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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15515
APPLIED BIOSCIENCE INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-2734293
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4350 NORTH FAIRFAX DRIVE, ARLINGTON, VA 22203-1627
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 516-2490
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $217,294,271 as of March 15, 1996.
The number of shares outstanding of the registrant's class of common stock,
par value $0.01 per share, was 30,096,162 as of March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders (certain parts as indicated herein Part III).
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PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Applied Bioscience International Inc. (the "Company") is a holding company
providing financial and operational support for its subsidiaries which include
Pharmaco International Inc. (formerly Pharmaco LSR International Inc.); Clinix
International Inc., operating under the trade name of the Chicago Center for
Clinical Research ("CCCR"); and APBI Environmental Sciences Group, Inc.,
operating under the trade name ENVIRON. Together, these companies provide a
broad range of research and consulting services in the life and environmental
sciences. Services provided include clinical research and development through
Pharmaco International Inc. and CCCR, and assessment and management of chemical
and environmental health risk through ENVIRON. These services are provided under
contract to clients in the pharmaceutical, general chemical, agrochemical,
biotechnology, and other industries throughout the world.
During 1995, the Company successfully pursued a strategic plan for focusing
on the growth and expansion of its clinical development services and
environmental consulting businesses, which the Company believes provide the best
opportunities for profitable growth and enhancement of shareholder value. The
Company completed a number of divestitures and acquisitions during the year
designed to foster this strategic focus, which are discussed in detail below.
In addition, the Company retained Lehman Brothers in December of 1995 to
evaluate whether shareholder value would be enhanced through a separation of the
Company into its two operating groups, the Life Sciences Group and the
Environmental Sciences Group, and, if such evaluation is positive, to explore
mechanisms through which separation would be best achieved. Lehman Brothers is
continuing its evaluation at this time.
As a result of the recent divestiture and acquisition activity and the
Company's decision to evaluate the long-term strategic fit of its operating
groups, the Company has determined that the nature of its operations has changed
such that it no longer operates in one industry segment. For the year ended
December 31, 1995, the Company will begin reporting operating results in two
business segments: the Life Sciences Group and the Environmental Sciences Group.
(See Note 17 to the Company's consolidated financial statements for business
segment data.)
The Company was incorporated in September 1986 under the laws of the State
of Delaware and has grown through internal expansion and acquisitions.
Life Sciences Group
The Company's Life Sciences Group provides services through Pharmaco
International Inc., a wholly owned subsidiary of the Company, and its wholly
owned European subsidiaries (collectively "Pharmaco"); and Clinix International
Inc. ("Clinix"), currently operating through one division using the trade name
CCCR.
Pharmaco is a leading full-service contract clinical research organization
("CRO") providing services to customers worldwide in the pharmaceutical,
biotechnology and medical device industries. Pharmaco's services support
clinical development from Phase I through Phase V and include clinical trials
management, biostatistical analysis, data management, analytical chemistry,
packaging of clinical trial drugs, regulatory consulting, and Food and Drug
Administration ("FDA") liaison services. These services provide a variable cost
alternative to the fixed costs associated with in-house pharmaceutical and
biotechnology company research and development. Pharmaco is committed to
offering high-quality, outsourced clinical research and development services and
reducing drug development time.
Clinix was established in 1995 as a wholly owned subsidiary of the Company.
In August 1995, Clinix acquired the business and substantially all of the assets
of CCCR, a nationally recognized organization which conducts clinical trials in
the pharmaceutical and food and nutrition industries. The consideration for the
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acquisition consisted of 634,188 shares of the Company's common stock, with an
estimated value of $4.0 million at the time of the acquisition, and the
assumption of substantially all of CCCR's outstanding liabilities. The Company
believes the acquisition of CCCR is of strategic importance in enhancing and
expanding the range of clinical development services offered through its Life
Sciences Group.
On November 21, 1995, the Company sold to Huntingdon International Holdings
plc ("Huntingdon") its toxicology laboratories, located in New Jersey and
Suffolk, England. In connection with the sale of the New Jersey toxicology
laboratory, which operated as a division of Pharmaco International Inc.,
Huntingdon acquired substantially all of the assets of the laboratory and
assumed substantially all related liabilities. In connection with the sale of
the toxicology laboratory located in Suffolk, England, Huntingdon acquired all
of the capital stock of Pharmaco LSR Ltd., a wholly owned subsidiary of the
Company. The Company received as consideration cash proceeds of $32.5 million,
plus an additional $6.0 million for an equal amount of cash conveyed to
Huntingdon as part of the sale. The consideration received also included the
Company's acquisition of Huntingdon's Phase I clinical center located in
Leicester, England, at an agreed-upon value of $4.5 million. The cash proceeds
from this transaction were used to pay off the Company's term loan and revolving
credit facility.
The performance of the Company's toxicology division had been below
expectations in recent years, and the sale of the toxicology division furthered
the Company's strategic plan to refocus on its clinical development services in
the Life Sciences Group.
Environmental Sciences Group
The Environmental Sciences Group provides services through APBI
Environmental Sciences Group, Inc., operating under the trade name ENVIRON.
ENVIRON is a multidisciplinary environmental and health sciences consulting
firm that provides a broad range of services relating to the presence of
hazardous substances in the environment, in drugs and medical devices, in
consumer products, and in the workplace. Services provided by ENVIRON are
concentrated in the assessment and management of chemical risk and are
characterized by engagements supporting private sector clients with complex,
potentially high-liability concerns.
Astrix Software Technology ("ASTRIX") was a division which developed and
marketed data analysis software systems for use in analytical laboratory
settings. In furtherance of its strategic business refocus, the division was
sold on August 11, 1995, in a management buy-out led by Astrix employees. In
exchange for the assets of Astrix, the Company received a note for $0.3 million,
which was equivalent to the net book value of the division.
Environmental Testing and Certification Corp. ("ETC") was the Company's
former environmental analytical laboratory division. The Company's two-year
divestiture effort with respect to its investment in this division was
substantially completed during 1995. The Company initially adopted a formal plan
to divest of this division at the end of 1993. Although it was the Company's
desire to exit the environmental analytical laboratory business completely, it
became apparent during 1994 that the Company would not be able to dispose of its
interest in ETC on terms that it deemed attractive, in part because of the
ongoing consolidation within the environmental analytical laboratory industry.
Based on the Company's belief that a larger network of analytical laboratories
could compete more effectively, and that a minority interest in a larger
laboratory business might provide a better means to pursue divestiture
opportunities, in August 1994, the ETC division of APBI Environmental Sciences
Group, including substantially all of its assets and liabilities, was
consolidated with the business operations of PACE Inc. (an unrelated analytical
laboratory) and Coast-to-Coast Analytical Services, Inc. (another unrelated
analytical laboratory). The combined business operations were operated within
PACE Incorporated ("PACE"), a newly formed entity. As a result of the
combination, the Company, through APBI Environmental Sciences Group, owned
preferred and common stock of PACE representing approximately 36% of the
weighted average preferred and common stock outstanding. Effective December 29,
1995, the Company's voting interest was reduced to below 20%, and the Company
changed its accounting for the investment from the equity method to the cost
method in accordance with Accounting Principles Board Opinion No. 18, "The
Equity Method of Accounting for Investments in Common Stock." During the fourth
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quarter of 1995, PACE sold substantially all of its laboratories in a series of
transactions. Net proceeds from such transactions were used to retire PACE's
outstanding bank loan and to partially repay certain other secured indebtedness.
PACE, which is currently winding up its remaining business operations, does not
have sufficient assets to repay its outstanding liabilities. Accordingly, it is
anticipated that equity holders will not receive any distributions upon
completion of PACE's winding up and dissolution.
In the fourth quarter of 1995, the Company wrote off its remaining
investment in PACE of approximately $3.6 million, and accrued its estimated
exposure for guarantees on leases.
INDUSTRY OVERVIEW
Life Sciences Group
New Drug Development. The Company's Life Sciences Group focuses on the
development of pharmaceutical, chemical, biotechnology, and other products
through the clinical testing of the effects of pharmaceutical products on
humans. The services offered are designed to facilitate the timely progression
of these products through the development pipeline and to secure marketing
approval. Before a new prescription drug may be marketed, it must first undergo
extensive testing and regulatory review to determine its safety and efficacy.
The development process consists of two stages: pre-clinical and clinical.
Pre-clinical Research. Pre-clinical research consists of laboratory and
animal testing, generally over a one- to three-year period, to determine the
toxicity and biological safety of the drug. As previously discussed, the Company
provided this service until November 21, 1995, when it sold its two toxicology
laboratories to Huntingdon.
Clinical Research. In the United States, a drug sponsor must file an
Investigational New Drug Application ("IND") with the United States FDA before
the commencement of human testing of a drug. The IND includes pre-clinical
testing results and sets forth the sponsor's plans for conducting human clinical
trials. The design of these plans is also referred to as the clinical study
protocol. Human clinical trials may begin 30 days after the IND is filed, unless
notified otherwise by the FDA.
Phase I (6 to 12 months in duration). Phase I studies are frequently
"first time in human" studies, which are generally conducted on 20 to 80 healthy
volunteers, primarily to test for safety in treating a particular disease, and
to determine the absorption, distribution, metabolism and excretion of a
particular product in people. During Phase I development, single- and
multiple-dose tolerance tests are conducted, which serve to establish safe
dosage ranges.
Phase II (1 to 2 years in duration). During Phase II, drugs are
administered to a limited number of patients, typically 100 to 200, with a
targeted disease or condition, primarily to investigate therapeutic efficacy.
These trials may include dose-ranging studies to establish optimal dosages and
usually include testing against a placebo or a currently marketed drug.
Phase III (1 to 3 years in duration). During Phase III, the drug is tested
in hundreds or thousands of patients with the targeted symptoms or disease.
Phase III studies establish more clearly the drug's efficacy and safety, and may
also include drug interaction testing with other medications likely to be
administered to patients with that disease. Clinical data are generally
submitted to the FDA, or the equivalent regulatory bodies in Europe and
elsewhere, at the end of Phase III for the purpose of registering the drug in
the United States or other jurisdictions.
Phase I, II, and III trials are generally of three types: (i) open-label
trials, in which both the patient and the investigating physician know which
drug is being administered, (ii) single blind trials, in which the patient does
not know which drug (or placebo) is being administered, and (iii) double blind
trials, in which neither the patient nor the investigator knows which drug (or
placebo) is being administered. Phase III trials that occur before regulatory
submissions are made are sometimes referred to as Phase IIIa trials.
Phase IIIb and IV (1 to 4 years in duration). Once a drug is close to
being or has been approved for general distribution, it continues to be
evaluated through pre- and post-market surveillance studies. These studies may
involve the accumulation of data from several thousand users of the drug to
monitor adverse
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reactions and further to confirm the drug's safety. The Phase IIIb (trials that
occur after regulatory submissions are made) and IV studies may require less
frequent clinical monitoring and oversight than Phase I, II, and IIIa studies.
Phase V. Phase V studies are conducted after approval for general
distribution and are designed to generate data to support additional clinical
indications. The methodology used for these studies is similar to that of Phase
IV trials.
Companies in the pharmaceutical and biotechnology industries worldwide are
outsourcing a more significant portion of their drug development services to the
CRO industry. The Company believes a number of factors will cause the
outsourcing trend to continue, including the following:
Increased Time Pressures. Time pressures are leading pharmaceutical
and biotechnology companies to outsource to CROs drug development services,
in which success is predicated on the rapid enrollment of patients and the
reduction of the drug development time. Reducing the time it takes to get a
new drug to market reduces costs, maintains margins, accelerates revenue
realization, and can secure market positioning.
Cost Containment Pressures. Drug companies are looking at more
efficient ways to conduct business to ease margin pressures as a result of
various influences, including efforts by managed care organizations to
control prices, foreign price controls, patent expirations, increased
competition from generic drugs, and more stringent regulatory requirements.
Sustaining Quality. Drug companies and experienced clinical
development staff have required the CRO industry to develop
state-of-the-art data systems which can be integrated into clinical
development management ensuring data quality and efficiency.
Globalization of Research and Development. Many companies are
attempting to maximize the return from a given drug by pursuing regulatory
approvals in multiple countries simultaneously rather than sequentially.
This globalization of clinical research and development activities has
increased the demand for global CRO services, as the drug companies may
look to CROs for expertise and knowledge of the regulations in countries
other than the U.S. and to manage trials based on those requirements.
Biotechnology Industry Growth. The biotechnology industry has
developed a number of key drugs requiring FDA market approval.
Biotechnology companies typically do not have the in-depth experience or
resources to conduct clinical trials. Accordingly, many biotechnology
companies are seeking CROs to perform the trials to avoid the costs of
expanding into the clinical research area.
Consolidation in the Pharmaceutical Industry. In the past several
years, many pharmaceutical companies have merged or formed corporate
alliances with each other and with biotechnology companies. Once
consolidated, the companies have further streamlined by taking advantage of
the economies-of-scale created by reducing jobs and outsourcing to variable
cost CROs.
Regulatory Pressures. As discussed below, many countries have enacted
laws and regulations requiring the testing of drugs, biologicals, and other
substances prior to obtaining governmental approval to market them. Many
companies in the pharmaceutical and biotechnology industries have
determined that it is more cost-effective to use service companies in the
CRO industry to perform certain, or all, of the required testing because of
such companies' familiarity and expertise with applicable laws and
regulations.
Environmental Sciences Group
The environmental industry has long been dependent upon governmental
programs and regulations developed in response to concerns regarding the safety
of chemicals in the air, water, food, consumer products, and land. Historically,
much of the growth experienced by environmental firms has come from assisting
private sector clients to respond to the regulatory systems that have been put
into place at both the federal and state levels.
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For the next several years, the Company believes that the environmental
industry will find continued, but more limited, opportunities to grow. To what
extent new or existing regulations will provide a growing base of business
depends largely on how the differences between the views of the current Congress
and the President are resolved and on the outcome of the Congressional and
Presidential elections in November 1996. In addition, after many years of
dealing with problems created in the past, general industry, especially the
manufacturing, industrial, and chemical concerns, is now able to turn its
attention to current operations and prevention of future environmental issues.
The industry's proactive approach will create new and expanding opportunities
for the environmental industry. For example, leaders in industry are already
developing programs to incorporate safety, health, and environmental
considerations into their product and process design. A growing area for the
environmental industry to provide services is in assisting companies to
incorporate environmental and public health concerns into plans for effective
corporate strategic growth.
The Company believes that international opportunities for environmental
industry growth will continue to expand as the world moves toward a global
economy. Companies seeking to enter the world economy will need assistance in
developing environmental management systems and in monitoring these programs for
compliance with international standards. In addition, as world markets become
more developed, opportunities will increase for the environmental industry to
assist private firms in merger and acquisition planning and in general
evaluation and management of environmental and public health risks.
REGULATORY ENVIRONMENT
The market for the services offered in both the Company's Life Sciences
Group and Environmental Sciences Group has developed as a result of significant
laws and regulations governing the development and testing of certain drugs and
hazardous substances and the impact of hazardous substances on the environment.
Many countries require safety testing prior to obtaining governmental
approval to market various substances, including pharmaceutical products,
industrial chemicals, and agrochemicals. The most significant laws and
regulations concern the safety of pharmaceutical products. The results of
clinical tests conducted upon pharmaceutical products must be submitted to
appropriate government agencies, such as the FDA in the U.S., the European
Committee for Proprietary Medicinal Products and national regulatory agencies in
Europe, and the Ministry of Health and Welfare in Japan, as part of the relevant
pre-market approval process in individual countries.
Manufacturers of industrial chemicals and agrochemicals must also comply
with toxicological testing requirements in connection with the pre-market
approval process. In recent years, heightened concern over the presence of
potentially toxic substances in the environment has focused attention on the
need to evaluate the effects of existing and new chemical substances. As a
result, regulations have been enacted in many jurisdictions expanding the
regulatory process for industrial chemical and agrochemical products, including
the Toxic Substances Control Act ("TSCA") and the Federal Insecticide, Fungicide
& Rodenticide Act in the United States ("FIFRA"), and the council Directive
91/414/EEC in Europe.
The management and remediation of hazardous substances in the environment
are also subject to extensive federal legislation in the U.S., including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA", commonly known as the "Superfund" legislation) and the Superfund
Amendment and Reauthorization Act of 1986 ("SARA"), which address problems
involving the remediation of past waste disposal practices; the Resource
Conservation and Recovery Act of 1976 ("RCRA") and the Hazardous Solid Waste
Amendments of 1984, which regulate the management of newly created wastes; the
Safe Drinking Water Act of 1974; the Clean Water Act; the Occupational Safety
and Health Act ("OSHA"); and the 1990 Clean Air Act Amendments. In addition,
state authorities have enacted significant environmental legislation, including
California's Safe Drinking Water and Toxic Enforcement Act of 1986 and New
Jersey's Industrial Site Recovery Act ("ISRA," formerly "ECRA").
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SERVICES OFFERED
Life Sciences Group
Pharmaco provides a full range of clinical research and development
services, including clinical trials management and study design, biostatistical
analysis, data management, regulatory affairs, medical writing, quality
assurance services, consulting services, peer review, clinical trial laboratory
services, analytical chemistry, and packaging of clinical trial drugs. These
services are designed to facilitate timely progression of the clients' products
through the development pipeline and to secure marketing approval. Pharmaco's
services are provided separately or as integrated packages of two or more
services. Through the CCCR division of Clinix, the Life Sciences Group
participates in and conducts clinical trials in the pharmaceutical and food and
nutrition industries. During 1995, $134.0 million or 73.1% of the Company's net
revenues were generated by the Life Sciences Group. Of such revenues,
approximately $39.1 million were generated by the Company's former toxicology
operations.
Clinical Trials Management. The Company's Life Sciences Group offers
complete services for design, placement, performance, and management of clinical
trial programs, following Good Clinical Practice guidelines, which is a crucial
element in obtaining regulatory approval for drugs and medical devices. The
Company has significant clinical trials experience in the areas of:
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Analgesia........................ Acute and chronic pain modeling
Biotechnology.................... Growth hormone, multiple sclerosis, sepsis, wound
healing
Cardiovascular disease........... Congestive heart failure, global survival trials
Central nervous systems Schizophrenia, depression, anxiety,
disease........................ obsessive-compulsive disorders, panic disorders
Dermatology...................... Wound healing, acne, hair loss
Food and Nutrition............... Fat substitutes, beta carotene, oligofructose,
fibers
Gastroenterology................. Duodenal ulcer, gastric ulcer, gastro-esophageal
reflux disease, H. pylori, nonsteroidal
anti-inflammatory drug-induced ulcers
Infectious disease............... Acute and critical
Oncology......................... Ovarian, lung cancer
Rheumatology..................... Rheumatoid and osteoarthritis
Women's health................... Hormone replacement, oral contraception
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Through Pharmaco, the Company manages every aspect of clinical trials in
Phases I through V, including protocol development, case report form design,
identification and recruitment of investigators, site initiation, monitoring and
data collection, patient enrollment, interpretation of trial results, and report
preparation. Pharmaco performs Phase I studies in the Company's 200-bed facility
in Austin, Texas, and in the 52-bed Leicester Clinical Research Centre ("LCRC")
facility in Leicester, England. The Clinical Development Services division of
Pharmaco is experienced in monitoring from one to as many as hundreds of
investigative sites involving over 8,000 patients in multinational trials
conducted simultaneously in North America and Europe.
Biostatistical Analysis and Data Management. The Biostatistics division of
Pharmaco provides a range of services, including statistical consulting, data
management, and analysis and reporting of study results. The programmers, data
analysts and statisticians are supported by state-of-the-art computing systems
linked in a global wide area network. Pharmaco has developed computerized
systems for the collection, review and correction of clinical data to reduce the
time required to finalize study data. These systems are part of Pharmaco's
commitment to providing error-free data in a timely manner. Pharmaco's
statisticians are also working on advanced statistical techniques that will
increase the ability to detect treatment results when more traditional
techniques fail. The data processed and the analyses are crucial components of
the documents submitted to regulatory agencies for product approval.
Analytical Laboratory Services. Through its Laboratory division, Pharmaco
performs analytical laboratory services in its laboratory located in Richmond,
Virginia. As part of such services, the laboratory develops,
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validates, and conducts the trace quantitative measurements of pharmaceutical
compounds and their metabolites in biological samples collected during clinical
trials. Data from the bioanalytical projects support the pharmacokinetic
evaluation throughout the various clinical phases.
The laboratory complex includes a new 38,000-square-foot state-of-the-art
facility. Comprehensive measurement services include Gas Chromatography/Mass
Spectrometry, Liquid Chromatography/Mass Spectrometry, High Performance Liquid
Chromatography, Gas Chromatography, Radioimmunoassay, and Enzyme Linked
Immunosorbant Assay. Support services include HIV positive sample handling,
sample/data management for kinetic studies from multi-center trials, and
sample/data archiving.
Other Clinical Management Services. Pharmaco provides comprehensive
regulatory services in the United States and throughout Europe. The Company
provides regulatory strategy formulation and assists clients in preparing
regulatory filings and in responding to regulatory agency inquiries.
Pharmaco also provides packaging and pharmaceutical handling services. The
Company receives large quantities of a study drug, which it labels, packages,
and distributes along with other supplies. Based on study design, Pharmaco can
provide a just-in-time distribution scheme for drugs which can reduce costs for
sponsors in clinical trials of expensive or rare investigational drugs. All
procedures are performed in accordance with Good Manufacturing Practice and Good
Laboratory Practice.
Environmental Sciences Group
APBI Environmental Sciences Group currently provides health and
environmental sciences and engineering consulting services through its ENVIRON
division. During 1995, the Environmental Sciences Group generated 26.9% of the
Company's net revenues.
ENVIRON. ENVIRON is a leading provider of multidisciplinary consulting
services in the chemical risk assessment and risk management field. ENVIRON
provides services primarily to private sector clients facing potentially high
liability as a result of the presence of hazardous substances in the
environment, in drugs and medical devices, in consumer products, and in the
workplace. ENVIRON's engagements typically involve providing creative,
multidisciplinary solutions to complex problems.
ENVIRON provides services primarily in two areas: (1) health sciences and
(2) environmental sciences and engineering. ENVIRON's health sciences staff
includes professionals trained in toxicology, epidemiology, chemistry,
biochemistry, microbiology, industrial hygiene, risk assessment, and allied
fields. Its environmental sciences and engineering staff includes professionals
trained in hydrogeology; geology; environmental chemistry; environmental,
chemical, and civil engineering; and ecotoxicology, ecology, and natural
resources. Approximately 54% of ENVIRON's employees have advanced degrees at the
master's level or above. Of those with advanced degrees, approximately 24% have
attained their Ph.D.
ENVIRON offers services in the following areas:
Chemical Risk Assessment and Risk Management. ENVIRON assesses the
potential risk of injury to human health and the environment associated
with industrial chemicals during all stages of the manufacturing process
and disposal. It also provides assistance in determining exposures and the
potential health impact of chemicals present in food, consumer products,
pharmaceuticals, medical devices, and the workplace.
The chemical risk assessment services provided by ENVIRON typically
involve two components. ENVIRON analyzes toxicological and biological data
to assess the inherent hazard or toxicological properties of industrial
chemicals and other substances. In addition, ENVIRON assesses the physical-
chemical properties of industrial chemicals and other substances in the
media in which they are found to evaluate the fate and transport of such
substances in the environment and the potential for exposure. The
assessments performed by ENVIRON are generally used to evaluate the
potential for public health risk and ecological damage. ENVIRON also
assists clients in developing workplace standards for industrial chemicals
and prepares assessments of risks resulting from occupational exposure. In
addition, ENVIRON conducts audits to determine compliance with specific
laws regulating chemical releases into
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air, water, and other environmental media, and to obtain permits for
manufacturing or processing facilities.
