company
by January 1, 1997 for inclusion in the Company's proxy statement and form of
proxy relating to that meeting.
OTHER ACTION
The Board of Directors knows of no additional matters which are likely to
be brought before the meeting. Should any other matter come before the meeting,
it is the intention of the persons named in the accompanying proxy card to vote
such proxy in accordance with their judgment.
The solicitation of proxies by the Company will be made through the use of
the mails, and may be made personally and by telephone by officers and employees
of the Company, who will receive no additional compensation therefor. In
addition, the Company has retained Shareholder Communications Corporation to
solicit proxies for a fee of $6,500 plus the usual expenses incurred in
connection with the assembling and mailing of the proxy materials. The cost of
the solicitation, including the preparation of the proxy materials, will be
borne by the Company.
It is important that proxies be returned promptly. Therefore, stockholders
who do not expect to attend the meeting in person are urged to execute and
return the enclosed proxy in the self-addressed stamped envelope provided.
22
<PAGE> 25
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
CAN BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO APBI INVESTOR RELATIONS,
INC., 4350 NORTH FAIRFAX DRIVE, SUITE 300, ARLINGTON, VIRGINIA 22203, ATTENTION:
MR. JOHN H. TIMONEY, SECRETARY.
Dated: April 30, 1996
APPLIED BIOSCIENCE INTERNATIONAL INC.
/s/ Kenneth H. Harper
By: Kenneth H. Harper
President, Chief Executive Officer
and
Chairman of the Board of Directors
23
<PAGE> 26
APPLIED BIOSCIENCE INTERNATIONAL INC.
PROXY CARD ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 20, 1996
The undersigned hereby appoints Kenneth H. Harper, Stephen L. Waechter and
John H. Timoney, and each of them, with full power of substitution, as proxies
to represent the undersigned at the 1996 Annual Meeting of Stockholders of
Applied Bioscience International Inc. to be held at the St. Regis Hotel, 21 East
55th Street, New York, New York, on Thursday, June 20, 1996 at 11:00 a.m.
Eastern Daylight Time, or at any adjournment or adjournments thereof, and to
vote upon the following matters the number of shares which the undersigned would
be entitled to vote if personally present:
<TABLE>
<CAPTION>
1. Approval of a proposal to amend the Company's Certificate of Incorporation, as amended, to provide for
the annual election of Directors
<S> <C> <C>
FOR / / AGAINST / / ABSTAIN / /
2. Election of Directors.
<CAPTION>
Nominees: Dr. Kenneth H. Harper, Mr. Lawrence C. McQuade and Dr. Thomas J. Russell, Jr.
<S> <C>
FOR ALL nominees, except as indicated below / / VOTE WITHHELD from all nominees / /
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, print such nominee's name in
the space provided below.)
</TABLE>
- --------------------------------------------------------------------------------
3. Upon such other matter as may properly come before the meeting or any
adjournment thereof.
(continued and to be signed on reverse side)
<PAGE> 27
(continued from other side)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CONTRARY
INSTRUCTION IS GIVEN, THE SHARES WILL BE VOTED FOR THE PROPOSED AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION AND FOR THE ELECTION OF THE NOMINEES FOR
DIRECTOR SET FORTH ABOVE.
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREON. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH. IF SIGNER IS A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY AUTHORIZED
OFFICER. IF SIGNER IS A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON. IF SHARES ARE HELD
JOINTLY, BOTH MUST SIGN.
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STOCKHOLDER'S SIGNATURE
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STOCKHOLDER'S SIGNATURE (IF SHARES
ARE HELD JOINTLY)
DATED: , 1996
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PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