ENVIRON provides such services in a variety of project areas,
including complex hazardous waste sites, current and former industrial
manufacturing facilities, leaking underground storage tanks, municipal and
hazardous waste disposal facilities, incinerators, abandoned mine sites,
pesticide-contaminated agricultural land, and large-scale spills and
releases. In performing assessments, ENVIRON also analyzes the potential
for exposure at the project site and the surrounding environment.
Environmental Liability Assessments. ENVIRON performs environmental
liability assessments of industrial properties, commercial and residential
developments, undeveloped parcels of land and hazardous waste sites to
identify practices that could result in significant exposure or liability.
These services include environmental audits to determine compliance with
current and anticipated federal, state, and local regulations, and to
estimate the present value of environmental liabilities. Such assessments
have been performed across a broad range of industries, including iron and
steel, pulp and paper, mining, oil and gas, textiles, lumber and wood,
plastics, leather, and electronics.
Site Investigation and Remediation. ENVIRON assists clients in
determining the nature and extent of contamination at industrial and
hazardous waste sites through the collection and analysis of soil, water,
and sediment samples. ENVIRON's services in this area also include the
evaluation and analysis of the cost-effectiveness of various alternative
remediation strategies designed to protect human health and the
environment. ENVIRON also designs the selected remedial strategy, hires
subcontractors as appropriate and provides oversight of the implementation
of the strategy. Such services are often provided in connection with the
negotiation and resolution of disputes that relate to the apportionment of
liability arising under various federal, state, and local statutes, or
private contracts.
Litigation Support. ENVIRON provides expert technical assistance and
strategic support to clients who are or who anticipate becoming involved in
litigation relating to environmental, occupational, and product safety
issues. These services cut across substantially all of its practice areas.
Services provided in this area include reviewing environmental data and
waste handling records, allocating liability among multiple site owners,
developing information on state-of-the-art waste disposal practices,
determining the timing of contaminant release events, evaluating sampling
programs and remedial measures developed for contaminated sites, reviewing
toxicological and epidemiological data associated with the use of consumer
products, and establishing relationships between exposure and disease or
injury. ENVIRON's senior staff members have extensive experience providing
expert testimony in the areas of toxicology, risk assessment, and
contaminant releases.
Product Safety Regulation. ENVIRON provides strategic scientific
support and regulatory affairs guidance in the pre-market approval process
for and subsequent use of various products, including drugs and
pharmaceuticals, medical devices, food additives, consumer products,
agricultural chemicals, and biotechnology products.
Air Quality. ENVIRON offers a full spectrum of air quality services,
including: air emissions and dispersion modeling from industrial facilities
and hazardous waste sites, including siting studies and air toxics impact
evaluations; air pollution compliance assistance, including compliance
auditing, regulatory analysis, and obtaining local and state permits, as
well as federal Title V operating permits; ambient and indoor monitoring
program design and implementation; process engineering; emergency release
modeling and off-site consequence analysis; analysis of the potential
regional air quality impacts of alternative control strategies, including
advanced vehicles, alternative and reformulated fuels and other mobile and
stationary source control measures; and leak detection and repair services,
including monitoring equipment recommendations, software/data base
management system design, program management consulting, and field
services.
Other Environmental Services. ENVIRON also provides a variety of
other services that complement its primary service areas. Such services
include facility siting and permitting, water quality assessments, waste
management, emergency planning, and evaluation of environmental management
8
<PAGE> 10
systems. Although such other services have historically represented a
relatively small percentage of ENVIRON's net revenues, the Company believes
that it will have opportunities to expand its business in these areas in
the future.
Investment in EnSys Environmental Products, Inc. ("EnSys"). The Company
owns 729,600 shares of EnSys common stock and warrants to acquire up to an
additional 866,667 shares of EnSys common stock. EnSys develops proprietary
biotechnology-based analytical systems for on-site detection of hazardous
chemicals in soil, water and other environmental samples. The EnSys methodology
provides for prompt, low-cost screening of environmental samples at the field
sampling site or in a laboratory setting. Each of the common stock shares
included in the warrants has a purchase price of $7.50 per share and each of the
warrants is exercisable for a period of three years from October 27, 1993. The
Company owns approximately 12% of the EnSys common stock excluding warrants and
approximately 23% if both common stock and warrants are considered.
The Company's investment in EnSys is recorded at $1.0 million, which the
Company believes represents its fair value. The Company's recorded value for
this investment represents the market price of EnSys common stock as quoted on
the National Market System of the National Association of Securities Dealers
Automated Quotation System at December 31, 1995, less a discount of $0.2 million
to reflect the relatively illiquid nature of the investment. The $2.6 million
difference between the fair value and the carrying value is reported as a loss
in the Company's statement of operations in 1995. The difference in 1994 was
reported as a separate component of stockholders' equity.
MARKETING
A substantial portion of the Company's new business is derived from current
or former clients and referrals by such clients. Marketing activities by the
operating divisions of Pharmaco and Clinix involve senior executives and other
experienced personnel specialized in all aspects of U.S., European, and global
clinical drug development. ENVIRON conducts separate marketing activities at
each of its office locations, and believes that its regional presence enables
its professionals to gain a greater knowledge of regional environmental issues,
a better understanding of regional laws and regulations, and a more constructive
working relationship with regional governmental agency personnel. Because of the
technical nature of the Company's business, most marketing activities at each of
the Company's operating divisions are conducted by technical and scientific
personnel, with initial contacts frequently followed up by personal visits to
clients' offices.
The Company sponsors and encourages the participation by its personnel in a
variety of scientific endeavors, including the presentation of papers by its
professional staff at meetings of professional societies and major conferences
and the publication of scientific articles in respected journals. The Company
believes such activities enhance its reputation for professional excellence. The
Company's core marketing efforts are complemented through advertising in trade
journal and exhibits at scientific conferences.
CLIENTS
Overview
During the past fiscal year, the Company provided services to over 1,200
clients, including some of the largest American, European, and Japanese
pharmaceutical and industrial chemical companies. During each of the past three
years, no single client has contributed more than 10% of the Company's net
revenues. In 1995, the Company's ten largest clients accounted for approximately
35% of the Company's net revenues. One client accounted for 12.2% of the net
revenues of the Life Sciences Group and another client accounted for 14.6% of
the net revenues of the Environmental Sciences Group.
In 1995, 26% of the Company's net revenues were derived from clients
outside the U.S., in particular from Europe and Japan, and related principally
to biological safety testing conducted by the Company's former toxicology
operations. A majority of the net revenues of Pharmaco and Clinix's clinical
research services operations, and virtually all of the net revenues of ENVIRON,
currently are generated by clients in the United States.
9
<PAGE> 11
The table below sets forth the geographic sources of the Company's
consolidated net revenues from continuing operations for the past three fiscal
years:
<TABLE>
<CAPTION>
PERCENTAGE OF NET
REVENUES
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States...................................................... 74% 72% 72%
Europe............................................................. 18 22 21
Japan and other.................................................... 8 6 7
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Life Sciences Group
The principal clients for the clinical research services offered by
Pharmaco and Clinix include mainly the large pharmaceutical companies,
particularly companies that are growing and expanding into the biotechnology and
medical device industries. In addition, the Company's Life Sciences Group also
serves, to a lesser extent, certain other industries such as those producing
food additives and personal and healthcare products.
Environmental Sciences Group
ENVIRON's clients come from a wide variety of industrial companies. A
significant portion of these engagements is initiated by lawyers whose clients
are engaged in merger, acquisition, or real estate transactions, or who become
involved or anticipate becoming involved in litigation. ENVIRON also provides
services to investment banks, lenders, insurance firms, trade associations, and
to a lesser extent, state and local government agencies.
BACKLOG
The Life Sciences Group maintains an order backlog for clinical research
studies and analytical laboratory services. Such services are generally
performed on a project-by-project basis in accordance with defined protocols
established pursuant to written agreements entered into with clients. Due to the
technical nature of the services provided by Pharmaco and Clinix, the
negotiation and execution of a written agreement for a particular project may
extend over a period of months. Previously, the Company has reported backlog as
consisting of only anticipated net revenues from signed contracts. Pharmaco
frequently initiates work on a particular project after it has entered into a
letter of intent with the client relating to the project, but prior to the
negotiation and execution of a written agreement. Therefore, the Company
believes reported backlog should consist of anticipated net revenues from
uncompleted projects which have been authorized by the client not only through
signed contracts but also through signed letters of intent. Pharmaco's order
backlog, as described herein, excludes the portion of order backlog that
represents amounts paid to subcontractors. The order backlog of the Life
Sciences Group for the services described above under written agreements,
including signed letters of intent and net of subcontractor costs, was $103.5
million at December 31, 1995, compared to $90.6 million at December 31, 1994.
Backlog at December 31, 1994, excludes backlog from the Company's former
toxicology division of $30.6 million. Backlog at December 31, 1995, includes
backlog of the Company's 1995 acquisitions (CCCR and LCRC) of $7.5 million.
Computations of order backlog can be affected by a number of factors.
Clients have the right to terminate studies after initiation, and premature
terminations (generally as a result of unexpected test results) can result in
unplanned periods of excess capacity. The Company's written agreements generally
require clients to make all scheduled payments through the termination date and
to pay certain extra costs incurred in connection with the early termination
thereof. In addition, such agreements may also require the payment of a separate
early-termination fee.
The Environmental Sciences Group's net revenues, including all net revenues
of ENVIRON, are not represented by an order backlog, as the Environmental
Sciences Group engagements are generally of an
10
<PAGE> 12
indefinite duration in which services are performed on a time-and-expenses
basis, and clients are billed at fixed hourly rates for each staff member
involved in an assignment, rather than on a project basis.
COMPETITION
The Company's general strategy is to differentiate itself from competition
by providing the broadest range of services with the highest degree of
scientific and technical expertise. Each of the Company's subsidiaries and
operating divisions, however, competes on the basis of the particular services
it provides.
Pharmaco's Clinical Development Services, Biostatistics and Laboratory
divisions compete principally against the leading CROs and analytical
laboratories. In Phase I research, Pharmaco typically competes against a few
well-established companies, such as Hazleton Laboratories Corporation, a
subsidiary of Corning Incorporated; Harris Laboratories; and Phoenix
International, as well as major pharmaceutical companies that maintain in-house
clinical testing facilities. Competitive factors in Phase I research include the
quality of the CRO's facility, ability to recruit subjects on a timely basis,
reliability of clinical procedures, and timeliness and accuracy of final report
productions. In clinical development trials, Pharmaco competes against a number
of large CROs, including G.H. Besselaar and Associates, a subsidiary of Corning
Incorporated; Quintiles Transnational Corp.; PAREXEL International Corporation;
ClinTrials Research Inc.; and Pharmaceutical Product Development, Inc. The
Company believes that Pharmaco is the third largest full-service CRO in the
world. Competitive factors in clinical development trials include medical and
scientific expertise in applicable therapeutic areas, the ability to recruit
principal investigators, and the ability to organize and manage studies on a
global basis so as to meet scheduled enrollment requirements. The Company
believes that the ability to provide biostatistical, regulatory, and other
peripheral services, such as the analytical laboratory services provided by
Pharmaco's laboratory located in Richmond, Virginia, also enhances Pharmaco's
ability to attract clinical development trials.
The Company believes that Clinix is the largest private clinical
investigational site, capable of conducting over 70 trials simultaneously.
Clinix's major competitors are other large investigator sites, including
reSearch for Health Inc. and GFI Pharmaceutical Services Inc. (which was
recently acquired by Collaborative Clinical Research, Inc.).
ENVIRON competes with many firms, ranging from small local firms to large
national firms. ENVIRON competes principally on the basis of reputation,
scientific and technical expertise, experience and qualifications of
professional staff, quality of services, ability to handle complex problems, and
its risk assessment orientation. A large percentage of ENVIRON's business is
generated by existing or former clients. ENVIRON believes that pricing is
generally not the primary factor in attracting the types of engagements on which
it focuses, which typically involve providing creative, multidisciplinary
solutions and significant value-added services.
GOVERNMENT REGULATIONS
Pharmaco and Clinix conduct all clinical research and development in
accordance with Good Clinical Practice ("GCP") guidelines. GCP guidelines have
not been formally adopted as regulations by the FDA or by similar regulatory
authorities outside the U.S. However, regulatory authorities may require that
clinical development studies be based on or in accordance with GCP. Certain
provisions of GCP have been included in regulations adopted by the FDA. Several
countries within the European Community have adopted GCP as part of their
regulations. GCP guidelines set the standards ensuring the quality and integrity
of the clinical development and testing process and seek to protect the rights
and safety of clinical subjects.
The industry standard for conducting pre-clinical and laboratory testing is
embodied in regulations called Good Laboratory Practice ("GLP"). GLP has been
adopted by the EPA and the FDA in the U.S., by the Department of Health in the
United Kingdom, and by similar regulatory authorities in other parts of the
world. GLP stipulates requirements for facilities, equipment, and professional
staff. The regulations mandate standardized procedures for controlling studies,
for recording and reporting data, and for retaining appropriate records. To help
assure compliance, the Company has established a quality assurance unit at its
laboratory
11
<PAGE> 13
facility. This unit monitors ongoing compliance with GLP regulations by auditing
test data and conducting regular inspections of testing procedures.
The consulting services provided by ENVIRON are not significantly regulated
by any governmental authority at this time.
POTENTIAL LIABILITY AND INSURANCE
The Company's services involve significant risk of liability for negligence
and professional malpractice. The Company's business could be adversely affected
if it were required to pay material damages, or to incur significant defense
costs, in connection with a lawsuit for which it did not have adequate insurance
coverage and for which it was not adequately indemnified by the client for whom
it performed services. In particular, the Company's clinical research operations
and its environmental risk management services each involve engagements with
significant risks of liability for personal injury, environmental and property
damage, and economic loss.
The Company currently maintains liability insurance on a "claims made"
basis for professional acts, errors and omissions. As of December 31, 1995, this
insurance policy includes a $1,000,000 self-insurance retention.
EMPLOYEES
As of December 31, 1995, the Company had over 1,350 full-time equivalent
employees, of whom 980 were employed in the Life Sciences Group, 330 were
employed in the Environmental Sciences Group, and the remainder were in the
Company's corporate headquarters. Of the Company's employees, approximately 330
had advanced degrees. None of the Company's employees is represented by a labor
union or is subject to a collective bargaining agreement. The Company has never
experienced a work stoppage and believes that its employee relations are
satisfactory.
FOREIGN AND DOMESTIC OPERATIONS
Set forth in Note 18 to the Company's consolidated financial statements for
each of fiscal years 1995, 1994, and 1993 are the Company's revenues, operating
profit or loss, and assets attributable to each geographic area in which the
Company operates.
ITEM 2. PROPERTIES.
The Company's Life Sciences Group owns and operates a 52-bed Phase I
facility in Leicester, England. This facility, which was acquired by the Company
as part of the divestiture of its toxicology operations, is a modern,
state-of-the-art building. The Company also operates a 200-bed Phase I facility
in Austin, Texas. The Company's Environmental Sciences Group's only owned
property is a former ETC laboratory facility located in Houston, Texas. The
property currently is held for sale. The Houston property is mortgaged as
collateral for the Company's long-term revolving credit facility. (See Note 9 to
the Company's consolidated financial statements.) All other facilities are
leased. The Company's operations occupy approximately 470,000 square feet of
office space worldwide, including over 50,000 square feet of office space
located outside of the United States. The Company believes that its facilities
have adequate capacity to handle significant additional business growth.
12
<PAGE> 14
The locations of the principal operating facilities of the Company as of
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
LIFE SCIENCES GROUP ENVIRONMENTAL SCIENCES GROUP
- --------------------------------------------- ---------------------------------------------
<S> <C>
Austin, Texas (1) Arlington, Virginia (2)
Richmond, Virginia Princeton, New Jersey
Chicago, Illinois Emeryville, California
Columbia, Maryland Irvine, California
Triangle Township, North Carolina Novato, California
Chelmsford, England Houston, Texas
Cambridge, England
Leicester, England
Brussels, Belgium
Paris, France
Karlsruhe, Germany
</TABLE>
- ---------------
(1) In November 1995, the Company entered into a sale-leaseback transaction
related to its Austin, Texas facilities. See Note 9 to the Company's
consolidated financial statements.
(2) ENVIRON has an option to lease additional space in this building in 1998.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, the Company is a party to various claims
and legal proceedings. Although the ultimate outcome of these matters is
presently not determined, management of the Company, after consultation with
legal counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The common stock of the Company, par value $0.01 per share (the "Common
Stock"), is traded in the over-the-counter market and is quoted on the National
Market System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"). The following table sets forth the high and low
prices for shares of the Company's Common Stock during 1995 and 1994, as
reported by the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter........................................... $6.25 $4.13 $6.63 $4.88
Second Quarter.......................................... 6.13 4.75 7.38 5.31
Third Quarter........................................... 7.88 4.38 6.50 5.25
Fourth Quarter.......................................... 7.75 6.00 6.13 4.63
</TABLE>
As of March 15, 1996, there were approximately 3,860 beneficial holders of
the Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company has no present plans to pay cash dividends to its stockholders and, for
the foreseeable future, intends to retain all of its earnings for use in its
business. The Company's credit facilities currently prohibit or restrict the
payment of
13
<PAGE> 15
cash dividends on the Company's Common Stock. The declaration of any future
dividends by the Company is within the discretion of its Board of Directors and
is dependent upon the earnings, financial condition, and capital requirements of
the Company, as well as any other factors deemed relevant by the Board of
Directors, and subject to the prior written consent of certain of the Company's
lenders.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data presented below for each of the
years ended December 31, 1991, through December 31, 1995, have been derived from
the audited consolidated financial statements of the Company, which have been
audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent
public accountants. The data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements and related
notes thereto included elsewhere in this Report.
On February 28, 1992, a wholly owned subsidiary of the Company was merged
with and into Pharmaco International Inc., pursuant to which transaction
Pharmaco International Inc. became a wholly owned subsidiary of the Company. The
transaction was accounted for as a pooling of interests. The Company's financial
results for the year ended December 31, 1991, have been restated to reflect such
transaction, using Pharmaco International Inc.'s financial statements for its
year ended December 31, 1991. The financial statements of Pharmaco International
Inc. for the year ended December 31, 1991, have been audited by Arthur Andersen
LLP, independent public accountants.
The Company's consolidated financial data reflects certain of its former
Environmental Sciences Group divisions as discontinued operations. See Note 4 of
Notes to Consolidated Financial Statements.
Net revenues and direct costs are stated separately for the Company's Life
Sciences Group and the continuing operations of the Company's Environmental
Sciences Group.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995(2) 1994 1993 1992(2)(3) 1991(2)
-------- -------- -------- ---------- --------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues (5):
Life sciences........................ $133,970 $129,099 $115,154 $115,828 $101,536
Environmental sciences............... 49,283 45,763 40,190 43,179 43,555
-------- -------- -------- -------- --------
183,253 174,862 155,344 159,007 145,091
Direct costs:
Life sciences........................ 93,997 92,692 88,295 74,782 68,034
Environmental sciences............... 33,791 30,095 27,047 27,079 28,789
-------- -------- -------- -------- --------
127,788 122,787 115,342 101,861 96,823
(Loss) income before discontinued
operations and extraordinary loss
(1)(3)(4)............................... (5,328) 2,865 (13,873) 7,035 13,448
Discontinued operations................... (1,716) (12,873) (12,133) (521) 1,349
Extraordinary loss from early
extinguishment of debt.................. (897) -- -- -- --
-------- -------- -------- -------- --------
Net (loss) income......................... $ (7,941) $(10,008) $(26,006) $ 6,514 $ 14,797
Earnings per share:
Continuing operations................ $ (0.19) $ 0.10 $ (0.49) $ 0.23 $ 0.47
Discontinued operations.............. (0.06) (0.46) (0.43) (0.01) 0.04
Extraordinary loss................... (0.03) -- -- -- --
-------- -------- -------- -------- --------
Net (loss) income............... $ (0.28) $ (0.36) $ (0.92) $ 0.22 $ 0.51
======== ======== ======== ======== ========
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1995(2) 1994 1993 1992(2)(3) 1991(2)
-------- -------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Total assets.............................. $115,157 $181,680 $181,240 $190,840 $167,762
Working capital........................... 33,391 23,683 (2,843) 36,595 29,856
Short-term borrowings..................... -- -- 16,929 7,332 5,020
Current maturities of long-term debt...... 322 2,406 4,204 436 1,727
Long-term debt............................ 572 42,884 14,268 13,678 10,204
Redeemable preferred stock (6)............ -- -- -- -- 11,183
</TABLE>
- ---------------
(1) The loss before discontinued operations and extraordinary loss for 1993 was
affected by (i) a charge against operating income of $9,365,000 in
connection with restructuring the Company's former toxicology services
division and planned improvements in the Company's corporate management
information systems and (ii) an increase in reserves for accounts receivable
of $5,857,000. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) The acquisition of CCCR in August 1995, the acquisition by ETC of certain
assets of Southeastern Capital Corporation in June 1992 and the acquisition
of ETC in September 1991 were accounted for as purchase transactions.
(3) Income before discontinued operations and extraordinary loss for 1992 was
affected by (i) a charge against operating income of $7,623,000 in
connection with the restructuring of the Company's business following the
acquisition of Pharmaco, (ii) the incurrence of $4,296,000 of merger costs
in connection with the acquisition of Pharmaco, (iii) a gain of $338,000
constituting a discount for early payment of a mortgage, (iv) the
acquisition of certain assets of EDI in July 1992, which was accounted for
as a purchase transaction, and (v) an increase in the Company's effective
tax rate as a result of the fact that certain merger costs incurred in
connection with the acquisition of Pharmaco were not deductible for tax
purposes.
(4) Income before discontinued operations and extraordinary loss for 1995 was
affected by (i) the sale of the Company's toxicology business which resulted
in a pre-tax loss of $19,308,000 charged against operating income, (ii) a
special charge against operating income of $4,982,000 primarily related to
the impairment of the Company's available for sale investment (see Note 1 of
Notes to Consolidated Financial Statements), and (iii) an increase in the
Company's tax benefit as a result of the reversal of certain tax liabilities
recorded in prior years for which the Company will not be liable for
payment. (See Note 11 of Notes to Consolidated Financial Statements.) See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(5) Net of subcontractor costs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) Reflects shares of preferred stock of Pharmaco which were converted into
Common Stock of the Company in connection with the Pharmaco merger.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" may contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which reflect management's current view with respect to certain future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, and actual results may differ materially.
Factors that could cause or contribute to such uncertainties include the effect
on financial performance and future events of competitive pricing in the markets
in which the Company offers its clinical development and environmental
consulting services, economic conditions generally and in the Company's industry
segments, as well as those factors discussed elsewhere herein and in the
Company's other periodic reports filed with the Securities and Exchange
Commission.
15
<PAGE> 17
GENERAL
During 1995, the Company's Life Sciences Group, which consists of Pharmaco
and, since August 1995, CCCR, generated annual net revenues of $134.0 million,
up $4.9 million or 3.8% from a year ago. Net revenues for the Company's
Environmental Sciences Group were $49.3 million, compared with $45.8 million
(from continuing operations) in 1994, an increase of 7.7%.
During 1995, the Company reported a loss from continuing operations of $5.3
million, or $0.19 per share, compared to income from continuing operations of
$2.9 million, or $0.10 per share in 1994. Including the loss from discontinued
operations and the extraordinary loss from the early extinguishment of debt, the
net loss in 1995 totaled $7.9 million, equivalent to $0.28 per share, compared
with a net loss of $10.0 million, or $0.36 per share, in 1994.
In early 1995, the Company announced the adoption of a strategic plan
focusing on the growth and expansion of its clinical development services and
environmental consulting businesses. The Company believes that these core
businesses provide the best opportunities for profitable growth and enhancement
of shareholder value. Consistent with its strategic plan, the Company has
undertaken a mix of divestiture and acquisition initiatives aimed at redefining
the type of services offered by the Company.
In August of 1995, the Company, through its newly formed subsidiary, Clinix
International Inc., acquired the business and assets of CCCR, a nationally
recognized organization which conducts clinical trials in the pharmaceutical and
food and nutrition industries. The consideration consisted of 634,188 shares of
APBI common stock valued at $4.0 million, together with the assumption or
retirement of substantially all of CCCR's outstanding indebtedness and other
related liabilities. The Company believes that the acquisition of CCCR is of
strategic importance in enhancing and expanding the range of clinical
development services offered through its Life Sciences Group.
The Company completed a sale-leaseback transaction involving Pharmaco's
owned real estate in Austin, Texas, on November 13, 1995. Total gross proceeds
from the transaction were $12.0 million. The facilities were leased back to the
Company under a bond-type net lease in which the Company retained responsibility
for operations and maintenance costs. The initial term of the operating lease is
fifteen years, followed by four five-year renewal options. The net proceeds from
the sale-leaseback transaction were used to repay the remaining mortgage balance
on the Austin, Texas properties, and the remaining cash was applied to pay down
the Company's outstanding long-term debt.
On November 21, 1995, the Company sold to Huntingdon its toxicology
laboratories, located in New Jersey and Suffolk, England. In connection with the
sale of the New Jersey toxicology laboratory, which operated as a division of
Pharmaco International Inc., Huntingdon acquired substantially all of the assets
of the laboratory and assumed substantially all related liabilities. In
connection with the sale of the toxicology laboratory located in Suffolk,
England, Huntingdon acquired all of the capital stock of Pharmaco LSR Ltd., a
wholly owned subsidiary of the Company. The Company received as consideration
cash proceeds of $32.5 million, plus an additional $6.0 million for an equal
amount of cash conveyed to Huntingdon as part of the sale. The consideration
received also included the Company's acquisition of Huntingdon's Phase I
clinical center located in Leicester, England, at an agreed-upon value of $4.5
million. The cash proceeds from this transaction were used to pay off the
Company's term loan and revolving credit facility.
The Company, through APBI Environmental Sciences Group, continues to own
preferred and common stock of PACE Incorporated ("PACE") representing
approximately 36% of PACE's weighted average preferred and common stock
outstanding. This investment has been reflected as a discontinued operation
since 1993. (See Note 4 to the Company's Consolidated Financial Statements.)
During the fourth quarter of 1995, PACE sold substantially all of its
laboratories in a series of transactions and currently PACE is engaged in
winding up its remaining business operations. It is not anticipated that equity
holders will receive any distributions as part of PACE's dissolution.
In the fourth quarter of 1995, the Company wrote off its remaining
investment in PACE, of approximately $3.6 million, and accrued its estimated
exposure for guarantees on leases. The Company changed its accounting for this
investment during the fourth quarter of 1995 from the equity method to the
16
<PAGE> 18
cost method in accordance with Accounting Principles Board Opinion No. 18, "The
Equity Method of Accounting for Investments in Common Stock."
The Company is continuing to evaluate the long-term strategic fit of its
life sciences and environmental sciences businesses, as well as the individual
business units within these groups.
REVENUE RECOGNITION
The Company records revenues from fixed-price contracts extending over more
than one accounting period on a percentage-of-completion basis. Revenues from
time-and-material contracts are recognized by multiplying billable rates by
hours delivered, plus pass-through expenses incurred. Pass-through costs
generally include subcontractor costs which consist of investigator fees, travel
and certain other contract costs that are reimbursed by the client. Such
subcontractor costs are deducted in determining net revenue.
The majority of the Company's clinical studies contracts are either fixed
price or subject to soft ceilings which cannot be exceeded without client
approval. Since, in many cases, the Company bears the risk of cost overruns,
unbudgeted costs in connection with performing these contracts may have a
detrimental effect on the Company's financial results. If it is determined that
a loss will result from the performance of a contract, the entire amount of the
estimated loss is charged against income in the period in which the
determination is made. In addition, clients generally may terminate a study at
any time, which may cause unplanned periods of excess capacity and reduce
revenues and earnings. To offset the effects of early terminations, contracts of
significant size are often subject to the payment of an early-termination fee.
All of the Company's continuing businesses routinely subcontract with other
organizations in the course of providing services. Pharmaco contracts with
outside physicians in connection with multi-center clinical trials and with
other outside service providers for laboratory analysis and other specialized
services. These costs are passed through to clients and, in accordance with
industry practice, are included in gross revenues. Because the Company's use of
subcontractor services varies significantly from project to project, changes in
gross revenues may not be indicative of business trends. Accordingly, the
Company views net revenues from services, which is gross revenues less the cost
of pass-through subcontractor services, as its primary measure of revenue
growth.
The Company performs services for a number of clients located in foreign
jurisdictions, with client contracts denominated in either dollars or (in the
case of services performed by the Company's European operations) pounds sterling
and other local currencies. Foreign currency translations are a factor in
determining the level of the Company's revenues and expenses. See "Exchange Rate
Fluctuations and Exchange Controls."
17
<PAGE> 19
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, amounts for
certain items in the Company's consolidated financial statements expressed as a
percentage of net revenues from continuing operations and the percentage changes
in dollar amounts of certain items compared with the prior period:
PERCENTAGE OF NET REVENUES FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- -------- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues (3):
Life sciences............................. $133,970 73.1% $129,099 73.8% $115,154 74.1%
Environmental sciences.................... 49,283 26.9 45,763 26.2 40,190 25.9
-------- ----- -------- ----- -------- -----
183,253 100.0 174,862 100.0 155,344 100.0
Direct costs:
Life sciences............................. 93,997 92,692 88,295
Environmental sciences.................... 33,791 30,095 27,047
-------- -------- --------
127,788 69.7 122,787 70.2 115,342 74.3
Selling, general and administrative
expenses.................................... 49,821 27.2 44,642 25.5 46,783 30.1
Loss on sale of business...................... 19,308 10.6 -- -- -- --
Special charges and restructuring costs....... 4,982 2.7 -- -- 9,365 6.0
-------- ----- -------- ----- -------- -----
Operating (loss) income (1)(2)................ (18,646) (10.2) 7,433 4.3 (16,146) (10.4)
(Loss) income from:
Continuing operations..................... (5,328) (2.9) 2,865 1.7 (13,873) (8.9)
Discontinued operations................... (1,716) (0.9) (12,873) (7.4) (12,133) (7.8)
Extraordinary loss........................ (897) (0.5) -- -- -- --
-------- ----- -------- ----- -------- -----
Net (loss) income............................. $ (7,941) (4.3)% $(10,008) (5.7)% $(26,006) (16.7)%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF INCREASE
(DECREASE)
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1995 VS. 1994 1994 VS. 1993
------------- -------------
<S> <C> <C>
Net revenues (3):
Life sciences............................................. 3.8% 12.1%
Environmental sciences.................................... 7.7 13.9
Total........................................... 4.8 12.6
Direct costs:
Life sciences............................................. 1.4 5.0
Environmental sciences.................................... 12.3 11.3
Total........................................... 4.1 6.5
Selling, general and administrative expenses.............. 11.6 (4.6)
Operating income (4)...................................... N/A N/A
Net loss (4).............................................. N/A N/A
</TABLE>
- ---------------
(1) The operating loss from continuing operations for 1993 was affected by (i) a
charge against operating income of $9,365,000 in connection with the
restructuring of the Company's toxicology services division and planned
improvements in the Company's corporate management information systems, and
(ii) an increase in reserves for accounts receivable of $5,857,000.
(2) The operating loss from continuing operations for 1995 was affected by (i)
the sale of the Company's toxicology operations which resulted in a pre-tax
loss of $19,308,000 and (ii) a special charge against operating income of
$4,982,000 primarily related to the impairment of the Company's available
for sale investment. (See Note 1 of Notes to Consolidated Financial
Statements.)
(3) Net of subcontractor costs.
(4) N/A -- Change not meaningful.
18
<PAGE> 20
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
Total net revenues increased 4.8% to $183.3 million in 1995 from $174.9
million in 1994. The Company's Life Sciences Group, which includes Pharmaco and
Clinix, generated total net revenues of $134.0 million, up $4.9 million or 3.8%
from a year ago. Net revenues from the Company's Environmental Sciences Group
were $49.3 million, compared with $45.8 million in 1994, an increase of $3.5
million or 7.7%.
After elimination of the net revenues from divested businesses, including
the Company's former toxicology operations, total net revenues increased 12.2%
to $144.2 million as compared to $128.5 million in 1994. Results of operations
which exclude the results of the divested businesses are considered the results
of the Company's ongoing operations.
Net revenues from the ongoing Life Sciences Group operations were $94.9
million, an increase of 14.7% from 1994. The growth in the Company's ongoing
Life Sciences Group operations was primarily a result of an increase in the
number of contracts under management and in the size of such contracts in the
worldwide clinical development and biostatistics divisions. The clinical
development and biostatistics divisions, accounting for $57.5 million, or 60.6%,
of the Company's ongoing net revenues in the Life Sciences Group, reported an
increase in net revenues of $8.3 million or 16.9%. The acquisitions of CCCR and
the Phase I facility in Leicester, England, contributed net revenues of $2.3
million in 1995.
ENVIRON, the Company's environmental consulting business, is the sole
ongoing operation in the Environmental Sciences Group. ENVIRON reported net
revenues of $49.3 million, up $4.4 million, or 9.8%, as a result of increased
demand for their services in an otherwise sluggish marketplace.
Direct costs increased 4.1% to $127.8 million in 1995 from $122.8 million
in 1994, but declined slightly as a percentage of net revenues to 69.7% from
70.2%. In the Life Sciences Group, direct costs decreased as a percentage of net
revenues to 70.2% from 71.8%. The overall improvement in direct costs as a
percentage of net revenues resulted from improved cost controls and higher labor
utilization. In the Environmental Sciences Group, direct costs as a percentage
of net revenues increased to 68.6% from 65.8% in 1994. The increase in direct
costs as a percentage of net revenues is primarily attributable to the start-up
of the new Marin County office in California.
Selling, general, and administrative expenses increased 11.6% to $49.8
million in 1995 from $44.6 million in 1994. As a percentage of net revenues,
selling, general, and administrative expenses increased to 27.2% from 25.5% last
year. Of the $5.2 million increase, $1.5 million was due to the impact of
inclusion of businesses acquired in 1995 which had no corresponding expenses in
1994. The 1995 impact of higher depreciation and amortization relating to
computer hardware and software, primarily the new accounting system, was $1.2
million. The largest components of selling, general and administrative expense
are compensation and associated benefits. These labor costs increased $2.5
million in 1995 due to the full-year impact in 1995 of 1994 new hires, primarily
in the areas of information technology, and the addition of sixteen people to
Pharmaco's business development group in the last six months of 1995.
The Company recorded a charge of $19.3 million in 1995 relating to the book
loss on the sale of the toxicology business in the fourth quarter. Of that
amount, $17.0 million represents a non-cash write off of the net assets of the
divested businesses in excess of the proceeds received from Huntingdon. The
remaining $2.3 million charge recorded consists of $1.2 million of transaction
costs, $1.3 million of severance costs and relocation costs associated with
moving the European headquarters from Suffolk, England to Cambridge, England,
and $0.6 million projected to be incurred in connection with changing the name
of Pharmaco to Pharmaco International Inc., net of a $0.8 million gain recorded
as a result of the settlement of the Company's defined benefit pension plan.
The Company recorded special charges of $5.0 million in the fourth quarter
of 1995. Included in this charge was a $3.4 million non-cash expense to write
down to market the Company's EnSys investment and the write-off of other
non-productive assets. In addition, the Company recorded severance charges
totaling $1.2 million relating to the downsizing of its corporate overhead
structure. The remaining $0.4 million non-cash expense relates primarily to
accrued lease loss reserves related to underutilization of the Richmond
laboratory facility.
19
<PAGE> 21
The Company's operating loss of $18.6 million reflects an unfavorable
variance of $26.0 million as compared to last year's operating income of $7.4
million. The change is due principally to the $19.3 million charge previously
described relating to the sale of the toxicology business and the $5.0 million
in special charges recorded in the fourth quarter of 1995. The Company's
operating income from its ongoing businesses, exclusive of the Company's former
toxicology operations, would have been $7.1 million, reflecting an increase of
40.8% over the operating income of $5.0 million in 1994. As a percentage of
ongoing net revenues, operating income increased to 4.9% from 3.9% last year.
Net interest and other expenses of $2.8 million in 1995 were comparable to
such expenses in 1994. The Company repaid substantially all of its long term
debt in the fourth quarter of 1995 from the cash proceeds generated by the
toxicology divestiture and the sale-leaseback transaction.
The Company recorded an income tax benefit from continuing operations of
$16.1 million in 1995, compared with a provision of $1.9 million in 1994. The
effective tax rate from continuing operations for 1995 was 75.2%, compared with
the 1994 effective tax rate of 39.5%. The 1995 results were favorably impacted
by the reversal of previously recorded deferred tax charges associated with
prior profits of the Company's U.K. toxicology operations, which were sold to
Huntingdon. As a result of the sale, the Company will not be liable for the
payment of those previously recorded deferred taxes. Excluding the benefit
recorded upon reversal of the previously recorded deferred tax charges, the
effective tax rate for 1995 would have been 26.9%. (See Note 11 of Notes to
Consolidated Financial Statements.)
During 1995, the Company recorded a $1.7 million charge, net of tax,
relating to the write-off of its remaining investment in ETC, its environmental
testing business, and also recorded a $0.9 million charge, net of tax, for the
early extinguishment of debt that includes an early prepayment charge on the
repayment of its long-term debt and a write-off of the unamortized deferred
financing costs associated with its long-term facility.
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
Net revenues from continuing operations increased $19.5 million (12.6%) in
1994 from 1993. Of such increase, $13.9 million was attributable to the
Company's life sciences business, and $5.6 million was attributable to the
Company's continuing environmental sciences business.
All operating divisions of the life sciences business contributed to the
growth in net revenues during 1994. Net revenues from U.S. clinical development
services increased $3.6 million (12.8%) to $31.6 million compared to 1993, as
the average size, function and geographic scope of the clinical trials performed
continued to grow. Similarly, net revenues from European clinical development
services increased $0.8 million (8.6%) to $9.7 million in 1994. The
Biostatistics division of Pharmaco, which analyzes data collected from in-house
studies as well as studies conducted by the Company's clients, reported an
increase in net revenues of $1.8 million (32.1%) to $7.4 million as compared to
1993, due to more aggressive marketing efforts by Pharmaco. Net revenues from
Pharmaco's clinical and laboratory business (Phase I and analytical laboratory
studies) increased $4.8 million (16.2%) to $34.5 million in 1994, as a result of
an increase in the volume of projects. Worldwide toxicology services, which was
subsequently sold in 1995, contributed to the revenue increase with net revenues
from Pharmaco's United Kingdom toxicology business increasing $1.1 million
(3.9%) to $30.2 million in 1994 compared to 1993, while the U.S. toxicology
business reported an increase in net revenues of $1.8 million (13.2%) to $15.8
million in 1994. The increase in the United Kingdom net revenues included an
increase of $0.6 million as a result of an increase in value of the pound
sterling as compared to the U.S. dollar.
The $5.6 million increase in net revenues in APBI's Environmental Sciences
Group was generated by an increased volume of consulting services provided by
ENVIRON. ENVIRON's net revenues increased 15.7% to $44.9 million in 1994 as
compared to 1993 due primarily to increased demand for professional services.
Net revenues generated by the Environmental Sciences Group also included
licensing fees received for environmental laboratory software developed by the
Company's former Astrix Software Technology division.
20
<PAGE> 22
Direct costs increased in 1994 by $7.4 million (6.5%) over 1993. Of such
increase, $4.4 million was attributable to the Company's Life Sciences Group and
$3.0 million was attributable to the Company's Environmental Sciences Group. The
increase in the direct costs of Pharmaco related to the overall increase in
business experienced by all operating divisions. As a percentage of net
revenues, direct costs of the Life Sciences Group decreased to 71.8% in 1994
from 76.7% in 1993. Similarly, in the environmental sciences business, the
percentage of direct costs to net revenues decreased to 65.8% in 1994 from 67.3%
in 1993 due to higher consultant utilization rates.
Selling, general and administrative expenses decreased $2.1 million (4.6%)
to $44.6 million in 1994 compared to $46.8 million in 1993. As a percentage of
net revenues, selling, general and administrative expenses decreased to 25.5% in
1994 as compared to 30.1% in 1993. The decrease was attributable to additional
accounts receivable reserves of approximately $5.9 million recorded in 1993.
Minimal charges were recorded in 1994. This decrease was partially offset by
increased marketing expenses incurred by Pharmaco and by increased corporate
general and administrative expenses. The increase in corporate general and
administrative expenses related to the Company's investment in a new accounting
system. Corporate expenses also were impacted by approximately $0.8 million in
expenses related to a new financing facility, which was negotiated in 1994, and
other professional fees.
The Company incurred restructuring charges of $9.4 million in 1993. No
comparable charges were incurred in 1994. The 1993 charges primarily related to
the reengineering of the Company's two former toxicology laboratories in the
United States and the United Kingdom and related staff reductions to bring costs
in line with reduced revenues.
Operating income from continuing operations increased $23.6 million to $7.4
million in 1994 from a loss of $16.2 million in 1993 as a result of the
previously mentioned factors.
Interest expense, net of interest income, increased to $2.7 million in 1994
from $1.6 million in 1993 as a result of higher average balances outstanding
from the refinancing of the principal credit facility in May and an increase in
interest rates.
The Company recorded a net loss from discontinued operations of $12.9
million in 1994. Of that amount, $12.1 million related to a write-down of the
carrying value of the Company's investment in its discontinued ETC division,
consisting primarily of its interest in PACE Incorporated. The Company recorded
a net loss of $0.5 million relating to the divestiture of Paragon, which was
completed in the second quarter of 1994. The remainder of the net loss from
discontinued operations was attributable to the $0.3 million in net losses
generated by the operations of Paragon prior to its sale.
The Company recorded a provision of $1.9 million for income taxes from
continuing operations in 1994 compared to a benefit of $3.4 million in 1993. The
effective tax rate from continuing operations for 1994 of 39.5% increased from
19.9% in 1993, in part, because of foreign net operating losses for which no
related tax benefit was recorded, due to uncertainty over the Company's ability
to realize such benefit.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1995, were $11.3 million compared
to $7.9 million at December 31, 1994. The $3.4 million increase is primarily due
to proceeds from the sale of the Company's toxicology operations ($32.5
million), proceeds from the sale-leaseback of its Austin facilities ($12.0
million) and an increase in cash from operating activities ($10.8 million),
offset primarily by the repayment of debt ($44.5 million) and capital
expenditures ($7.6 million).
Cash provided from operations in 1995 increased $9.0 million from 1994. The
increase was primarily attributable to a $2.1 million decrease in net loss and a
favorable change in net operating assets of $19.0 million, offset by a decrease
in non-cash expenses net of non-cash gains of $12.1 million. Cash collection
efforts and cash disbursements processing were centralized into one location at
the beginning of 1995. These efforts have resulted in improvements in cash
management as evidenced by a decrease in accounts receivable of $5.5 million
during the year, as compared to an increase during 1994 of $14.0 million, and an
increase in
21
<PAGE> 23
accounts payable and accrued liabilities of $7.9 million during 1995, compared
to a decrease in 1994 of $3.1 million.
The net change in non-cash activity from 1994 to 1995 of $12.1 million
relates primarily to the non-cash portion of the loss on sale of business of
$17.0 million, representing the net book value of the net assets sold in excess
of the cash proceeds received. In addition, the change was affected by the write
down of the Company's investment in EnSys of $2.6 million, the write off of the
unamortized portion of deferred financing costs of $1.0 million, and an increase
in depreciation and amortization expense of $0.8 million. These changes were
offset by a change in deferred income taxes of $21.4 million, a decrease in the
provision for loss on disposal of discontinued operations of $9.1 million and a
change in the net gain on disposition of property and equipment of $2.9 million,
relating primarily to the sale of the Company's Austin facilities.
The Company generated cash from investing activities during 1995 of $38.5
million as a result of the cash proceeds received from the sale of the Company's
toxicology operations of $32.5 million, cash received from the sale-leaseback of
the Company's Austin facilities of $12.0 million and cash received from the sale
of a separate facility in Austin for $2.2 million. Cash was used in investing
activities for capital expenditures totaled $7.6 million and for acquisition
costs of $0.5 million. Acquisition costs were primarily related to the purchase
of CCCR in August 1995. Proceeds from the property sales and the sale of
business were used to repay the related mortgages and Company's outstanding loan
balances. Net cash of $45.5 million was used in financing activities during 1995
primarily to repay the Company's revolving line of credit and long-term debt.
The Company plans to spend approximately $8.0 million for capital
expenditures in 1996. These funds will be used primarily for the purchase of
computer hardware and software to continually upgrade and improve the Company's
technological systems. The Company anticipates financing these expenditures
through internally generated funds.
In 1994, the Company obtained a $25.0 million term loan and a $20.0 million
revolving line of credit term loan facility. The Company used the cash proceeds
from the disposition of its toxicology operations and the sale-leaseback
transaction to repay, in full, the entire outstanding balance of the term loan
and line of credit. The Company has retained, as its primary credit facility,
the secured revolving line of credit which accrues interest at the prime rate
plus 1.0%. The variable rate is subject to reduction if certain covenants
related to financial performance are met. As a result of the Company's
performance during the first and second quarters of 1995, the variable rate was
reduced from 1.5% to 1.0% over prime. The unused portion of the loan is
available to provide working capital and for general corporate purposes through
May 1997. As of December 31, 1995, there were no borrowings outstanding under
the line of credit.
The line-of-credit loan agreement provides an additional $5.0 million for
letters of credit to back guarantees or insurance policies. At December 31,
1995, open letters of credit were issued for $0.7 million.
During 1995, the Company had available a $3.0 million master lease
agreement to provide a means to lease rather than acquire certain equipment for
use in the United States without drawing on its principal credit facility. At
December 31, 1995, the Company had leased equipment totaling $1.9 million under
this facility. For 1996, the Company has $2.0 million of credit available under
an amended master lease agreement.
The Company believes that cash flow generated by its own operating
activities, together with its current borrowing capacity, is sufficient to
finance its world-wide operations and the normal growth of its business at least
through 1996. Further growth of the Company's business also may be funded
through additional borrowings, the sale of non-strategic assets or through
issuance of shares of common stock by the Company.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company
22
<PAGE> 24
implemented early adoption of SFAS No. 121, effective January 1, 1995. The
adoption of this statement had no material affect on the Company's financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation," which provides companies the option to account for employee stock
compensation awards based on their estimated fair value at the date of grant,
resulting in a charge to income in the period the awards are granted, or to
present pro forma footnote disclosure describing the effect to the Company's net
income and net income per share data. SFAS No. 123 is effective for the
Company's 1996 financial statements. The Company has not yet determined what
impact, if any, the adoption of SFAS No. 123 will have on the Company's
financial position or disclosure to its financial statements.
Other pronouncements issued by the FASB with future effective dates are
either not applicable or not material to the consolidated financial statements
of the Company.
EFFECTS OF INFLATION
Management does not believe that inflation has had a significant impact on
the Company's results of operations during the periods presented.
EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
Contracts between the Company's United Kingdom subsidiaries and their
clients are generally denominated in pounds sterling. Because substantially all
of the United Kingdom subsidiaries' expenses, such as salaries, services,
materials and supplies, are paid in pounds sterling, such subsidiaries' earnings
are not materially affected by fluctuations in exchange rates. However, the
Company's consolidated financial statements are denominated in dollars and,
accordingly, changes in the exchange rate between the pound sterling and the
dollar will affect the translation of such subsidiaries' financial results into
dollars for purposes of reporting the Company's consolidated financial results,
and also affect the dollar amounts actually received by the Company from such
subsidiaries.
The results of operations of the United Kingdom subsidiaries denominated in
pounds sterling have been translated from pounds sterling into dollars using the
following exchange rates:
<TABLE>
<CAPTION>
POUND STERLING U.S. DOLLAR
PER U.S. PER POUND
YEAR DOLLAR STERLING
---------------------------------------- -------------- --------------
<S> <C> <C>
1995.................................... 0.633 1.580
1994.................................... 0.651 1.536
1993.................................... 0.665 1.503
</TABLE>
The rates in the above table represent the average of the 13 rates that
were in effect in the beginning of the relevant year and at the end of each
calendar month during such year, as quoted in The Wall Street Journal.
The following table sets forth, for the fiscal years indicated, the
percentage of the Company's revenues from continuing operations recorded in
pounds sterling based on the average rates for the periods indicated in the
conversion table above:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL NET
REVENUES IN
YEAR POUNDS STERLING
------------------------------------------------------ ---------------
<S> <C>
1995.................................................. 17.7%
1994.................................................. 18.9
1993.................................................. 19.8
</TABLE>
Approximately 4.5% of the Company's total net revenues were generated by
its European clinical development services businesses, excluding its United
Kingdom clinical development services subsidiary,
23
<PAGE> 25
primarily in Belgium, France and Germany. As a result of the Company's sale of
its toxicology operations, the percentage of the Company's revenues recorded in
pounds sterling will be significantly lower in 1996. However, because the
Company is currently expanding its foreign operations, it is anticipated that
the percentage of the Company's total net revenues denominated in foreign
currencies may increase in the future.
There are no exchange controls currently in effect in any country in which
the Company's subsidiaries conduct operations on the payment of dividends or
otherwise restricting the transfer of funds outside such countries by a company
resident in such countries. Although the Company performs services for clients
located in a number of foreign jurisdictions, to date, the Company has not
experienced any difficulties in receiving funds remitted from foreign countries.
However, if any such jurisdictions were to impose or modify existing exchange
control restrictions on the remittance of funds to the Company, such
restrictions could have an adverse effect on the Company's business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is set forth on pages F-1 through
F-27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required under this Item is incorporated by reference to
the Registrant's definitive proxy statement for its 1996 Annual Meeting of
Stockholders (to be filed with the Commission).
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this Item is incorporated by reference to
the Registrant's definitive proxy statement for its 1996 Annual Meeting of
Stockholders (to be filed with the Commission).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this Item is incorporated by reference to
the Registrant's definitive proxy statement for its 1996 Annual Meeting of
Stockholders (to be filed with the Commission).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required under this Item is incorporated by reference to
the Registrant's definitive proxy statement for its 1996 Annual Meeting of
Stockholders (to be filed with the Commission).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules
1. The consolidated financial statements of the Company and its
subsidiaries filed as part of this Report are listed in the attached Index
to Financial Statements and Financial Statement Schedule.
2. The Schedule to the consolidated financial statements of the
Company and its subsidiaries filed as part of this Report is listed in the
attached Index to Financial Statements and Financial Statement Schedule.
3. The exhibits filed as part of this Report are listed in the Index
to Exhibits immediately following the signature pages of this Report.
(b) Reports on Form 8-K
24
<PAGE> 26
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on December 6, 1995, relating to the Company's disposition
of its toxicology business through an asset and stock purchase, which was
completed on November 21, 1995, and the completion of a sale-leaseback
transaction involving its real estate in Austin, Texas, on November 13, 1995. As
part of the Current Report on Form 8-K, the Company filed unaudited pro forma
financial statements as of and for the nine months ended September 30, 1995,
giving pro forma effect to the sale of the toxicology business and the
sale-leaseback transaction.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<S> <C>
2 Stock and Asset Master Purchase Agreement by and among Huntingdon International
Holdings plc, Huntingdon Life Sciences Inc., Applied Bioscience International
Inc. and Pharmaco LSR International Inc., dated as of November 1, 1995,
incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on December 6, 1996
3.1 Certificate of Incorporation of the Registrant (composite copy as amended to
date), incorporated by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (Registration No. 33-47505)
3.2 By-Laws of the Registrant, as amended to date, incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
4 Instruments defining the rights of security holders, including indentures
4.1 Certificate of Incorporation of the Registrant (composite copy as amended to
date), incorporated by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (Registration No. 33-47505)
4.2 By-Laws of the Registrant, as amended to date, incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993
10 Material Contracts:
10.1 Applied Bioscience International Inc. Employee Stock Purchase Program (1988),
incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
10.2 Life Science Research Limited Retirement Benefits Scheme and Trust Deed,
incorporated by reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 (No. 33-11953)
10.3 Applied Bioscience International Inc. U.S. Pension Plan and form of Trust
Agreement, incorporated by reference to Exhibit 10.3 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
10.4 Agreement dated December 1, 1987, between the Company and Kenneth H. Harper,
incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
10.5 Agreement dated December 1, 1987 between the Company and John H. Timoney,
incorporated by reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993
10.6 Registration Rights Agreement dated September 7, 1990, by and among Applied
Bioscience International Inc. and Grover C. Wrenn, Joseph H. Highland, Robert M.
Wenger, Robert H. Harris, and Joseph V. Rodricks, incorporated by reference to
Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<S> <C>
10.7 Employment Agreement dated September 7, 1990, by and among ENVIRON International
Corporation, Applied Bioscience International Inc., and Grover C. Wrenn,
incorporated by reference to Exhibit 10.21 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.8 Employment Agreement dated September 7, 1990, by and among ENVIRON International
Corporation, Applied Bioscience International Inc., and Joseph H. Highland,
incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.9 Employment Agreement dated September 7, 1990, by and among ENVIRON International
Corporation, Applied Bioscience International Inc., and Joseph V. Rodricks,
incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.10 Employment Agreement dated September 7, 1990, by and among ENVIRON International
Corporation, Applied Bioscience International Inc., and Robert M. Wenger,
incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.11 Employment Agreement dated September 7, 1990, by and among ENVIRON International
Corporation, Applied Bioscience International Inc., and Robert H. Harris,
incorporated by reference to Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.12 Employment Agreement dated September 7, 1990, by and between Applied Bioscience
International Inc. and Kenneth H. Harper, incorporated by reference to Exhibit
10.26 to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990
10.13 Employment Agreement dated September 7, 1990, by and between Applied Bioscience
International Inc. and John H. Timoney, incorporated by reference to Exhibit
10.27 to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1990
10.14 Partial Waiver and Amendment to Severance Agreement dated September 7, 1990, by
and between Applied Bioscience International Inc. and Kenneth H. Harper,
incorporated by reference to Exhibit 10.30 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.15 Partial Waiver and Amendment to Severance Agreement dated September 7, 1990, by
and between Applied Bioscience International Inc. and John H. Timoney,
incorporated by reference to Exhibit 10.31 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.16 Applied Bioscience International Inc. Stock Incentive Program (1990),
incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990
10.17 Registration Rights Agreement dated February 28, 1992, by and among the
Registrant and Richard J. Hawkins, Nona F. Niland, John V. Farinacci, Summit
Ventures II, L.P., and Summit Ventures, L.P., incorporated by reference to
Exhibit 19.1 to the Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1992
10.18 Partial Waiver to Severance Agreement dated February 28, 1992, by and between the
Registrant and Kenneth H. Harper, incorporated by reference to Exhibit 19.6 to
the Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1992
10.19 Partial Waiver to Severance Agreement dated February 28, 1992, by and between the
Registrant and Kenneth H. Harper, incorporated by reference to Exhibit 19.6 to
the Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1992
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<S> <C>
10.20 Amendments to Registration Rights Agreement dated February 28, 1992, by and among
the Registrant and Grover C. Wrenn, Joseph H. Highland, Robert H. Harris, Joseph
V. Rodricks, and Robert M. Wenger, incorporated by reference to Exhibit 19.10 to
the registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1992
10.21 Corporate Advisory Service Agreement dated February 5, 1993, between Applied
Bioscience International Inc. and Pharmaco LSR International Inc. incorporated by
reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992
10.22 Corporate Advisory Service Agreement dated February 5, 1993, between Applied
Bioscience International Inc. and APBI Environmental Sciences Group, Inc.,
incorporated by reference to Exhibit 10.39 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992
10.23 Letter Agreement dated April 30, 1993, between the Registrant and Dr. Kenneth H.
Harper, incorporated by reference to Exhibit 10.44 to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1993
10.24 Letter Agreement dated April 30, 1993, between the Registrant and John H.
Timoney, incorporated by reference to Exhibit 10.45 to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1993
10.25 Loan and Security Agreement dated as of May 24, 1994, among the Registrant, APBI
Environmental Sciences Group, Inc. , APBI Finance Corporation, APBI Investor
Relations Inc., Pharmaco LSR International Inc., Pharmaco LSR Ltd. (collectively,
the "Borrowers"), and ABN AMRO Bank N.V., Core States Bank, N.A., United Jersey
Bank/Central, N.A. (collectively, the "Banks"), with Core States Bank, N.A. as
Agent, incorporated by reference to Exhibit 10.33 to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1994
10.26 Revolving Credit Notes dated May 24, 1994, incorporated by reference to Exhibit
10.34 to the Registrant's Quarterly Report on Form 10-Q for the period ended June
30, 1994
10.27 Term Loan Notes dated May 24, 1994, incorporated by reference to Exhibit 10.35 to
the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1994
10.28 First Amendment dated as of February 27, 1995, to the Loan and Security Agreement
dated as of May 24, 1994, by and among the Borrowers, the Bank, and the Agent
10.29 APBI Retirement Savings Plan, incorporated by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-8 (No. 33-56678)
10.30 Separation Agreement by and between the Registrant and Swep T. Davis dated as of
January 31, 1995, incorporated by reference to Exhibit 10.30 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994
10.31 Employment Agreement by and between Pharmaco LSR International Inc. and Geoffrey
K. Hogan dated as of January 6, 1993, incorporated by reference to Exhibit 10.31
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1994
10.32 Letter Agreement dated September 3, 1993, between the Registrant and Stephen L.
Waechter, incorporated by reference to Exhibit 10.32 to the Registrant's Amended
Annual Report on Form 10-K/A for the year ended December 31, 1994
10.33 Letter Agreement dated September 14, 1993, between the Registrant and Stephen L.
Waechter, incorporated by reference to Exhibit 10.44 to the Registrant's Amended
Annual Report on Form 10-K/A for the year ended December 31, 1994
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<S> <C>
10.34 Interim Employment Agreement by and between Pharmaco LSR International Inc., and
Charles L. Defesche dated as of March 1, 1995, incorporated by reference to
Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1995
10.35 Change of Control Agreement by and between Applied Bioscience International Inc.
and Stephen L. Waechter dated as of June 14, 1995, incorporated by reference to
Exhibit 10.35 to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995
10.36 Employment Agreement by and between Applied Bioscience International Inc. and
Kenneth H. Harper dated as of September 1, 1995, incorporated by reference to
Exhibit 10.36 to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995
10.37 Restricted Stock Agreement by and between Applied Bioscience International Inc.
and Kenneth H. Harper dated as of August 15, 1995, incorporated by reference to
Exhibit 10.37 to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995
10.38 Employment Agreement by and between Applied Bioscience International Inc. and
John H. Timoney dated as of September 1, 1995, incorporated by reference to
Exhibit 10.38 to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995
10.39 Restricted Stock Agreement by and between Applied Bioscience International Inc.
and John H. Timoney dated as of August 15, 1995, incorporated by reference to
Exhibit 10.39 to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1995
10.40a- Non-statutory Stock Option Agreements by and between Applied Bioscience
10.40f International Inc. and Grover C. Wrenn dated as of September 19, 1995,
incorporated by reference to Exhibits 10.40a-10.40f to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995
10.41 Separation Agreement by and between Applied Bioscience International Inc. and
Grover C. Wrenn dated August 25, 1995, incorporated by reference to Exhibit 10.41
to the Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1995
10.42 Purchase Agreement by and between ABI (TX) QRS 12-11, Inc. and Applied Bioscience
International Inc.
10.43 Lease Agreement by and between ABI (TX) QRS 12-11, Inc. and Pharmaco LSR
International Inc.
10.44 Separation Agreement by and between Applied Bioscience International Inc. and
Jamie G. Donelan dated February 7, 1996
10.45 Employment Agreement by and between Applied Bioscience International Inc. and
Carol P. Hanna dated January 2, 1996
11 Statement re computation of per-share earnings
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
28
<PAGE> 30
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS............................................. F-1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993................................................... F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994......................... F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993................................................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993................................................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................... F-6
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts................................ F-27
</TABLE>
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Applied Bioscience International Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Applied
Bioscience International Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1995. These consolidated financial statements and
the schedule referred to below are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Applied
Bioscience International Inc. and subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
Index to Consolidated Financial Statements and Financial Statement Schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Washington, D.C.,
February 22, 1996
F-1
<PAGE> 32
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
LIFE SCIENCES REVENUES, net of subcontractor costs of $24,144,
$21,370 and $13,730, respectively........................... $133,970 $129,099 $115,154
ENVIRONMENTAL SCIENCES REVENUES, net of subcontractor costs of
$7,230, $4,564 and $3,056, respectively..................... 49,283 45,763 40,190
-------- -------- --------
Net revenues.................................................. 183,253 174,862 155,344
-------- -------- --------
DIRECT COSTS -- LIFE SCIENCES................................. 93,997 92,692 88,295
DIRECT COSTS -- ENVIRONMENTAL SCIENCES........................ 33,791 30,095 27,047
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................. 49,821 44,642 46,783
LOSS ON SALE OF BUSINESS...................................... 19,308 -- --
SPECIAL CHARGES AND RESTRUCTURING COSTS....................... 4,982 -- 9,365
-------- -------- --------
201,899 167,429 171,490
-------- -------- --------
OPERATING (LOSS) INCOME....................................... (18,646) 7,433 (16,146)
INTEREST:
Expense.................................................. (3,054) (3,190) (1,959)
Income................................................... 220 508 392
OTHER INCOME (EXPENSE)........................................ 18 (13) 394
-------- -------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES................................................ (21,462) 4,738 (17,319)
(BENEFIT) PROVISION FOR INCOME TAXES.......................... (16,134) 1,873 (3,446)
-------- -------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS...................... (5,328) 2,865 (13,873)
-------- -------- --------
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of income tax
benefit of $0, $128 and $1,157, respectively........... -- (285) (5,787)
Estimated loss on disposal of discontinued operations,
net of income tax benefit of $2,036, $227 and $2,654,
respectively........................................... (1,716) (12,588) (6,346)
-------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS............................. (1,716) (12,873) (12,133)
-------- -------- --------
NET LOSS BEFORE EXTRAORDINARY ITEM............................ (7,044) (10,008) (26,006)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT,
net of income tax benefit of $475........................... (897) -- --
-------- -------- --------
NET LOSS...................................................... $ (7,941) $(10,008) $(26,006)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.......... 28,457 28,129 28,254
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
(Loss) income from continuing operations................. $ (0.19) $ 0.10 $ (0.49)
Loss from discontinued operations........................ (0.06) (0.46) (0.43)
Extraordinary loss....................................... (0.03) -- --
-------- -------- --------
LOSS PER COMMON SHARE......................................... $ (0.28) $ (0.36) $ (0.92)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 33
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 11,304 $ 7,944
Accounts receivable, net........................................... 54,426 63,585
Supply inventories................................................. 231 1,163
Income tax receivable.............................................. 825 2,297
Prepaid expenses and other current assets.......................... 5,545 6,077
Deferred tax asset................................................. 4,756 --
-------- --------
Total current assets.......................................... 77,087 81,066
PROPERTY AND EQUIPMENT, at cost less accumulated depreciation and
amortization.......................................................... 21,515 82,905
GOODWILL, less accumulated amortization................................. 10,041 5,738
OTHER ASSETS............................................................ 6,514 11,971
-------- --------
Total assets.................................................. $115,157 $181,680
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............................... $ 322 $ 2,406
Accounts payable................................................... 7,089 6,156
Accrued liabilities................................................ 26,749 25,172
Advance billings................................................... 9,536 23,649
-------- --------
Total current liabilities..................................... 43,696 57,383
LONG-TERM DEBT.......................................................... 572 42,884
DEFERRED INCOME TAXES................................................... -- 11,348
DEFERRED RENT AND OTHER................................................. 3,010 1,357
-------- --------
Total liabilities............................................. 47,278 112,972
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 9, 13 and 14)
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 40,000,000 shares authorized,
29,724,000 and 29,520,000 shares issued and outstanding,
respectively...................................................... 297 295
Paid-in capital.................................................... 69,598 68,826
Retained earnings.................................................. 3,144 12,062
Treasury stock, at cost, 713,000 and 1,347,000 shares,
respectively...................................................... (4,335) (9,355)
Unrealized loss on investments..................................... -- (728)
Cumulative translation adjustment.................................. (425) (1,561)
Deferred compensation.............................................. (400) (831)
-------- --------
Total stockholders' equity.................................... 67,879 68,708
-------- --------
Total liabilities and stockholders' equity.................... $115,157 $181,680
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 34
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------- UNREALIZED CUMULATIVE
PAR PAID-IN RETAINED TREASURY LOSS ON TRANSLATION DEFERRED
SHARES VALUE CAPITAL EARNINGS STOCK INVESTMENTS ADJUSTMENT COMPENSATION
------ ----- ------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992.......... 29,367 $294 $68,719 $48,147 $ -- $ -- $ (2,819) $ (2,421)
Net loss........................ -- -- -- (26,006) -- -- -- --
Issuance of 22,728 shares....... 23 -- 84 -- -- -- -- --
Income tax provision from
exercise of stock options and
deferred compensation
amortization.................. -- -- (176) -- -- -- -- --
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- 1,017
Common stock repurchased of
1,440,000 shares.............. -- -- -- -- (10,184) -- -- --
Sale of 84,329 treasury shares
to employee savings plan...... -- -- -- (71) 754 -- -- --
Translation adjustments......... -- -- -- -- -- -- (748) --
------ ---- ------- -------- ------- ----- ------- -------
BALANCE, December 31, 1993.......... 29,390 294 68,627 22,070 (9,430) -- (3,567) (1,404)
Net loss........................ -- -- -- (10,008) -- -- -- --
Issuance of 129,565 shares...... 130 1 448 -- -- -- -- --
Income tax provision from
exercise of stock options and
deferred compensation
amortization.................. -- -- (249) -- -- -- -- --
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- 573
Sale of 8,437 treasury shares to
employees savings plan........ -- -- -- -- 75 -- -- --
Unrealized loss on EnSys
investment.................... -- -- -- -- -- (728) -- --
Translation adjustments......... -- -- -- -- -- -- 2,006 --
------ ---- ------- -------- ------- ----- ------- -------
BALANCE, December 31, 1994.......... 29,520 295 68,826 12,062 (9,355) (728) (1,561) (831)
Net loss........................ -- -- -- (7,941) -- -- -- --
Issuance of 176,771 shares...... 177 2 708 -- -- -- -- --
Issuance of 634,188 treasury
shares in connection with
acquisition accounted for
under the purchase method..... -- -- -- (977) 5,020 -- -- --
Issuance of restricted stock
units......................... 60 -- 405 -- -- -- -- (405)
Forfeiture of restricted stock
units......................... (33 ) -- (567) -- -- -- -- 567
Cancellation and reissuance of
stock options................. -- -- 173 -- -- -- -- (173)
Income tax benefit from exercise
of stock options and deferred
compensation amortization..... -- -- 53 -- -- -- -- --
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- 442
Realized loss on EnSys
investment.................... -- -- -- -- -- 728 -- --
Sale of business................ -- -- -- -- -- -- 1,699 --
Translation adjustments......... -- -- -- -- -- -- (563) --
------ ---- ------- -------- ------- ----- ------- -------
BALANCE, December 31, 1995.......... 29,724 $297 $69,598 $ 3,144 $(4,335) $ -- $ (425) $ (400)
====== ==== ======= ======== ======= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 35
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (7,941) $(10,008) $(26,006)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization............................ 11,754 10,960 12,996
Deferred income taxes.................................... (18,204) 3,235 (234)
Loss on sale of business............................... 16,991 -- --
Provision for loss on disposal of discontinued
operations............................................. 3,752 12,815 9,000
(Gain) loss on disposition of property and equipment..... (2,741) 113 --
Impairment of investment in EnSys........................ 2,638 -- --
Early extinguishment of debt............................. 955 -- --
Deferred compensation expense............................ 442 573 1,017
Write off of goodwill.................................... -- -- 2,890
Change in assets and liabilities:
Decrease (increase) in accounts receivable, net..... 5,502 (13,958) 10,291
Decrease (increase) in supply inventories, prepaid
expenses and other current assets................. 255 (1,572) (73)
Change in current income taxes...................... 1,472 5,115 (7,985)
Increase in other assets............................ (1,236) (3,854) (668)
Change in assets and liabilities of discontinued
operations, net................................... (1,593) (2,009) 1,623
Increase (decrease) in accounts payable and
accrued liabilities............................... 7,860 (3,076) 9,121
(Decrease) increase in advance billings............. (9,081) 3,529 931
-------- -------- --------
Net cash provided by operating activities........... 10,825 1,863 12,903
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (7,617) (14,495) (19,028)
Proceeds from sale of business........................... 32,500 -- --
Proceeds from sale of property and equipment............. 14,150 -- --
Acquisition costs........................................ (536) -- --
Investment in EnSys...................................... -- -- (188)
-------- -------- --------
Net cash provided by (used in) investing
activities........................................ 38,497 (14,495) (19,216)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term bank (repayments) borrowings, net............. (1,687) (16,929) 9,598
Line of credit (repayments) borrowings, net.............. (12,800) 12,800 --
Repayment of long-term debt.............................. (31,720) (12,885) (5,822)
Other long-term borrowings............................... -- 26,903 10,195
Proceeds from issuance of common stock................... 710 449 85
Purchase of treasury stock............................... -- -- (10,184)
Sale of treasury stock to employee benefit plan.......... -- 75 683
Other.................................................... 45 (249) (176)
-------- -------- --------
Net cash (used in) provided by financing
activities........................................ (45,452) 10,164 4,379
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH....................... (510) (137) (346)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 3,360 (2,605) (2,280)
CASH AND CASH EQUIVALENTS, beginning of the year.............. 7,944 10,549 12,829
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of the year.................... $ 11,304 $ 7,944 $ 10,549
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 36
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Applied Bioscience International Inc. and its subsidiaries, collectively,
(the "Company") provide a broad range of research and consulting services in two
business segments: life sciences and environmental sciences. Services provided
in the life sciences segment include worldwide clinical research and development
of pharmaceutical products and medical devices, biostatistical analysis and
analytical laboratory services. Environmental sciences services include
assessment and management of chemical and environmental health risk, site
investigation and remediation planning, and litigation support. Such services
are provided through both segments under contract to clients in the
pharmaceutical, general chemical, agrochemical, biotechnology and other
industries. The environmental sciences segment also markets services to clients
in the industrial, manufacturing and oil and gas industries. The Company's life
sciences services, which represent 73.1% of the Company's business based on net
revenues, are marketed primarily in the United States and Europe. The remaining
26.9% of the Company's net revenues are derived from its environmental sciences
segment which are primarily domestic.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
SPECIAL CHARGES AND RESTRUCTURING COSTS
In the fourth quarter of 1995, the Company recorded special charges of
$4,982,000, primarily related to the impairment of certain investments and
assets and in the effort to reduce costs and improve efficiencies. These charges
included approximately $3,405,000 associated with the impairment of the
Company's available-for-sale investment (see Note 7) and other assets,
$1,195,000 related primarily to severance costs and $382,000 related to accrued
lease losses and other miscellaneous costs.
In 1993, the Company recorded a provision for business restructuring
totaling $9,365,000, primarily related to re-engineering the Company's
toxicology business. These charges included approximately $6,640,000 associated
with severance and costs related to the Company's reduction in work force and
$2,725,000 which primarily related to consulting fees incurred which were
associated with the design and implementation of reorganized reporting lines and
responsibilities.
REVENUE RECOGNITION
The Company records revenues from fixed-price contracts extending over more
than one accounting period on a percentage-of-completion basis. Revenues from
time-and-material contracts are recognized as billable rates multiplied by hours
delivered, plus pass-through expenses incurred. Pass-through expenses generally
include subcontractor costs which consist of investigator fees, travel and
certain other contract costs that are reimbursed by the client. Accordingly,
such subcontractor costs are deducted in determining net revenues.
If it is determined that a loss will result from the performance of a
contract, the entire amount of the estimated loss is charged against income in
the period in which the determination is made. Clients generally may terminate a
study at any time, which may cause unplanned periods of excess capacity and
reduced revenues and earnings. To offset the effects of early terminations, with
respect to contracts of significant size the Company attempts to negotiate the
payment of an early termination fee.
F-6
<PAGE> 37
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Supplemental cash flow information and non-cash investing activities are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
CASH PAID (RECEIVED):
Interest, net of amounts capitalized......... $ 3,338 $ 3,619 $1,766
======= ====== ======
Income taxes, net............................ $(2,299) $(6,355) $1,226
======= ====== ======
</TABLE>
The non-cash assets and liabilities acquired, including the acquisition of
the Chicago Center for Clinical Research (see Note 2) and the Phase I clinical
center received as consideration for the sale of the toxicology operations (see
Note 3) are as follows:
<TABLE>
<CAPTION>
1995
-------
<S> <C>
ACQUISITION:
Fair value of assets acquired................................. $ 7,530
Liabilities assumed........................................... (3,175)
NON-CASH CONSIDERATION RECEIVED:
Fair value of assets acquired................................. $ 5,098
Liabilities assumed........................................... (598)
</TABLE>
SUPPLY INVENTORIES
Supply inventories are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Depreciation is recorded using the straight-line method, based on estimated
useful lives of 20 to 50 years for buildings, 5 to 12 years for laboratory
equipment, 3 to 5 years for computers and related equipment, and 4 to 10 years
for furniture and equipment. Leasehold improvements are amortized over the
shorter of the respective lives of the leases or the useful lives of the
improvements. Property under capital leases is amortized over the life of the
lease or the service life, whichever is shorter. The Company evaluates
impairment of its property and equipment based on whether it is probable that
undiscounted future cash flows from operations are expected to be less than the
asset's carrying value.
GOODWILL
The excess of the purchase price of the businesses acquired over the fair
value of net tangible assets and identifiable intangibles at the date of the
acquisitions has been assigned to goodwill. Goodwill is being amortized over
periods of 15 to 40 years. As of December 31, 1995 and 1994, accumulated
amortization was $1,696,000 and $1,587,000, respectively. The amortization
charges for each of the three years ended December 31, 1995, 1994 and 1993 were
$397,000, $371,000 and $297,000, respectively. The Company evaluates impairment
of goodwill based on whether it is probable that undiscounted future cash flows
will be less than the carrying value.
F-7
<PAGE> 38
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In 1993, the Company determined that goodwill assigned to its agrochemical
development division, Paragon Global Services ("Paragon," formerly Landis
International Inc.), was impaired and measured the amount of loss based upon the
discounted present value of future cash flows. A full write-off of $2,890,000
was warranted based upon this analysis. In 1994, the Paragon division was sold
and has been presented as a discontinued operation in the accompanying
consolidated financial statements. (See Note 4.)
OTHER ASSETS
Computer software costs and other intangible assets, which are included in
other assets, are being amortized over periods of three to five years. (See Note
7.)
UNBILLED RECEIVABLES AND ADVANCE BILLINGS
Unbilled receivables represent amounts earned for services that have been
rendered but for which clients have not been billed. The account includes
amounts billed in January, as well as amounts which are billable upon contract
execution, achievement of milestones or contract completion. Substantially all
contracts in progress at year end are billable during the subsequent year.
Advance billings represent amounts billed and cash received for services not yet
rendered.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
as prescribed by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of foreign operations, where the functional currency
is the local currency, are translated into U.S. dollars at the year-end rate of
exchange. Income and expenses are translated at the average rates of exchange
prevailing during the year. Gains or losses from translating foreign currency
financial statements are accumulated in a separate component of stockholders'
equity. Foreign currency transaction gains and losses are included in other
income.
Funds generated by each subsidiary of the Company are generally reinvested
in the country where they are earned.
PER-SHARE INFORMATION
The computation of both primary and fully-diluted loss per-share
information is based on the weighted average number of common shares outstanding
during the year. The inclusion of additional common-equivalent shares, assuming
the exercise of stock options, would have been antidilutive. The primary and
fully-diluted per-share data are the same for all periods presented.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
implemented early adoption of SFAS No. 121, effective January 1, 1995. The
adoption of this statement had no material affect on the Company's consolidated
financial statements.
F-8
<PAGE> 39
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation," which provides companies the option to account for employee stock
compensation awards based on their estimated fair value at the date of grant,
resulting in a charge to income in the period the awards are granted, or to
present pro forma footnote disclosure describing the effect to the company's net
income and net income per share data. SFAS No. 123 is effective for the
Company's 1996 financial statements. The Company has not yet determined what
impact, if any, the adoption of SFAS No. 123 will have on the Company's
financial position or disclosure to its consolidated financial statements.
Other pronouncements issued by the FASB with future effective dates are
either not applicable or not material to the consolidated financial statements
of the Company.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
2. ACQUISITION:
On August 18, 1995, the Company, through its newly formed subsidiary,
Clinix International Inc., acquired the business and assets of the Chicago
Center for Clinical Research ("CCCR"), a nationally recognized organization
conducting clinical trials in pharmaceuticals, food and nutrition. The
consideration consisted of 634,188 shares of the Company's common stock valued
at $4,043,000, together with the assumption or retirement of substantially all
of CCCR's outstanding indebtedness and other related liabilities. As a result of
this transaction, the Company recorded $4,517,000 in goodwill which is being
amortized on a straight-line basis over a period of 15 years. Pro forma
information is not presented, as the results of operations prior to the date of
acquisition are not material to the Company.
3. SALE OF BUSINESS:
On November 21, 1995, the Company sold its toxicology laboratories located
in New Jersey and Suffolk, England to Huntingdon International Holdings plc
("Huntingdon"). In connection with the sale of the New Jersey toxicology
laboratory, which operated as a division of Pharmaco International Inc.
(formerly Pharmaco LSR International Inc., "Pharmaco"), a wholly owned
subsidiary of the Company, Huntingdon acquired substantially all of the assets
of such laboratory and assumed substantially all related liabilities. In
connection with the sale of the toxicology laboratory located in Suffolk,
England, Huntingdon acquired all of the capital stock of Pharmaco LSR Ltd., a
wholly owned subsidiary of the Company The Company received as consideration
cash proceeds of $32,500,000, plus an additional $6,000,000 for an equal amount
of cash conveyed to Huntingdon as part of the sale. The consideration also
included the Company's acquisition of Huntingdon's Phase I clinical center
located in Leicestershire, England, at an agreed upon value of $4,500,000.
As a result of the disposition, the Company recorded a pre-tax loss on sale
of business of $19,308,000 which is reflected in the accompanying consolidated
statement of operations for the year ended December 31, 1995. The loss reflects
the net book value of the net assets sold in excess of consideration received of
F-9
<PAGE> 40
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SALE OF BUSINESS -- (CONTINUED)
$16,991,000, $1,178,000 of transaction costs, $1,338,000 of severance and
relocation costs, and $581,000 of other costs primarily related to the required
name change of the remaining business, net of a $780,000 gain recorded as a
result of the settlement of the Company's U.K. pension plan. (See Note 12.)
The assets and liabilities sold to Huntingdon are not included in the
accompanying consolidated balance sheet as of December 31, 1995. The results of
operations for the years ended December 31, 1995, 1994 and 1993 include the
following for the disposed business (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Net revenues.................................... $39,102 $46,387 $ 65,864
Operating (loss) income......................... (1,430) 2,409 (16,000)
</TABLE>
4. DISCONTINUED OPERATIONS:
In June 1994, the Company sold Paragon for cash and a note totaling
$525,000. The sale resulted in a loss on disposal before income tax benefits of
$732,000.
In December 1993, the Company adopted a formal plan to sell its
environmental testing laboratory division, Environmental Testing and
Certification Corp. ("ETC"). For the year ended December 31, 1993, the estimated
loss on disposal of ETC before income tax benefits included a provision of
$2,074,000 for estimated operating losses during the phase-out period,
$5,155,000 to write down the net assets to net realizable value and a provision
of $1,771,000 for estimated selling costs. Although it was the Company's desire
to exit the environmental analytical laboratory business completely, it became
apparent during 1994 that the Company would not be able to dispose of its
interest in ETC on terms that it deemed attractive, in part because of the
ongoing consolidation within the environmental analytical laboratory industry.
Based on the Company's belief that a larger network of analytical laboratories
could compete more effectively, and that a minority interest in a larger
laboratory business might provide a better means to pursue divestiture
opportunities, in August 1994, the ETC division of APBI Environmental Sciences
Group, including substantially all of its assets and liabilities, was
consolidated with the business operations of PACE Inc. (an unrelated analytical
laboratory) and Coast-to-Coast Analytical Services, Inc. (another unrelated
analytical laboratory). The combined business operations were operated within
PACE Incorporated ("PACE"), a newly formed entity. As a result of the
combination, the Company, through APBI Environmental Sciences Group, owned
preferred and common stock of PACE representing approximately 36% of the
weighted average preferred and common stock outstanding. Due to the additional
time required to divest ETC and after assessment of the estimated fair value of
APBI's investment in PACE, the Company recorded an additional write down of
$2,533,000 in the third quarter of 1994. In the fourth quarter of 1994, the
Company recorded $9,550,000 in additional writedowns to reduce the carrying
value of the investment to its then estimated net realizable value.
During the fourth quarter of 1995, PACE sold substantially all of its
laboratories in a series of transactions. Net proceeds from such transactions
were used to retire PACE's outstanding bank loan and to partially repay certain
other secured indebtedness. PACE, which is currently winding up its remaining
business operations, does not have sufficient assets to repay its outstanding
liabilities. Accordingly, it is anticipated that equity holders will not receive
any distributions upon completion of PACE's winding up and dissolution.
Effective December 29, 1995, the Company's voting interest was reduced to below
20%, and the Company changed its accounting for the investment from the equity
method to the cost method in accordance with Accounting Principles Board Opinion
No. 18, "The Equity Method of Accounting for Investments in Common Stock."
F-10
<PAGE> 41
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DISCONTINUED OPERATIONS -- (CONTINUED)
In the fourth quarter of 1995, the Company wrote off its remaining
investment in PACE of approximately $3,600,000, and accrued its estimated
exposure for guarantees on leases. The Company does not believe that any further
charges will be taken with respect to this investment.
The operating results of the discontinued operations include net revenues
of $12,045,000 and $24,852,000 for the years ended December 31, 1994 and 1993.
Assets and liabilities of the discontinued operations were as follows as of
December 31, 1994 (in thousands):
<TABLE>
<S> <C>
Accounts receivable, net.......................................... $ 317
Property and equipment, net....................................... 1,542
Other assets...................................................... 12,959
Other liabilities................................................. (12,382)
--------
Net assets of discontinued operations............................. $ 2,436
========
</TABLE>
5. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
TRADE:
Billed.................................................. $31,997 $38,391
Unbilled................................................ 24,984 24,827
Reserve for doubtful accounts........................... (3,319) (3,773)
------- -------
53,662 59,445
OFFICERS AND EMPLOYEES.................................... 395 791
OTHER..................................................... 369 3,349
------- -------
$54,426 $63,585
======= =======
</TABLE>
Receivables from officers and employees include a one-year note and a
ten-year note due from Company employees. The one-year non-interest-bearing note
for $190,500 is collateralized by a mortgage on the employee's former residence
and is due upon demand. The ten-year interest-bearing note, which was
collateralized by a mortgage, was transferred to Huntingdon in November 1995.
(See Note 3.) The balances outstanding under these notes as of December 31, 1995
and 1994 were $190,500 and $345,532, respectively.
F-11
<PAGE> 42
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Land.................................................... $ 543 $ 2,794
Buildings and leasehold improvements.................... 10,211 72,244
Furniture and equipment................................. 19,165 41,857
Computers............................................... 15,753 19,352
-------- --------
45,672 136,247
Less -- Accumulated depreciation and amortization....... (24,157) (53,342)
-------- --------
$ 21,515 $ 82,905
======== ========
</TABLE>
The annual depreciation and amortization charges on property and equipment
for each of the three years ended December 31, were:
<TABLE>
<S> <C>
1993............................................................ $8,598,000
1994............................................................ 9,372,000
1995............................................................ 9,511,000
</TABLE>
7. OTHER ASSETS:
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ -------
<S> <C> <C>
Computer software, net of accumulated amortization of
$1,890 and $2,289, respectively.......................... $2,728 $ 3,384
Investment in EnSys........................................ 1,008 2,918
Intangible and other assets, net of accumulated
amortization of $2,183 and $2,310, respectively.......... 2,136 2,680
Net noncurrent assets of discontinued operations........... 642 2,989
------ -------
$6,514 $11,971
====== =======
</TABLE>
The annual amortization charges on computer software and intangible assets
for each of the three years ended December 31, 1995, 1994 and 1993 were
$1,846,000, $1,473,000 and $1,329,000.
The Company owns 729,600 shares of EnSys Environmental Products Inc.
("EnSys") common stock and warrants to acquire up to an additional 866,667
shares of EnSys common stock at $7.50 per share. Each of the warrants is
exercisable at any time prior to October 27, 1996. The trading price per share
was $1.63 and $1.88 as of December 31, 1995, and February 22, 1996,
respectively, and $4.00 as of December 31, 1994.
The Company owns approximately 12% of the EnSys common stock excluding
warrants and approximately 23% if both common stock and warrants are considered.
The Company's investment in EnSys is carried at its fair value. The
difference between the fair value and the carrying value of $2,638,000 is
reported as a loss in the consolidated statement of operations in 1995 as the
decline was considered other than temporary. The difference in 1994 was reported
as a separate component of stockholders' equity.
F-12
<PAGE> 43
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Accrued salaries, wages and related costs................. $ 8,153 $ 8,166
Accrued pension........................................... 1,361 1,365
Accrued subcontractor costs............................... 4,524 4,098
Accrued loss on sale of business.......................... 2,395 --
Accrued special charges and restructuring costs........... 2,223 2,652
Net current liabilities of discontinued operations........ 365 553
Other..................................................... 7,728 8,338
------- -------
$26,749 $25,172
======= =======
</TABLE>
9. LONG-TERM DEBT AND LEASE OBLIGATIONS:
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
DESCRIPTION AND INTEREST RATES MATURITY 1995 1994
----------------------------------------------------------- -------- ----- -------
<S> <C> <C> <C>
NOTES:
9.25%................................................. $ -- $21,111
Prime + 1.50% (10% -- 1994)........................... -- 3,889
REVOLVING LINE OF CREDIT................................... 1997 -- 12,800
MORTGAGES:
9%.................................................... -- 489
Prime (8.5% -- 1994).................................. -- 5,942
EQUIPMENT LEASES........................................... 1998 894 1,059
----- -------
894 45,290
LESS CURRENT MATURITIES.................................... (322) (2,406)
----- -------
Total long-term debt............................. $ 572 $42,884
===== =======
</TABLE>
For the years subsequent to December 31, 1995, annual maturities of
obligations under capitalized equipment leases outstanding are (in thousands):
<TABLE>
<S> <C>
1996................................................................. $363
1997................................................................. 355
1998................................................................. 245
----
963
Less imputed interest and executory costs............................ (69)
----
Present value of capital lease obligations including current portion
of $322............................................................ $894
====
</TABLE>
In 1994, the Company executed a $25,000,000 term loan and a $20,000,000
revolving line of credit term loan agreement. The Company used the cash proceeds
from the divestiture described in Note 3 and the sale-leaseback transaction
described in this Note 9 to repay the entire balance of its term loan and the
outstanding balance of its revolving line of credit. The revolving line
continues to provide for borrowings of up to
F-13
<PAGE> 44
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT AND LEASE OBLIGATIONS -- (CONTINUED)
$20,000,000, of which there were no borrowings outstanding as of December 31,
1995. As of December 31, 1994, outstanding borrowings were $12,800,000. The line
is collateralized by substantially all tangible property, the Company's owned
real property in Houston and by a pledge of all the stock owned by the Company.
The Company has also pledged the 729,600 shares of common stock it owns in
EnSys.
The outstanding borrowings on the revolving line of credit, if any, are
payable on May 26, 1997 and bear interest at prime plus 1% (9.5% at December 31,
1995). The variable rate is subject to reduction if certain covenants related to
financial performance are met. As a result of the Company's performance during
the first and second quarters of 1995, the variable rate was reduced from 1.5%
to 1% over prime. Annual commitment fees of 0.5% are payable quarterly based on
the average daily unused portion of the line of credit.
The line-of-credit loan agreement provides an additional $5,000,000 for
letters of credit to back guarantees or insurance policies. At December 31,
1995, open letters of credit were issued for $720,000.
The line-of-credit agreement contains certain financial covenants providing
for, among other things, minimum levels of net worth, the maintenance of certain
financial ratios, and restrictions on additional indebtedness. The agreement
also contains a material adverse change clause which allows the lender to call
the loan in the event of any action, suit or proceeding pending or threatened,
which may have a material adverse effect on the financial condition, assets,
nature of assets or operations of the Company. In management's opinion, there
have been no events which would trigger the material adverse change clause.
The Company incurred financing fees and other financing charges and legal
fees totaling $1,708,000 in connection with obtaining the term loan and line of
credit agreements. The total of these charges was capitalized in other assets
and was being amortized over three years. Upon the early extinguishment of this
debt in November 1995, the unamortized balance of $955,000 and the prepayment
penalty of $417,000 were charged to expense and classified as an extraordinary
loss in the accompanying consolidated statement of operations.
The Company has several capital leases expiring at different dates through
1998. These leases are collateralized by the equipment leased. Interest rates
range from 6% to 9%. At December 31, 1995 and 1994, the capitalized cost of
leased equipment included in property and equipment is $1,513,000 and $1,843,000
net of accumulated depreciation of $832,000 and $846,000, respectively.
Amortization of the capitalized amounts is included in depreciation and
amortization expense.
OPERATING LEASES
The Company is obligated under noncancellable leases expiring at various
dates through 2010 relating to its operating facilities and certain equipment.
Rental expense for all operating leases, net of sublease income, was $6,935,000,
$5,287,000 and $4,823,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
The Company completed a sale-leaseback transaction involving Pharmaco's
owned real estate in Austin, Texas on November 13, 1995. Total gross proceeds in
the transaction were $12,000,000 resulting in a pre-tax gain of approximately
$2,100,000. The gain, which has been deferred, is classified as deferred rent
and other in the accompanying consolidated balance sheet and is being amortized
on a straight-line basis over the fifteen year lease term. The facilities are
leased to the Company with all responsibility of operations and maintenance
residing with the Company.
Certain facility leases entered into in 1992 and prior years provided for
concessions by the landlords, including payments for leasehold improvements,
moving expenses, and free rent periods. These concessions have been reflected as
deferred rent and other in the accompanying consolidated financial statements.
The
F-14
<PAGE> 45
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT AND LEASE OBLIGATIONS -- (CONTINUED)
Company is recording rent expense on a straight-line basis for these leases.
Future minimum payments for all lease obligations for years subsequent to
December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................... $ 8,154
1997............................................................... 7,711
1998............................................................... 7,053
1999............................................................... 5,534
2000............................................................... 4,074
2001 and thereafter................................................ 25,712
</TABLE>
10. STOCK PLANS:
STOCK INCENTIVE PROGRAM
In 1995, the Company's Stock Incentive Program (the "Program") was amended
to increase the number of shares of common stock issuable under the Program from
5,000,000 to 6,500,000. These shares of common stock are reserved for issuance
upon the exercise of options or restricted stock units ("RSUs") granted under
the Program. Such options and RSUs typically vest in increments over a period of
three to five years after the date of grant. The Program includes provisions
intended to qualify for special tax benefits for incentive stock options under
United States tax laws and for approved options under United Kingdom tax laws.
On August 15, 1995, the Company granted a total of 60,000 RSUs to two
executive officers. The RSUs 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. The RSUs are forfeited on December 31, 1997, if they
have not vested by that date. The executives are not required to pay any
consideration in exchange for the RSUs. Unearned compensation is amortized to
expense over the vesting period of the RSUs and is adjusted for changes in the
market value of the Company's common stock. Compensation expense related to
these RSUs of $66,000 has been recorded in the accompanying statement of
operations for the year ended December 31, 1995.
On September 19, 1995, the Company entered into a Separation Agreement with
a former senior executive officer of the Company. In connection therewith, the
Company canceled the former executive's unexercised options granted under the
Program and provided the officer with options granted outside of the Program to
purchase up to 147,428 shares of the Company's common stock. Of the options
granted, 92,761 were fully vested at the grant date. The remaining options vest
at various dates through September 13, 1997 and expire on the earlier of
February 11, 2001 or the day immediately following any period of twenty
consecutive trading days in which the last sale for shares of the Company's
common stock for each of such trading days equaled or exceeded $20.00 per share.
The options were granted at the exercise prices established at the original
option grant dates and vary from $5.63 to $15.88. At the grant date of the new
options, 102,000 of the options were priced below fair market value.
Accordingly, the Company recorded compensation expense of $112,000 for the
difference between the fair market value and the exercise price.
In 1995, the Company adopted the "Applied Bioscience International Inc.
Stock Option Plan for Outside Directors" (the "Directors' Plan") which provides
for the issuance of up to 150,000 shares of common stock. Under the Directors'
Plan, each non-employee director receives an annual grant of a ten-year option
to purchase 6,000 shares of common stock beginning with each director's initial
appointment or election to the position of Director. The options are granted at
fair market value and vest over a three-year period, subject to the individual's
continuing service as a director. Similar options are granted automatically to
all new, non-employee directors.
F-15
<PAGE> 46
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCK PLANS -- (CONTINUED)
All options issued under the Program and the Directors' Plan were granted
at prices equal to or greater than the market price at the date granted.
Stock option activity related to the Program and the Directors' Plan was as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
SHARES PRICE PER SHARE
---------- ---------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1993........................ 3,399,642 $ 0.79 - 19.13
1994 ACTIVITY:
Options granted.............................. 858,320 $ 4.88 - 7.00
Options exercised............................ (63,022) $ 1.31 - 4.06
Options canceled............................. (1,108,277) $ 5.63 - 19.13
---------- -------------
BALANCE, DECEMBER 31, 1994........................ 3,086,663 $ 0.79 - 19.13
1995 ACTIVITY:
Options granted.............................. 473,216 $ 4.63 - 6.38
Options exercised............................ (156,756) $ 3.75 - 7.00
Options canceled............................. (479,515) $ 5.63 - 16.44
---------- -------------
BALANCE, DECEMBER 31, 1995........................ 2,923,608 $ 0.79 - 19.13
========== =============
AVERAGE PRICE..................................... $6.61
-----
-----
EXERCISABLE AT DECEMBER 31, 1995.................. 1,873,058
==========
AVERAGE PRICE..................................... $7.06
-----
-----
</TABLE>
At December 31, 1995, there were 2,397,401 shares reserved for option
grants under the Program and the Directors' Plan.
In connection with the acquisition of Pharmaco in 1992, the Company granted
112,122 RSUs to certain employees of Pharmaco at no cost. These RSUs were placed
in escrow and were to vest in equal installments over five years. The Company
valued these shares on the date they were granted and was amortizing the cost
over the vesting period. In 1993, upon termination of an employee, certain RSUs
became fully vested. As a result, the full amount of the remaining cost of those
RSUs, approximately $443,000, was amortized and charged to expense. In 1995, the
employment of the employee holding the remaining RSUs was terminated and all
non-vested RSUs were forfeited. As of December 31, 1995, the full value of the
remaining RSUs has been amortized or reversed into equity.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan with 800,000 shares of
common stock reserved for issuance upon the exercise of options granted under
the plan. Options are granted to employees who elect to purchase shares of
common stock at the end of a five or seven-year savings period. Savings are
accumulated through voluntary payroll deductions. The Company contributes a
bonus to each participant's savings account equal to nine monthly contributions
at the end of the five-year period and eighteen monthly contributions at the end
of the seven-year period. When the savings period ends, the employee may elect
to purchase the shares using the savings balance, including the bonus; purchase
some of the shares and receive the savings balance in cash; or receive the
savings and bonus in cash. Those employees electing the five-year savings period
may also elect to leave the savings in their accounts for another two years and
forfeit the option to purchase the shares. The United Kingdom plan, as approved
by the stockholders, was implemented by Pharmaco LSR Ltd. during 1988. The
United States plan has not been implemented.
F-16
<PAGE> 47
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCK PLANS -- (CONTINUED)
In connection with the sale of the toxicology operations, options
equivalent in value to the savings balance in the terminated employees' accounts
became immediately exercisable. Options in excess of the savings balance were
forfeited. The exercise period for the vested options extends through April
1996.
Stock option activity related to this plan was as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
SHARES PRICE PER SHARE
-------- ---------------
<S> <C> <C>
BALANCE, December 31, 1993.......................... 260,351 $ 4.06 - 16.88
1994 ACTIVITY:
Options granted................................ 10,955 $ 5.25 - 6.88
Options exercised.............................. (66,543) $ 4.06 - 6.44
Options canceled............................... (38,311) $ 4.06 - 16.88
------ -------------
BALANCE, December 31, 1994.......................... 166,452 $ 4.06 - 16.88
1995 ACTIVITY:
Options granted................................ 4,938 $5.63
Options exercised.............................. (15,522) $4.06
Options canceled............................... (79,819) $4.06
------ -------------
BALANCE, December 31, 1995.......................... 76,049 $ 4.06 - 16.88
====== =============
AVERAGE PRICE....................................... $6.62
-----
-----
EXERCISABLE AT DECEMBER 31, 1995.................... 72,113
======
AVERAGE PRICE....................................... $6.65
-----
-----
</TABLE>
At December 31, 1995, there were 547,367 shares reserved for option grants
under this plan.
11. INCOME TAXES:
The components of (loss) income before provision for income taxes were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Domestic....................................................... $(21,174) $ 4,328 $(16,448)
Foreign........................................................ (288) 410 (871)
-------- ------- --------
(Loss) income from continuing operations....................... (21,462) 4,738 (17,319)
Loss from discontinued operations.............................. (3,752) (13,228) (15,944)
Extraordinary loss............................................. (1,372) -- --
-------- ------- --------
Total................................................ $(26,586) $(8,490) $(33,263)
======== ======= ========
</TABLE>
F-17
<PAGE> 48
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
The components of the (benefit) provision for income taxes were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
STATE INCOME TAXES:
Current............................................ $ (63) $ (372) $ (479)
Deferred........................................... (166) 182 (136)
FEDERAL INCOME TAXES:
Current............................................ (1,021) (1,922) (5,735)
Deferred........................................... (4,716) 2,925 (927)
FOREIGN INCOME TAXES:
Current............................................ 109 -- (46)
Deferred........................................... (12,788) 705 66
-------- ------- -------
(BENEFIT) PROVISION FOR INCOME TAXES.................... $(18,645) $ 1,518 $(7,257)
======== ======= =======
</TABLE>
The income tax (benefit) provision is included in the financial statements
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- ------ -------
<S> <C> <C> <C>
Continuing operations.................................... $(16,134) $1,873 $(3,446)
Discontinued operations.................................. (2,036) (355) (3,811)
Extraordinary loss....................................... (475) -- --
-------- ------ -------
Total.......................................... $(18,645) $1,518 $(7,257)
======== ====== =======
</TABLE>
In 1995, a foreign deferred income tax benefit was recorded to reflect the
reversal of previously recorded foreign deferred income tax expense associated
with the United Kingdom toxicology operations which were sold during 1995. The
1994 and 1993 foreign deferred income tax expense resulted primarily from
temporary differences related to the excess of United Kingdom capital allowances
for tax purposes over financial reporting depreciation. In 1995, federal and
state deferred income tax benefits were recorded which relate to the federal and
state income tax losses and credits available for carry forward, and
discontinued operations reserves and restructuring reserves established for
financial reporting purposes which are not currently deductible for income tax
purposes. In 1994, federal and state deferred income tax expense resulted
primarily from utilization of restructuring reserves and discontinued operations
reserves established in years prior to 1994 for financial reporting purposes
which resulted in 1994 deductions for income tax purposes. In 1993, federal and
state deferred income tax benefits were recorded which related primarily to the
discontinued operations reserves and restructuring reserves established for
financial reporting purposes which were not deductible at that time for income
tax purposes.
F-18
<PAGE> 49
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the (benefit) provision for income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Effective tax rate............................... 70.1% (17.9)% 21.8%
======== ======= ========
United States federal statutory rate............. $ (9,039) $(2,887) $(11,309)
Differential on rates applied to foreign
earnings....................................... 30 (96) (52)
State taxes (net of federal benefit)............. (166) (125) (406)
Write-down of investment in PACE Incorporated and
EnSys.......................................... (40) 3,774 --
Write-off of goodwill not deductible for income
tax purposes................................... -- -- 983
Sale of toxicology operations.................... (10,370) -- --
Allowance for limitation of domestic tax
losses......................................... -- -- 2,497
Allowance for limitation of foreign tax losses... 841 674 511
Other............................................ 99 178 519
-------- ------- --------
(Benefit) provision for income taxes............. $(18,645) $ 1,518 $ (7,257)
======== ======= ========
</TABLE>
As a result of the 1995 sale of the Company's toxicology operations, the
Company will not be liable for the payment of certain tax liabilities recorded
in prior years. These previously recorded liabilities were reversed in 1995. In
1994, a write-down was recorded of the Company's investment in PACE
Incorporated. No tax benefit was recorded in connection with this write-down as
it was characterized as a write-down giving rise to a capital loss for income
tax purposes. Capital losses can only be deducted for income tax purposes to the
extent of capital gains incurred during the three prior years and five
subsequent years. As the Company's ability to generate capital gains is
uncertain, no benefit was recorded. At December 31, 1994 and 1993, a deferred
tax asset was recorded for the future benefit of U.S. loss carryforwards.
However, a valuation allowance was established as a reserve against these
assets, as the Company only recognized benefits of U.S. losses which could be
realized through a net operating loss carryback. Based on projected future
profits, at December 31, 1995, the Company is recognizing a deferred tax asset
for the future benefit of U.S. loss carryforwards, and the valuation allowance
has been reduced to zero. Based on the uncertainty of realizing a benefit on its
European subsidiaries' loss carryforwards, the Company has not recorded any
benefits associated with such losses.
Components of the net current deferred tax (asset) liability were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -----
<S> <C> <C>
Future benefit of foreign net operating loss....................... $ -- $(250)
Provision for business restructuring............................... (1,060) (133)
Allowance for doubtful accounts.................................... (314) (64)
Accruals........................................................... (524) (152)
Future benefit of U.S. and state net operating losses.............. (2,680) --
Other.............................................................. (178) 44
------- -----
(4,756) (555)
Valuation allowance................................................ -- 677
------- -----
Net current deferred tax (asset) liability......................... $(4,756) $ 122
======= =====
</TABLE>
F-19
<PAGE> 50
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES -- (CONTINUED)
Components of the net long-term deferred tax (asset) liability were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Depreciation and amortization..................................... $ 1,068 $14,637
Provision for discontinued operations............................. (242) (1,712)
Deferred rent..................................................... (1,414) (697)
Future benefit of foreign net operating loss...................... -- (232)
Future benefit of U.S. tax credits................................ (613) (480)
Other............................................................. (290) (168)
------- -------
Net long-term deferred tax (asset) liability...................... $(1,491) $11,348
======= =======
</TABLE>
The cumulative amount of undistributed earnings of the foreign subsidiaries
for which the Company has not provided U.S. income taxes at December 31, 1995
was $318,000. No provision has been made for the additional taxes that would
result from the distribution of earnings of foreign subsidiaries since such
earnings have been permanently reinvested in the foreign operations. The Company
also holds foreign tax credits which may reduce the tax impact of repatriated
funds.
As of December 31, 1995, the Company had approximately $7,000,000 of net
operating losses available for carryforward to future years which will expire in
2009 and 2010. The Company also had approximately $613,000 of alternative
minimum tax credits available for carryforward which never expire.
12. EMPLOYEE SAVINGS AND PENSION PLANS:
SAVINGS PLANS
The Company maintains "The Applied Bioscience International Inc. 401(k)
Retirement Savings Plan" (the "APBI 401(k) Plan"), under which all U.S.
employees are eligible to participate from their date of employment. The Company
matches 50% of an employee's savings up to 6% of pay. All participants are 100%
vested in Company contributions.
Company contributions for all employees for the three years ended December
31,1995, 1994, and 1993 were $1,386,000, $1,180,000 and $798,000, respectively.
PENSION PLANS
Pension costs and related disclosures are determined under the provisions
of Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions" and Statement of Financial Accounting Standards No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits."
Effective December 31, 1992, the Company froze plan benefits for its
separate non-contributory defined benefit plan (the "U.S. Plan") so that
employees did not earn additional defined benefits for future services. The
Company terminated the U.S. Plan on March 1, 1994. All amounts due to
participants of the plan were distributed to the participants in 1995 and 1994,
in accordance with plan provisions. No significant gain or loss resulted in
connection with the plan curtailment or termination.
The Company has a separate contributory defined benefit plan (the "U.K.
Plan") for its qualifying United Kingdom employees and directors employed by the
Company's U.K. subsidiaries. The benefits for this plan are based primarily on
years of service and average pay at retirement. Plan assets consist principally
of investments managed in a mixed fund. The sale of the toxicology business
discussed in Note 3 resulted in the
F-20
<PAGE> 51
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. EMPLOYEE SAVINGS AND PENSION PLANS -- (CONTINUED)
termination of employment for the majority of United Kingdom employees who
participated in the U.K. Plan. The projected settlement gain of $780,000 is
reflected as a reduction of the loss on the sale of business in the accompanying
consolidated statement of operations for the year ended December 31, 1995.
Pension costs include the following components (in thousands):
<TABLE>
<CAPTION>
U.S. PLAN
------------- U.K. PLAN
-----------------------------
YEAR ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
------------- -----------------------------
1994 1993 1995 1994 1993
---- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Service cost-benefits earned during the
year................................... $-- $-- $ 1,311 $ 1,461 $ 1,241
Interest cost on projected benefit
obligation............................. 102 97 1,361 1,349 1,164
Actual return on plan assets............. (65) (225) (1,566) 706 (4,184)
Net amortization and deferral............ (26) 151 (38) (2,315) 2,897
---- ----- ------- ------- -------
Net pension cost......................... $ 11 $ 23 $ 1,068 $ 1,201 $ 1,118
==== ===== ======= ======= =======
</TABLE>
The funded status of the defined benefit plans was as follows (in
thousands):
<TABLE>
<CAPTION>
U.S. PLAN U.K. PLAN
------------ ----------------------------
DECEMBER 31, DECEMBER 31,
------------ ----------------------------
1994 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................... $ (133) $ (4,361) $ (17,816)
===== ======= ========
Accumulated benefit obligation............... $ (133) $ (4,403) $ (17,988)
===== ======= ========
Projected benefit obligation...................... $ (133) $ (4,765) $ (19,467)
Plan assets at fair value......................... 94 6,133 19,373
----- ------- --------
Plan assets (less than) in excess of projected
benefit obligation.............................. (39) 1,368 (94)
Remaining unrecognized net asset arising from
initial application of SFAS 87.................. -- (59) 1,074
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions.......................... -- 183 (401)
----- ------- --------
(Pension liability) prepaid pension cost.......... $ (39) $ 1,492 $ 579
===== ======= ========
</TABLE>
Assumptions used to determine pension costs and projected benefit
obligations were as follows:
<TABLE>
<CAPTION>
U.S. PLAN U.K. PLAN
------------ ------------
1994 1993 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Discount rate............................................ 6.0% 6.0% 8.5% 8.0%
Rate of compensation increase............................ N/A N/A 5.5 6.0
Long-term rate of return on plan assets.................. 6.5 6.5 8.5 8.0
</TABLE>
The Company maintains the APBI Environmental Sciences Group, Inc. Pension
Plan (the "Pension Plan"), a tax-qualified, defined-contribution money-purchase
pension plan, for the benefit of its eligible ENVIRON employees. ENVIRON is
required to make annual contributions to the Pension Plan in an amount equal to
the sum of 3.75% of each eligible employee's total compensation, plus 3.75% of
the portion of
F-21
<PAGE> 52
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. EMPLOYEE SAVINGS AND PENSION PLANS -- (CONTINUED)
such employee's compensation in excess of the Social Security wage base.
Participants vest in 20% of their account balances after two years of service
and 20% per year until employees are fully vested.
The annual pension expense of the Pension Plan for the three years ended
December 31, 1995, 1994 and 1993 was $645,000, $633,000 and $648,000,
respectively. Effective January 1, 1994, APBI Environmental Sciences Group, Inc.
established the ENVIRON Supplemental Executive Retirement Plan. This plan is
nonqualified and provides certain key employees defined contribution benefits
that supplement those provided by the Pension Plan. Company contributions to
this plan in 1995 and 1994 were $44,000 and $32,000, respectively.
13. COMMITMENTS AND CONTINGENCIES:
In 1989 and 1990, the Board of Directors approved supplemental retirement
arrangements for two officers that supplement the benefits provided to them
under the Company's former non-contributory defined-benefit pension plan
covering U.S. employees. Under the supplemental retirement arrangements, the
officers were credited with RSUs, which are a form of unfunded deferred
compensation 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 RSU. These deferred benefits are accrued in the accompanying financial
statements. The Company has reserved a total of 65,624 shares of common stock
for issuance under these supplemental retirement arrangements. In connection
with the sale of the toxicology operations, 20,328 RSUs belonging to one of the
two officers became fully vested.
The Company has employment contracts with 11 of its officers and key
employees for periods of one to five years with annual remuneration ranging from
$61,000 to $250,000 plus additional discretionary incentive compensation.
The Company currently maintains liability insurance on a "claims made"
basis for professional acts, errors and omissions. As of December 31, 1995, this
insurance policy includes a $1,000,000 self-insurance retention.
14. LITIGATION:
In the normal course of business, the Company is a party to various claims
and legal proceedings. Although the ultimate outcome of these matters is
presently not determinable, management of the Company, after consultation with
legal counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations.
15. RELATED PARTY TRANSACTIONS:
The Company paid legal fees of approximately $19,640, $79,300 and $86,500
in the years ended December 31, 1995, 1994 and 1993, respectively, to a firm
having a partner who is also a director of the Company.
In connection with the sale of the toxicology operations, the Company
incurred a one time investment banking fee of $500,000 which is payable to a
firm having a vice-chairman who is also a director of the Company. The full
amount of this expense is included in accrued liabilities as of December 31,
1995.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
F-22
<PAGE> 53
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
CURRENT ASSETS AND CURRENT LIABILITIES
The carrying amount approximates fair value because of the short maturity
of those instruments.
INVESTMENT IN ENSYS
The Company's investment in EnSys is recorded at $1,008,000 which
represents the market price of $1,186,000 as quoted on the National Market
System of the National Association of Securities Dealers Automated Quotation
System at December 31, 1995, less a discount of $178,000 representing the
relatively illiquid nature of the investment. As of February 22, 1996, the fair
value of the investment was $1,368,000. The Company also owns warrants to
purchase up to an additional 866,667 shares of EnSys common stock. The warrants,
which have an exercise price of $7.50 per common share, are not publicly traded.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. Fair value
approximates the carrying amount as most debt instruments bear interest based on
the prime rate.
LETTERS OF CREDIT
The Company utilizes letters of credit to back certain guarantees and
insurance policies. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined in the
market place.
17. BUSINESS SEGMENT DATA:
As a result of the recent divestiture and acquisition activity and the
Company's decision to evaluate the long-term strategic fit of its operating
groups, the Company has determined that the nature of its operations has changed
such that it no longer operates in one industry segment. For the year ended
December 31, 1995, the Company is reporting operating results in two business
segments: life sciences and environmental sciences.
F-23
<PAGE> 54
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS SEGMENT DATA -- (CONTINUED)
Revenues by principal business segment are included in the consolidated
financial statements. Income from operations, depreciation and amortization,
identifiable assets and capital expenditures by principal business segment were
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
(LOSS) INCOME FROM OPERATIONS
Life sciences................................................. $ (20,185)
Environmental sciences........................................ 7,774
Corporate and other........................................... (6,235)
--------
Operating loss........................................... $ (18,646)
========
DEPRECIATION AND AMORTIZATION
Life sciences................................................. $ 10,078
Environmental sciences........................................ 1,640
Corporate..................................................... 36
--------
Total.................................................... $ 11,754
========
IDENTIFIABLE ASSETS
Life sciences................................................. $ 72,640
Environmental sciences........................................ 23,719
Corporate and other........................................... 18,798
--------
Total.................................................... $ 115,157
========
CAPITAL EXPENDITURES
Life sciences................................................. $ 6,331
Environmental sciences........................................ 1,256
Corporate..................................................... 30
--------
Total.................................................... $ 7,617
========
</TABLE>
F-24
<PAGE> 55
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. OPERATIONS BY GEOGRAPHIC AREA:
The following table presents information about the Company's operations by
geographic area (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
United
States -- Domestic................................... $128,134 $119,604 $103,994
-- Export..................................... 14,455 15,262 13,444
-------- -------- --------
142,589 134,866 117,438
-------- -------- --------
Europe -- Domestic................................... 33,612 26,154 22,885
-- Export..................................... 7,052 13,842 15,021
40,664 39,996 37,906
-------- -------- --------
$183,253 $174,862 $155,344
======== ======== ========
Operating income:
United States................................................ $(19,032) $ 5,182 $(14,036)
Europe....................................................... 386 2,251 (2,110)
-------- -------- --------
$(18,646) $ 7,433 $(16,146)
======== ======== ========
Identifiable
assets:
United States................................................ $ 91,235 $112,413 $119,170
Europe....................................................... 23,922 69,267 62,070
-------- -------- --------
$115,157 $181,680 $181,240
======== ======== ========
</TABLE>
F-25
<PAGE> 56
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
1995 FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues................................. $45,773 $47,892 $46,241 $ 43,347 $183,253
Operating income (loss)...................... 1,467 1,906 2,218 (24,237) (18,646)
Income (loss) from continuing operations..... 436 775 801 (7,340) (5,328)
Loss from discontinued operations............ -- -- -- (1,716) (1,716)
Extraordinary loss........................... -- -- -- (897) (897)
Net income (loss)............................ 436 775 801 (9,953) (7,941)
Earnings (loss) per common share:
Continuing operations................... $ 0.02 $ 0.03 $ 0.03 $ (0.25) $ (0.19)
Discontinued operations................. -- -- -- (0.06) (0.06)
Extraordinary loss...................... -- -- -- (0.03) (0.03)
------- ------- ------- -------- --------
Total.............................. $ 0.02 $ 0.03 $ 0.03 $ (0.34) $ (0.28)
======= ======= ======= ======== ========
1994
Net revenues................................. $40,195 $44,939 $44,227 $ 45,501 $174,862
Operating income............................. 1,150 2,385 2,846 1,052 7,433
Income (loss) from continuing operations..... 556 1,198 1,359 (248) 2,865
Loss from discontinued operations............ (104) (686) (2,533) (9,550) (12,873)
Net income (loss)............................ 452 512 (1,174) (9,798) (10,008)
Earnings (loss) per common share:
Continuing operations................... $ 0.02 $ 0.04 $ 0.05 $ (0.01) $ 0.10
Discontinued operations................. -- (0.02) (0.09) (0.34) (0.46)
------- ------- ------- -------- --------
Total.............................. $ 0.02 $ 0.02 $ (0.04) $ (0.35) $ (0.36)
======= ======= ======= ======== ========
</TABLE>
F-26
<PAGE> 57
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED OTHER
BALANCE AT TO CHANGES BALANCE
BEGINNING COSTS AND ADD AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (DEDUCT) PERIOD
- ------------------------------------------- ---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1995
Reserve for doubtful accounts......... $3,773 $1,689 $(2,113) $(30) $3,319
====== ====== ====== ==== ======
FOR THE YEAR ENDED DECEMBER 31, 1994
Reserve for doubtful accounts......... $5,421 $2,594 $(4,305) $ 63 $3,773
====== ====== ====== ==== ======
FOR THE YEAR ENDED DECEMBER 31, 1993
Reserve for doubtful accounts......... $2,046 $7,862 $(4,685) $198 $5,421
====== ====== ====== ==== ======
</TABLE>
F-27
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APPLIED BIOSCIENCE INTERNATIONAL INC.
Date: March 28, 1996 By: /s/ KENNETH H. HARPER
---------------------------------------
Name: Kenneth H. Harper
Title: President, Chief Executive
Officer and Chairman of the
Board of Directors
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ KENNETH H. HARPER President, Chief Executive March 28, 1996
- -------------------------------------------- Officer and Chairman of the
KENNETH H. HARPER Board of Directors
/s/ STEPHEN L. WAECHTER Senior Vice President, March 28, 1996
- -------------------------------------------- Chief Financial Officer,
STEPHEN L. WAECHTER and Treasurer (Principal
Financial Officer)
/s/ CAROL P. HANNA Controller (Principal March 28, 1996
- -------------------------------------------- Accounting Officer)
CAROL P. HANNA
/s/ KIRBY L. CRAMER Director March 28, 1996
- --------------------------------------------
KIRBY L. CRAMER
/s/ STEVEN A. FLECKMAN Director March 28, 1996
- --------------------------------------------
STEVEN A. FLECKMAN
/s/ FREDERICK FRANK Director March 28, 1996
- --------------------------------------------
FREDERICK FRANK
Director March 28, 1996
/s/ FRANK E. LOY
- --------------------------------------------
FRANK E. LOY
/s/ LAWRENCE C. MCQUADE Director March 28, 1996
- --------------------------------------------
LAWRENCE C. MCQUADE
/s/ THOMAS J. RUSSELL, JR. Director March 28, 1996
- --------------------------------------------
THOMAS J. RUSSELL, JR.
</TABLE>
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential Page
Number Number
------ ------
<S> <C> <C>
10.42 Purchase Agreement by and between
ABI (TX) QRS 12-11, Inc. and Applied
Bioscience International Inc.
10.43 Lease Agreement by and between
ABI (TX) QRS 12-11, Inc. and Pharmaco
International Inc.
10.44 Separation Agreement by and between
Applied Bioscience International Inc. and
Jamie G. Donelan dated February 7, 1996
10.45 Employment Agreement by and between
Applied Bioscience International Inc. and
Carol P. Hanna dated January 2, 1996
11 Statement re computation of per-share earnings
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
-1-
<PAGE> 1
EXHIBIT No. 10.42
PURCHASE AGREEMENT
by and between
ABI (TX) QRS 12-11, INC.,
a Texas corporation,
OWNER,
and
APPLIED BIOSCIENCE INTERNATIONAL INC.,
a Delaware corporation,
as BUYER
Dated as of: November 13, 1995
-2-
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Procedures Upon Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Determination of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Non-Recourse as to Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
Exhibit "A" - Premises
Exhibit "B" - Machinery and Equipment
-1-
<PAGE> 3
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), made as of this
13th day of November, 1995, between ABI (TX) QRS 12-11, Inc., a Texas
corporation ("Owner"), with an address c/o W. P. Carey & Co., Inc., 50
Rockefeller Plaza, Second Floor, New York, New York 10020, and APPLIED
BIOSCIENCE INTERNATIONAL INC., a Delaware corporation ("Buyer"), with an
address at 4350 N. Fairfax Drive, Arlington, Virginia 22203.
W I T N E S S E T H:
WHEREAS, Owner, as Landlord, has entered into a Lease
Agreement (as amended, modified or supplemented from time to time in accordance
with the terms thereof, the "Lease") dated as of the date hereof with Pharmaco
LSR International Inc., a Texas corporation ("Tenant");
WHEREAS, Buyer has entered into a Guaranty and Suretyship
Agreement (as amended, modified or supplemented from time to time, the
"Guaranty") dated as of the date hereof in favor of Owner, pursuant to which
Buyer has guaranteed the payment and performance by Tenant of Tenant's
obligations under the Lease and has agreed to comply with certain covenants
(the "Covenants") contained in the Guaranty;
WHEREAS, Owner is the owner of the following described
property (hereinafter referred to as the "Premises" which is more particularly
described in Exhibit "A" attached hereto and made a part hereof (the "Land")
and shall include the portions of items (a) and (b) of this clause located
thereon or therein and appertaining thereto): (a) the buildings, structures
and other im provements now or hereafter constructed on the Land (the
"Improvements"); and (b) the fixtures, machinery, equipment and other property
described in Exhibit "B" hereto (the "Equipment"). The Premises is the property
leased to Tenant pursuant to the Lease; and
WHEREAS, Tenant is a wholly-owned subsidiary of Buyer, and
Buyer has entered into this Agreement in order to induce Owner to enter into
the Lease.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby covenant and agree as follows:
1. Certain Definitions.
"Acquisition Cost" shall mean $12,565,000.
<PAGE> 4
"Assignment" shall mean any assignment of rents and
leases from Owner to a Lender which (a) encumbers any of the Premises and (b)
secures Owner's obligation to repay a Loan, as the same may be amended,
supplemented or modified from time to time.
"Basic Rent" shall have the meaning assigned to such
term in the Lease.
"Costs" shall have the meaning assigned to such term
in the Lease.
"Default Termination Amount" shall mean an amount
equal to the greatest of (A) the Fair Market Value of the Premises or (B) the
sum of the Acquisition Cost and Prepayment Premium which Owner will be required
to pay in prepaying any Loan with proceeds of the Default Termination Amount or
(C) an amount equal to the Present Value of the entire Basic Rent from the date
of such purchase to the date on which the then Term would expire, assuming that
the Term has been extended for all extension periods, if any, provided for in
the Lease.
"Event of Default" shall mean an Event of Default as
defined in the Lease or as defined in the Guaranty.
"Fair Market Value" shall mean the higher of (a) the
fair market value of the Premises as of the Relevant Date as if unaffected and
unencumbered by the Lease or (b) the fair market value of the Premises as of
the Relevant Date as affected and encumbered by the Lease. For all purposes of
this Agreement, Fair Market Value shall be determined in accordance with the
procedure specified in Paragraph 7.
"Fair Market Value Date" shall mean the date when the
Fair Market Value is determined in accordance with Paragraph 7.
"Federal Funds" shall mean federal or other
immediately available funds which at the time of payment are legal tender for
the payment of public and private debts in the United States of America.
"Indemnitee" shall mean the Persons specified in
Paragraph 15 of the Lease.
"Law" shall mean any constitution, statute, rule of
law, code, ordinance, order, judgment, decree, injunction, rule, regulation,
policy, requirement or administrative or judicial
-2-
<PAGE> 5
determination, even if unforeseen or extraordinary, of every duly constituted
governmental authority, court or agency, now or hereafter enacted or in effect.
"Lender" shall mean any Person (and its successors
and assigns) which may make a Loan to Owner or is the holder of any Note.
"Loan" shall have the meaning assigned to such term
in the Lease.
"Monetary Obligations" shall mean Rent and all other
sums payable by Tenant under the Lease to Owner, to any third party on behalf
of Owner or to any Indemnitee.
"Mortgage" shall mean any mortgage or deed of trust
from Owner to a Lender which (a) encumbers any of the Premises and (b) secures
Owner's obligation to repay a Loan, as the same may be amended, supplemented or
modified.
"Note" shall mean any promissory note evidencing
Owner's obligation to repay a Loan, as the same may be amended, supplemented or
modified.
"Permitted Encumbrances" shall have the meaning
assigned to such term in the Lease.
"Person" shall mean an individual, partnership,
association, corporation or other entity.
"Prepayment Premium" shall have the meaning given
that term in the Lease.
"Present Value" shall have the meaning given that
term in the Lease.
"Purchase Price" shall mean the Default Termination
Amount.
"Related Premises" shall have the meaning given that
term in the Lease.
"Relevant Date" shall mean the date on which Owner
provides Buyer with notice of Owner's intention to require Buyer to make a
rejectable offer under Paragraph 2(a).
"Rent" shall have the meaning given that term in the
Lease.
-3-
<PAGE> 6
"State" shall have the meaning given that term in the
Lease.
"Term" shall mean the Term as defined in the Lease.
2. Purchase Offer.
(a) If an Event of Default shall have occurred and be
continuing, Owner shall have the right, at its sole option, then or at any time
thereafter unless previously cured in accordance with the Lease or the
Guaranty, as the case may be, to give notice to Buyer requiring Buyer to make
an irrevocable offer to purchase the Premises (or such Related Premises as are
then subject to the Lease) pursuant to this Agreement for an amount equal to
the Purchase Price.
Upon the delivery of such notice to Buyer, Buyer shall be
deemed to have made such offer, Buyer shall, if requested by Owner, within (10)
days following such request, deposit with Owner as payment against the Purchase
Price the amount described in clause (B) of the definition of Default
Termination Amount and Owner and Buyer shall promptly commence to determine the
Fair Market Value of the Premises. No later than thirty (30) days after the
Fair Market Value Date, Owner shall accept or reject such offer. Unless Owner
shall have rejected such offer by written notice to Buyer not later than the
twentieth (20th) day after the Fair Market Value Date, Owner shall be
conclusively presumed to have accepted such offer. If Owner accepts such offer
then, not later than the tenth (10th) day after such acceptance, Buyer shall
pay to Owner the Purchase Price and Owner will convey the Premises to Buyer or
its designee in accordance with Paragraph 3 hereof. Any written rejection by
Owner of such offer shall have no effect on any other remedy Owner may have
under the Lease or the Guaranty.
(b) The parties hereto acknowledge that Owner may also
have a right to require Tenant to make a rejectable offer to terminate the
Lease and, at Tenant's option, purchase the Premises pursuant to the terms of
the Lease. Accordingly, notwithstanding any acceptance by Owner of the
irrevocable offer to purchase made by Buyer as described in Paragraph 2(a)
hereof, (i) Owner may, at any time in its discretion, terminate its obligation
to sell to Buyer and Buyer's obligation to buy the Premises pursuant to an
irrevocable offer made by Buyer pursuant to this Agreement (and shall incur no
obligation to Buyer in connection therewith), by giving notice to Buyer
terminating such obligation (and, notwithstanding any such termination, Owner
shall have the right, so long as Owner shall not have previously conveyed the
Premises to Tenant and so long as the Event of Default is continuing or
-4-
<PAGE> 7
upon the occurrence of a subsequent Event of Default, to subsequently require
Buyer to make another irrevocable offer to purchase the Premises in accordance
with this Agreement), and (ii) Owner shall be excused from selling the Premises
to Buyer, and shall incur no obligation to Buyer in connection therewith, if
Owner in its sole discretion conveys the Premises to Tenant at or before the
date on which Buyer is to purchase the Premises pursuant to this Agreement.
3. Procedures Upon Purchase.
(a) In the event of the purchase of the Premises by Buyer
pursuant to this Agreement, Owner need not convey any better title thereto than
that which was conveyed to Owner, and Buyer or its designee shall accept such
title, subject, however, to all liens, exceptions and restrictions on, against
or relating to any of the Premises and to all applicable Laws, but free of the
lien of and any security interest created by any Mortgage or Assignment and
liens, exceptions and restrictions on, against or relating to the Premises
which have been created by or resulted solely from acts of Owner after the date
of the Lease, unless the same are Permitted Encumbrances or customary utility
easements benefiting the Premises or were created with the written concurrence
of Tenant or as a result of a default by Tenant under the Lease.
(b) Upon the date fixed for any such purchase of the
Premises pursuant to this Agreement (the "Purchase Date"), Buyer shall pay to
Owner, or to any Person to whom Owner directs payment, the Purchase Price, in
Federal Funds, and Owner shall deliver to Buyer (i) a special warranty deed
which describes the premises then being conveyed and conveys and transfers the
title thereto as provided in Paragraph 3(a), (ii) such other instruments as
shall be necessary to transfer to Buyer or its designee any other property then
required to be sold by Owner to Buyer pursuant to this Agreement, (iii) any
taxes or other amounts escrowed by Owner pursuant to the Lease applicable to
the Premises being sold. If on the Purchase Date (or on the Redetermination
Date, as defined in Paragraph 3(d) hereof) any Monetary Obligations remain
outstanding, then the Purchase Price payable hereunder shall be increased by an
amount equal to the amount of such due but unpaid Monetary Obligations.
(c) Buyer shall pay all charges incident to such
conveyance and transfer, including Owner's reasonable counsel fees, escrow
fees, recording fees, title insurance or guaranty premiums and all applicable
federal, state and local taxes (other than income or capital gains taxes) which
may be incurred or imposed by reason of such conveyance and transfer and/or by
reason of the delivery of said deed and other instruments.
-5-
<PAGE> 8
(d) In the event that the completion of such purchase
shall be delayed after the Purchase Date by reason of Owner's or Buyer's acts
or omissions, then the Purchase Price payable by Buyer upon the purchase of the
Premises pursuant to this Agreement shall, at the option of the party that has
not caused such delay reasonably exercised, be determined as of the actual date
of such purchase by Buyer (the "Redetermination Date") and the Purchase Price
payable by Buyer pursuant to this Agreement shall be adjusted, if necessary, to
reflect such redetermination.
(e) Any prepaid Monetary Obligations under the Lease paid
to Owner shall be prorated as of the Purchase Date, and the prorated unapplied
balance shall be deducted from the Purchase Price due to Owner; provided, that
no apportionment of any Impositions shall be made upon any such purchase.
(f) If and to the extent that after any purchase of the
Premises by Buyer, any previous payment of any Monetary Obligation under the
Lease is rescinded or must otherwise be restored or returned by Owner or any
Indemnitee for any reason (including without limitation, as a preference,
fraudulent conveyance or otherwise), Buyer shall immediately pay such amount to
Owner, the appropriate third party on behalf of Owner, or such Indemnitee, as
the case may be, and such payment shall be deemed an increase in the Purchase
Price of the Premises.
(g) As a condition to Owner's obligation to sell the
Premises to Buyer (which condition may be waived by Owner in Owner's sole
discretion), Buyer shall pay to Owner all sums then due under the Guaranty.
4. Assignment.
Buyer may not assign this Agreement, whether by operation of
law or otherwise, without the prior written consent of Owner, which consent may
be granted or withheld in the sole and absolute discretion of Owner.
5. Obligations Absolute.
(a) All rights and interests of Owner hereunder and all
agreements and obligations of Buyer under or in connection with this Agreement
shall remain in full force and effect, irrespective of any of the following:
(i) the waiver by Owner of the performance or
observance by Tenant or Buyer or any other party of any of the
-6-
<PAGE> 9
agreements, covenants, terms or conditions contained in the Lease, the Guaranty
or this Agreement;
(ii) the extension, in whole or in part, of the time
for payment by Tenant or Buyer of any sums owing or payable under the Lease,
the Guaranty or this Agreement, or of any other sums or obligations under or
arising out of or on account of the Lease, the Guaranty or this Agreement, or
the renewal or extension of the Lease, the Guaranty or this Agreement;
(iii) any assumption by any party of Tenant's or any
other party's obligations under, or Tenant's or any other party's assignment of
any of its interest in, the Lease;
(iv) any modification or amendment (whether material
or otherwise) of any of the obligations of Tenant or any other party under the
Lease that was consented to in writing by Tenant;
(v) any failure, omission or delay on the part of
Owner to enforce, assert or exercise any right, power or remedy conferred on or
available to Owner in or by the Lease, the Guaranty or this Agreement, or any
action on the part of Owner granting indulgence or extension in any form
whatsoever;
(vi) the voluntary or involuntary liquidation,
dissolution, sale of all or substantially all of the assets, marshalling of
assets and liabilities, receivership, conservatorship, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or other similar proceeding affecting Owner,
Tenant or Buyer or any of their assets or any impairment, modification, release
or limitation of liability of Owner, Tenant or Buyer or its estate in
bankruptcy or of any remedy for the enforcement of such liability resulting
from the operation of any present or future provision of the Federal Bankruptcy
Act or other similar statute or from the decision of any court;
(vii) the release of Tenant or Buyer or any other
party from the performance or observance of any of the agreements, covenants,
terms or conditions contained in the Lease, the Guaranty or this Agreement by
operation of law;
(viii) the power or authority or lack thereof of
Tenant to execute, acknowledge or deliver the Lease;
(ix) the validity or invalidity of the Lease;
-7-
<PAGE> 10
(x) any defenses whatsoever that Tenant or any other
party may or might have to the payment of the Monetary Obligations or to the
performance of the Performance Obligations (as defined in the Guaranty);
(xi) the existence or non-existence of Tenant as a
legal entity;
(xii) any assignment by Owner of this Agreement, the
Guaranty and the Lease (including an assignment by Owner to any Lender of all
of Owner's right, title and interest in, to and under the Lease, the Guaranty
and this Agreement, as collateral security for a Loan); or
(xiii) any right of setoff, counterclaim or defense
that Buyer may or might have to its respective undertakings, liabilities and
obligations hereunder, each and every such defense being hereby waived by
Buyer.
Buyer hereby consents to any and all acts and
omissions referred to in clauses (i) through (v) and (vii) above and agrees
that no other consent or approval of Buyer shall be required in connection
therewith. Without in any way limiting the generality of the foregoing, Buyer
specifically agrees that if Tenant's obligations under the Lease are modified
or amended with the express written consent of Tenant, the obligations of Buyer
contained herein shall not be altered, diminished or reduced.
Buyer shall not have the right to assert any defense
or action (e.g. the "automatic stay" or rejection of the Lease or limitation on
the amount of rejection damages thereunder available to Tenant solely by virtue
of relief provided by bankruptcy, insolvency or reorganization law or any other
Law affecting creditors' rights or any other attempt by Tenant to disaffirm the
landlord/tenant relationship created by the Lease.
(b) The parties hereto acknowledge that this Agreement is
a separate and independent agreement between Buyer and Owner and is separate
from and independent of the Guaranty, the Lease and all other agreements,
instruments and arrangements whatever.
(c) This Agreement is a continuing obligation of Buyer
and shall survive after termination of the Lease.
(d) No termination of this Agreement or the Lease,
repossession or reletting of the Premises, sale of the Premises pursuant to
this Agreement or any other event or condition whatever shall relieve Buyer of
any obligations under the Guaranty, which shall continue to inure to the
benefit of Owner.
-8-
<PAGE> 11
6. Notices. All notices, demands, requests, consents,
approvals, offers, statements and other instruments or communications required
or permitted to be given pursuant to the provisions of this Agreement shall be
in writing and shall be deemed to have been given for all purposes when
delivered in person or by Federal Express, United Parcel Service or other
reliable 24-hour delivery service or five (5) business days after being
deposited in the United States mail, by registered or certified mail, return
receipt requested, postage prepaid, addressed to the other party at its address
as follows:
If to Owner:
c/o W.P. Carey & Co., Inc.
50 Rockefeller Plaza
Second Floor
New York, New York 10020
Attention: Property Management
with a copy to:
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, Pennsylvania 19103
Attention: Chairman, Real Estate Department
If to Buyer:
4350 N. Fairfax Drive
Arlington, Virginia 22203
Attention: Charles S. Polcsa
and to:
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Attention: Clark G. Thompson, Jr.
For the purposes of this Paragraph 6, any party may substitute
another address for its address stated above (or substituted by a previous
notice) by giving fifteen (15) days' notice of the new address to the other
parties, in the manner provided above.
7. Determination of Value.
-9-
<PAGE> 12
(a) Whenever a determination of Fair Market Value is
required pursuant to this Agreement, such Fair Market Value shall be determined
in accordance with the following procedure:
(i) Owner and Buyer shall endeavor to agree upon
such Fair Market Value within ten (10) days after the Relevant Date (the
"Applicable Initial Date"). Upon reaching such agreement, the parties shall
execute an agreement setting forth the amount of such Fair Market Value.
(ii) If the parties shall not have signed such
agreement within ten (10) days after the Applicable Initial Date, each of Owner
and Buyer shall within thirty (30) days after the Applicable Initial Date
select an appraiser and notify the other in writing of the name, address and
qualifications of such appraiser. Such two appraisers shall endeavor to agree
upon Fair Market Value based on a written appraisal made by each of them as of
the Relevant Date. If such two appraisers shall agree upon a Fair Market
Value, the amount of such Fair Market Value as so agreed shall be binding and
conclusive upon Owner and Buyer.
(iii) If such two appraisers shall be unable to
agree upon a Fair Market Value within fifteen (15) days after the expiration of
the ten (10) day period referred to in clause (ii) above, then such appraisers
shall advise Owner and Buyer of their respective determination of Fair Market
Value and shall select a third appraiser to make the determination of Fair
Market Value. The selection of the third appraiser shall be binding and
conclusive upon Owner and Buyer.
(iv) If such two appraisers shall be unable to agree
upon the designation of a third appraiser within ten (10) days after the
expiration of the fifteen (15) day period referred to in clause (iii) above, or
if such third appraiser does not make a determination of Fair Market Value
within fifteen (15) days after his selection, then such third appraiser or a
substituted third appraiser, as applicable, shall, at the request of either
party hereto, be appointed by the President or Chairman of the American
Arbitration Association in New York, New York. The determination of Fair
Market Value made by the third appraiser appointed pursuant hereto shall be
made within fifteen (15) days after such appointment. Fair Market Value shall
be the average of the determination of Fair Market Value made by the third
appraiser and the determination of Fair Market Value made by the appraiser
(pursuant to Paragraph 7(a)(iii) hereof) whose determination of Fair Market
Value is nearest to that of the third appraiser. Such average shall be binding
and conclusive upon Owner and Buyer.
-10-
<PAGE> 13
(v) All appraisers selected or appointed pursuant to
this Paragraph 7(a) shall (A) be independent qualified MAI appraisers, (B) have
no right, power or authority to alter or modify the provisions of this
Agreement, (C) utilize the definition of Fair Market Value hereinabove set
forth above, and (D) be registered in the State if the State provides for or
requires such registration.
(vi) The Costs of the procedure described in this
Paragraph 7(a) above shall be borne entirely by Buyer.
(b) No delay in the determination of Fair Market Value
under this Agreement shall have any effect on the Term of the Lease, but any
extension of the Term of the Lease pursuant to the terms of the Lease shall be
taken into account in the determination of Fair Market Value under this
Agreement.
8. Non-Recourse as to Owner. Anything contained herein
to the contrary notwithstanding, any claim based on or in respect of any
liability of Owner under this Agreement shall be enforced only against the
Premises (or against any funds paid by Tenant to Owner to purchase any of the
Premises, but only to the extent that either (i) such funds have not been
theretofore distributed to Owner's shareholders or (ii) that such funds
constitute Owner's equity in such Premises and are not payable to any Lender)
and not against any other assets, properties or funds of (a) Owner, (b) any
director, officer, general partner, limited partner, employee or agent of
Owner, any of their respective general partners or shareholders (or any legal
representative, heir, estate, successor or assign of any thereof), (c) any
predecessor or successor partnership or corporation (or other-entity) of Owner,
or any of their respective general partners, either directly or through either
Owner or their respective general partners or any predecessor or successor
partnership or corporation or their shareholders, officers, directors,
employees or agents (or other entity), or (d) any other Person affiliated with
any of the foregoing, or any director, officer, employee or agent of any
thereof. Notwithstanding the foregoing, Buyer shall not be prohibited from
seeking injunctive relief or to recover the proceeds of any insurance required
by the terms of the Lease.
9. Miscellaneous.
(a) The paragraph headings in this Agreement are used
only for convenience in finding the subject matters and are not part of this
Agreement or to be used in determining the intent of the parties or otherwise
interpreting this Agreement.
-11-
<PAGE> 14
(b) As used in this Agreement, the singular shall include
the plural and any gender shall include all genders as the context requires and
the following words and phrases shall have the following meanings: (i)
"including" shall mean "including without limitation"; (ii) "provisions" shall
mean "provisions, terms, agreements, covenants and/or conditions"; (iii)
"lien" shall mean "lien, charge, encumbrance, title retention agreement,
pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation"
shall mean "obligation, duty, agreement, liability, covenant and/or condition";
(v) "any of the Premises" shall mean "the Premises or any part thereof or
interest therein"; (vi) "any of the Land" shall mean "the Land or any part
thereof or interest therein"; (vii) "any of the Improvements" shall mean "the
Improvements or any part thereof or interest therein"; and (viii) "any of the
Equipment" shall mean "the Equipment or any part thereof or interest therein".
(c) Any act which Owner is permitted to perform under
this Agreement may be performed at any time and from time to time by Owner or
any Person designated by Owner. Except as otherwise specifically provided
herein, Owner shall act reasonably in electing to withhold or delay its consent
whenever such consent is required under this Agreement. Time is of the essence
with respect to the performance by each party of its obligations under this
Agreement.
(d) Owner shall in no event be construed for any purpose
to be a partner, joint venturer or associate of Buyer or of any subtenant,
operator, concessionaire or licensee of Buyer with respect to any of the
Premises or otherwise in the conduct of their respective businesses.
(e) This Agreement and any documents which may be
executed by Buyer on or about the effective date hereof at Owner's request
constitute the entire agreement between the parties and supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the Premises and the transactions provided for herein.
Owner and Buyer are business entities having substantial experience with the
subject matter of this Agreement and each have fully participated in the
negotiation and drafting of this Agreement. Accordingly, this Agreement shall
be construed without regard to the rule that ambiguities in a document are to
be construed against the drafter.
(f) This Agreement may be modified, amended, discharged
or waived only by an agreement in writing signed by the party against whom
enforcement of any such modification, amendment, discharge or waiver is sought.
-12-
<PAGE> 15
(g) The covenants of this Agreement shall bind Buyer, its
successors and assigns (provided, that nothing in this clause (g) shall
authorize any transfer or assignment not otherwise permitted by the terms of
this Agreement), and shall inure to the benefit of Owner, its successors and
assigns.
(h) If any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(i) This Agreement shall be governed by and construed and
enforced in accordance with the Laws of the State.
(j) Owner and Buyer each waive, to the maximum extent
permitted by law, the right to trial by jury in the event of any litigation in
which Owner and Buyer are parties in respect of any matter arising under or in
respect to this Agreement, whether or not such litigation has been commenced in
respect of this Agreement or such other documents and whether or not such other
persons are also parties thereto.
[Remainder of Page Left Intentionally Blank]
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<PAGE> 16
IN WITNESS WHEREOF, Owner and Buyer have caused this Agreement
to be duly executed under seal as of the day and year first above written.
OWNER:
ATTEST: ABI (TX) QRS 12-11, INC.
By: /s/Ted Heuston By: /s/Howard J. Altmann
------------------------ -------------------------
Title: Assistant Secretary Title: Senior Vice President
--------------------- ----------------------
[Corporate Seal]
BUYER:
ATTEST: APPLIED BIOSCIENCE
INTERNATIONAL INC.
By: /s/ Craig E. Chason By: /s/Stephen L. Waechter
------------------------ -------------------------
Title: Secretary Title: Senior Vice President
--------------------- ----------------------
[Corporate Seal]
[Signatures to Purchase Agreement]
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<PAGE> 17
Exhibit "A"
PREMISES
LOT 1:
Lot 2, RESUBDIVISION OF PART OF LOTS 3, 4, 5, 6, 7 AND 8, BLOCK 3, FREEWATER
ADDITION, a subdivision in Travis County, Texas, according to the map or plat
thereof recorded in Book 78, Page 269, Plat Records, Travis County, Texas,
being locally known as 706A & B Ben White Boulevard West.
LOT 2:
DESCRIPTION OF 1.66 ACRES, MORE OR LESS, OF LAND AREA, BEING A PORTION OF LOT 1
OF ONE PARK PLACE II, A SUBDIVISION IN THE CITY OF AUSTIN, TRAVIS COUNTY,
TEXAS, ACCORDING TO THE MAP OR PLAT THEREOF RECORDED IN VOLUME 82, PAGE 138,
PLAT RECORDS OF TRAVIS COUNTY, TEXAS, BEING LOCALLY KNOWN AS 1112 BEN WHITE
BOULEVARD WEST AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS
FOLLOWS:
BEGINNING at an iron rod set at the intersection of the north line of Ben White
Boulevard West, and the east line of the aforereferenced Lot 1, same being the
west line of the Missouri Pacific Railroad Right-of-Way, for the southeast
corner of the herein described tract of land;
THENCE leaving the PLACE OF BEGINNING and said Missouri Pacific Railroad
Right-of-Way, and crossing Lot 1 with the north line of Ben White Boulevard
West, the following two (2) courses:
1. with a right breaking curve having a radius length of 2849.79
feet and a chord which bears N 86 degrees 42 minutes 30
seconds W 71.02 feet to an iron rod set; and
2. N 86 degrees 02 minutes 30 seconds W 281.84 feet to an "x" set
in concrete in the intersection of the north line of Ben
White Boulevard West and the west line of Lot 1, same
being the east line of Lot B of K.R.T. Addition, a subdivision
in the City of Austin, Travis County, Texas, as recorded in
Volume 68, Page 71 of the Plat Records of Travis County,
Texas, for the southwest corner of the herein described tract
of land;
THENCE leaving Ben White Boulevard West with the common line of Lot 1 and Lot
B, the following two (2) courses:
-1-
<PAGE> 18
1. N 25 degrees 35 minutes E 125.17 feet to an iron rod found; and
2. N 25 degrees 47 minutes E 123.85 feet to an iron rod found in
the south line of Lot 2 of the aforereferenced One Park
Place II, for the northwest corner of Lot 1, same being the
northeast corner of Lot B, also being the northwest corner
of the herein described tract of land;
THENCE leaving Lot B, with the common line of Lot 1 and said Lot 2 the
following two (2) courses:
1. S 59 degrees 43 minutes 30 seconds E 65.07 feet to an iron
rod found; and
2. N 88 degrees 53 minutes E 259.79 feet to an iron rod found in
the west line of the Missouri Pacific Railroad Right-of-Way,
for the northeast corner of Lot 1, same being the southeast
corner of Lot 2, and being the northeast corner of the
herein described tract of land;
THENCE leaving Lot 2, with the common line of the Missouri Pacific Railroad
Right-of-Way and Lot 1, S 18 degrees 02 minutes W 231.60 feet to the PLACE OF
BEGINNING. There are contained within these metes and bounds 1.66 acres, more
or less, of land area as described from record information and measurements
made on the ground on January 12, 1991, and visually inspected on September 15,
1995, by McMinn Land Surveying Company of Austin, Texas.
LOT 3:
LOT 2, ONE PARK PLACE II, a subdivision in Travis County, Texas, according to
the map or plat thereof recorded in Book 82, Page 138, Plat Records, Travis
County, Texas, being locally known as 4009 Banister Lane.
LOT 4:
LOT 3, ONE PARK PLACE II, a subdivision in Travis County, Texas, according to
the map or plat thereof recorded in Book 82, Page 138, Plat Records, Travis
County, Texas, being locally known as 4005 Banister Lane.
-2-
<PAGE> 19
Exhibit "B"
MACHINERY AND EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and appliances of every
kind and nature whatsoever now or hereafter affixed or attached to or installed
in any of the Premises (except as hereafter provided), including all
electrical, anti-pollution, heating, lighting (including hanging fluorescent
lighting), incinerating, power, air cooling, air conditioning, humidification,
sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing
and ventilating systems, devices and machinery and all engines, pipes, pumps,
tanks (including exchange tanks and fuel storage tanks), motors, conduits,
ducts, steam circulation coils, blowers, steam lines, compressors, oil burners,
boilers, doors, windows, loading platforms, lavatory facilities, stairwells,
fencing (including cyclone fencing), passenger and freight elevators, overhead
cranes and garage units, together with all additions thereto, substitutions
therefor and replacements thereof required or permitted by the Lease, but
excluding all personal property, trade fixtures, machinery, office,
manufacturing and warehouse equipment which are not necessary to the operation,
as buildings, of the buildings which constitute part of the Premises, including
without limitation the following items that are located on the Premises but are
specifically excluded from the Equipment:
(1) Office furniture and office equipment;
(2) Track filing/storage systems;
(3) Clinical storage systems, i.e.,
refrigerators or freezers (walk-in or free standing);
(4) Medical and laboratory equipment;
(5) All items of equipment related to
PBX/Voicemail systems;
(6) All items of equipment related to VAX
Computer Systems;
(7) All items of equipment related to the
computer network;
(8) All items of equipment related to the video
conference system;
(9) Clinic kitchen and laundry equipment;
(10) Medical telimetry/clock system; and
(11) Mail room equipment.
1
<PAGE> 1
EXHIBIT No. 10.43
LEASE AGREEMENT
by and between
ABI (TX) QRS 12-11, INC.,
a Texas corporation
as LANDLORD
and
PHARMACO LSR INTERNATIONAL INC.,
a Delaware corporation,
as TENANT
Premises: Lot 1
Lot 2
Lot 3
Lot 4
Austin, Texas
Dated as of: November 13, 1995
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Parties 1
1. Demise of Premises 1
2. Certain Definitions 1
3. Title and Condition 9
4. Use of Leased Premises; Quiet Enjoyment 10
5. Term 11
6. Basic Rent 12
7. Additional Rent 12
8. Net Lease; Non-Terminability 13
9. Payment of Impositions 14
10. Compliance with Laws and Easement
Agreements; Environmental Matters 15
11. Liens; Recording 17
12. Maintenance and Repair 18
13. Alterations and Improvements 18
14. Permitted Contests 19
15. Indemnification 20
16. Insurance 21
17. Casualty and Condemnation 25
18. Termination Events 27
19. Restoration 29
20. Procedures Upon Purchase 30
21. Assignment and Subletting; Prohibition
against Leasehold Financing 31
22. Events of Default 33
23. Remedies and Damages Upon Default 35
24. Notices 38
25. Estoppel Certificate 39
26. Surrender 39
27. No Merger of Title 40
28. Books and Records 40
29. Determination of Value 41
30. Non-Recourse as to Landlord 44
31. Financing 44
32. Subordination 44
33. Sale of Related Premises by Landlord 45
34. Tax Treatment; Reporting 45
35. Right of First Refusal 45
36. Miscellaneous 47
</TABLE>
EXHIBITS
Exhibit "A" -Premises
Exhibit "B" -Machinery and Equipment
Exhibit "C" -Schedule of Permitted Encumbrances
Exhibit "D" -Rent Schedule
Exhibit "E" -Acquisition Costs
Exhibit "F" -Percentage Allocation of Basic Rent
LEASE AGREEMENT, made as of this ____ day of November, 1995,
between ABI (TX) QRS 12-11, INC., a Texas corporation ("Landlord"), with an
address c/o W.P. Carey & Co., Inc., 50 Rockefeller Plaza, 2nd Floor, New York,
New York 10020, and PHARMACO LSR INTERNATIONAL INC., a Texas corporation
("Tenant"),
<PAGE> 3
with an address at 4009 Banister Lane, Austin, Texas 78704-7792.
In consideration of the rents and provisions herein stipulated
to be paid and performed, Landlord and Tenant hereby covenant and agree as
follows:
1. Demise of Premises. Landlord hereby demises and lets
to Tenant, and Tenant hereby takes and leases from Landlord, for the term and
upon the provisions hereinafter specified, the following described property
(hereinafter referred to collectively as the "Leased Premises" and individually
as the "Lot 1 Premises" (comprised of two buildings known as 706A Ben White
Boulevard West and 706B Ben White Boulevard West), "Lot 2 Premises" (comprised
of one building known as 1112 Ben White Boulevard West), "Lot 3 Premises"
(comprised of one building known as 4009 Banister Lane) and "Lot 4 Premises"
(comprised of three buildings known as 4005A Banister Lane, 4005B Banister Lane
and 4005C Banister Lane) each of which premises is more particularly described
in the applicable description in Exhibit "A" attached hereto and made a part
hereof and shall include the portions of items (a), (b) and (c) of this
Paragraph 1 located thereon or therein and appertaining thereto): (a) the
premises described in Exhibit "A" hereto, together with the Appurtenances
(collectively, the "Land"); (b) the buildings, structures and other
improvements now or hereafter constructed on the Land (collectively, the
"Improvements"); and (c) the fixtures, machinery, equipment and other property
described in Exhibit "B" hereto (collectively, the "Equipment").
2. Certain Definitions.
"Acquisition Cost" of each of the Related Premises
shall mean the amount set forth opposite such premises on Exhibit "E" hereto.
"Additional Rent" shall mean Additional Rent as
defined in Paragraph 7.
"Adjoining Property" shall mean all sidewalks,
driveways, curbs, gores and vault spaces adjoining any of the Leased Premises
and which under any Easement Agreement or Legal Requirement Tenant has a duty
to maintain.
"Affected Premises" shall mean the Affected Premises
as defined in Paragraph 18.
"Alterations" shall mean all changes, additions,
improvements or repairs to, all alterations, reconstructions, renewals,
replacements or removals of and all substitutions or replacements for any of
the Improvements or Equipment, both interior and exterior, structural and
non-structural, and ordinary and extraordinary.
"Appurtenances" shall mean all tenements,
hereditaments, easements, rights-of-way, rights, privileges in and to the Land,
including (a) easements over other lands granted by
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<PAGE> 4
any Easement Agreement and (b) any streets, ways, alleys, vaults, gores or
strips of land adjoining the Land.
"Assignment" shall mean any assignment of rents and
leases from Landlord to a Lender which (a) encumbers any of the Leased Premises
and (b) secures Landlord's obligation to repay a Loan, as the same may be
amended, supplemented or modified from time to time.
"Basic Rent" shall mean Basic Rent as defined in
Paragraph 6.
"Basic Rent Payment Dates" shall mean the Basic Rent
Payment Dates as defined in Paragraph 6.
"Casualty" shall mean any loss of or damage to any
property (including the Leased Premises) included within or related to the
Leased Premises or arising from the Adjoining Property.
"Commencement Date" shall mean Commencement Date as
defined in Paragraph 5.
"Condemnation" shall mean (a) any taking or damaging
of all or a portion of any of the Leased Premises (i) in or by condemnation or
other eminent domain proceedings pursuant to any Law, general or special, or
(ii) by reason of any agreement with any condemnor in settlement of or under
threat of any such condemnation or other eminent domain proceeding, or (iii) by
any other means, or (b) any de facto condemnation. The Condemnation shall be
considered to have taken place as of the later of the date actual physical
possession is taken by the condemnor, or the date on which the right to
compensation and damages accrues under the law applicable to the Related
Premises.
"Condemnation Notice" shall mean notice or knowledge
of the institution of or intention to institute any proceeding for
Condemnation.
"Costs" of a Person or associated with a specified
transaction shall mean all reasonable costs and expenses incurred by such
Person or associated with such transaction, including without limitation,
attorneys' fees and expenses, court costs, brokerage fees, escrow fees, title
insurance premiums, mortgage commitment fees, mortgage points, recording fees
and transfer taxes, as the circumstances require.
"CPI" shall mean CPI as defined in Exhibit "D"
hereto.
"Default Rate" shall mean the Default Rate as defined
in Paragraph 7(a)(iii).
"Default Termination Amount" shall mean the Default
Termination Amount as defined in Paragraph 23(a)(iii).
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<PAGE> 5
"Easement Agreement" shall mean any conditions,
covenants, restrictions, easements, declarations, licenses and other agreements
listed as Permitted Encumbrances or as may, with the prior written consent of
Tenant, hereafter affect any Leased Premises.
"Environmental Law" shall mean (i) whenever enacted
or promulgated, any applicable federal, state, foreign and local law, statute,
ordinance, rule, regulation, license, permit, authorization, approval, consent,
court order, judgment, decree, injunction, code, requirement or agreement with
any governmental entity, (x) relating to pollution (or the cleanup thereof), or
the protection of air, water vapor, surface water, groundwater, drinking water
supply, land (including land surface or subsurface), plant, aquatic and animal
life from injury caused by a Hazardous Substance or (y) concerning exposure to,
or the use, containment, storage, recycling, reclamation, reuse, treatment,
generation, discharge, transportation, processing, handling, labeling,
production, disposal or remediation of Hazardous Substances, Hazardous
Condition or Hazardous Activity, in each case as amended and as now or
hereafter in effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations or injuries or damages due to or threatened as a result of the
presence of, exposure to, or ingestion of, any Hazardous Substance. The term
Environmental Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Water Pollution Control Act,
the federal Clean Air Act, the federal Clean Water Act, the federal Resources
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic
Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act,
the federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation
Act, each as amended and as now or hereafter in effect and any similar state or
local Law.
"Environmental Violation" shall mean (a) any direct
or indirect discharge, disposal, spillage, emission, escape, pumping, pouring,
injection, leaching, release, seepage, filtration or transporting of any
Hazardous Substance at, upon, under, onto or within the Leased Premises, or
from the Leased Premises to the environment, in violation of any Environmental
Law or in excess of any reportable quantity established under any Environmental
Law or which could result in any liability to Landlord, Tenant or Lender, any
Federal, state or local government or any other Person for the costs of any
removal or remedial action or natural resources damage or for bodily injury or
property damage, (b) any deposit, storage, dumping, placement or use of any
Hazardous Substance at, upon, under or within the Leased Premises or which
extends to any Adjoining Property in violation of any Environmental Law or in
excess of any reportable quantity established under any Environmental Law or
which could
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<PAGE> 6
result in any liability to any Federal, state or local government or to any
other Person for the costs of any removal or remedial action or natural
resources damage or for bodily injury or property damage, (c) the abandonment
or discarding of any barrels, containers or other receptacles containing any
Hazardous Substances in violation of any Environmental Laws, (d) any activity,
occurrence or condition which could result in any liability, cost or expense to
Landlord or Lender or any other owner or occupier of the Leased Premises, or
which could result in a creation of a lien on any Related Premises under any
Environmental Law or (e) any violation of or noncompliance with any
Environmental Law. Notwithstanding the above, it is understood and agreed that
the existence of the asbestos-containing material contained in (i) the roofing
and parapet mastics of the roofs of the buildings located at 1112 West Ben
White Boulevard and 4009 Banister Lane and (ii) the floor tile adhesive mastics
of the buildings located at 1112 West Ben White Boulevard and 4005 Banister
Lane, as described in that certain Level I Environmental Site Assessment of the
Leased Premises prepared by Maxim Technologies, Inc. dated September 1995,
shall not constitute an Environmental Violation provided that the existence of
same is not in violation of any Environmental Law or in excess of any
reportable quantity established under any Environmental Law.
"Equipment" shall mean the Equipment as defined in
Paragraph 1.
"Event of Default" shall mean an Event of Default as
defined in Paragraph 22(a).
"Fair Market Rental Value" shall mean the fair market
rental value of the Leased Premises for the relevant Renewal Term determined in
accordance with the procedure specified in Paragraph 29.
"Fair Market Value" of either the Leased Premises or
any Related Premises, as the case may be, and the context may require, shall
mean the higher of (a) the fair market value of the Leased Premises or any
Related Premises, as the case may be, as of the Relevant Date as if unaffected
and unencumbered by this Lease or (b) the fair market value of the Leased
Premises or Related Premises, as the case may be, as of the Relevant Date as
affected and encumbered by this Lease. For all purposes of this Lease, Fair
Market Value shall be determined in accordance with the procedure specified in
Paragraph 29.
"Fair Market Value Date" shall mean the date when the
Fair Market Value or the Fair Market Rental Value is determined in accordance
with Paragraph 29.
"Federal Funds" shall mean federal or other
immediately available funds which at the time of payment are legal tender for
the payment of public and private debts in the United States of America.
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<PAGE> 7
"Guarantor" shall mean Applied Bioscience
International Inc., a Delaware corporation.
"Guaranty" shall mean the Guaranty and Suretyship
Agreement dated as of the date hereof from Guarantor to Landlord guaranteeing
the payment and performance by Tenant of all of Tenant's obligations under the
Lease.
"Hazardous Activity" means any activity, process,
procedure or undertaking which directly or indirectly (i) procures, generates
or creates any Hazardous Substance; (ii) causes or results in (or threatens to
cause or result in) the release, seepage, spill, leak, flow, discharge or
emission of any Hazardous Substance into the environment (including the air,
ground water, watercourses or water systems), (iii) involves the containment or
storage of any Hazardous Substance; or (iv) would cause any of the Leased
Premises or any portion thereof to become a hazardous waste treatment,
recycling, reclamation, processing, storage or disposal facility within the
meaning of any Environmental Law.
"Hazardous Condition" means any condition which would
support any claim or liability under any Environmental Law, including the
presence of underground storage tanks.
"Hazardous Substance" means (i) any substance,
material, product, petroleum, petroleum product, derivative, compound or
mixture, mineral (including asbestos), chemical, gas, medical waste, or other
pollutant, in each case whether naturally occurring, man-made or the by-product
of any process, that is toxic, harmful or hazardous or acutely hazardous to the
environment or public health or safety or (ii) any substance supporting a claim
under any Environmental Law, whether or not defined as hazardous as such under
any Environmental Law. Hazardous Substances include, without limitation, any
toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum
or petroleum-derived substances or waste, radon, radioactive materials,
asbestos, asbestos containing materials, urea formaldehyde foam insulation,
lead and polychlorinated biphenyls.
"Impositions" shall mean the Impositions as defined
in Paragraph 9(a).
"Improvements" shall mean the Improvements as defined
in Paragraph 1.
"Indemnitee" shall mean an Indemnitee as defined in
Paragraph 15.
"Insurance Requirements" shall mean the requirements
of all insurance policies maintained in accordance with this Lease.
"Land" shall mean the Land as defined in Paragraph 1.
-6-
<PAGE> 8
"Law" shall mean any constitution, statute, rule of
law, code, ordinance, order, judgment, decree, injunction, rule, regulation,
policy, requirement or administrative or judicial determination, even if
unforeseen or extraordinary, of every duly constituted governmental authority,
court or agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Year" shall mean, with respect to the first
Lease Year, the period commencing on the Commencement Date and ending at
midnight on the last day of the twelfth (12th) consecutive calendar month
following the month in which the Commencement Date occurred, and each
succeeding twelve (12) month period during the Term.
"Leased Premises" shall mean the Leased Premises as
defined in Paragraph 1.
"Legal Requirements" shall mean the requirements of
all present and future Laws (including but not limited to Environmental Laws)
and all covenants, restrictions and conditions now or hereafter of record which
may be applicable to Tenant or to any of the Leased Premises, or to the use,
manner of use, occupancy, possession, operation, maintenance, alteration,
repair or restoration of any of the Leased Premises, even if compliance
therewith necessitates structural changes or improvements or results in
interference with the use or enjoyment of any of the Leased Premises.
"Lender" shall mean any person or entity (and their
respective successors and assigns) which may, after the date hereof, make a
Loan to Landlord or is the holder of any Note.
"Loan" shall mean any loan made by one or more
Lenders to Landlord, which loan is secured by a Mortgage and an Assignment and
evidenced by a Note.
"Monetary Obligations" shall mean Rent and all other
sums payable by Tenant under this Lease to Landlord, to any third party on
behalf of Landlord or to any Indemnitee.
"Mortgage" shall mean any mortgage or deed of trust
from Landlord to a Lender which (a) encumbers any of the Leased Premises and
(b) secures Landlord's obligation to repay a Loan, as the same may be amended,
supplemented or modified.
"Net Award" shall mean (a) the entire award payable
to Landlord or Lender by reason of a Condemnation whether pursuant to a
judgment or by agreement or otherwise, or (b) the entire proceeds of any
insurance required under clauses (i), (ii) (to the extent payable to Landlord
or Lender), (iv), (v) or (vi) of Paragraph 16(a), as the case may be, less any
expenses incurred by Landlord and Lender in collecting such award or proceeds.
-7-
<PAGE> 9
"Note" shall mean any promissory note evidencing
Landlord's obligation to repay a Loan, as the same may be amended, supplemented
or modified.
"Partial Casualty" shall mean any Casualty which does
not constitute a Termination Event.
"Partial Condemnation" shall mean any Condemnation
which does not constitute a Termination Event.
"Permitted Encumbrances" shall mean those covenants,
restrictions, reservations, liens, conditions and easements and other
encumbrances, other than any Mortgage or Assignment, listed on Exhibit "C"
hereto (but such listing shall not be deemed to revive any such encumbrances
that have expired or terminated or are otherwise invalid or unenforceable).
"Person" shall mean an individual, partnership,
association, corporation or other entity.
"Prepayment Premium" shall mean any payment (other
than a payment of principal and/or interest) which Landlord is required to make
under a Note or a Mortgage by reason of any prepayment by Landlord of any
principal due under a Note or Mortgage, and which may be (in lieu of such
prepayment premium or prepayment penalty) a "make whole" clause requiring a
prepayment premium in an amount sufficient to compensate the Lender for the
loss of the benefit of the Loan due to prepayment.
"Present Value" of any amount shall mean such amount
discounted by a rate per annum which is the lower of (a) the Prime Rate at the
time such present value is determined or (b) eight percent (8%) per annum.
"Prime Rate" shall mean the interest rate per annum
as published, from time to time, in the Wall Street Journal as the "Prime Rate"
in its column entitled "Money Rate". The Prime Rate may not be the lowest rate
of interest charged by any "large U.S. money center commercial banks" and
Landlord makes no representations or warranties to that effect. In the event
the Wall Street Journal ceases publication or ceases to publish the "Prime
Rate" as described above, the Prime Rate shall be the average per annum
discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury
Bills") issued from time to time by the United States Treasury at its most
recent auction, plus three hundred (300) basis points. If no such 91-day
Treasury Bills are then being issued, the Discount Rate shall be the discount
rate on Treasury Bills then being issued for the period of time closest to
ninety-one (91) days.
"Related Premises" shall mean any one of the Lot 1
Premises, Lot 2 Premises, Lot 3 Premises and Lot 4 Premises (which shall mean
all of the Improvements located on the relevant premises).
-8-
<PAGE> 10
"Relevant Amount" shall mean the Termination Amount
or the Default Termination Amount, as the case may be.
"Relevant Date" shall mean (a) the date immediately
prior to the date on which the applicable Condemnation Notice is received, in
the event of a Termination Notice under Paragraph 18 which is occasioned by a
Condemnation, (b) the date immediately prior to the date on which the
applicable Casualty occurs, in the event of a Termination Notice under
Paragraph 18 which is occasioned by a Casualty, (c) the date when Fair Market
Value is redetermined, in the event of a redetermination of Fair Market Value
pursuant to Paragraph 20(c), (d) the date immediately prior to the Event of
Default giving rise to the need to determine Fair Market Value in the event
Landlord provides Tenant with notice of its intention to require Tenant to make
an offer to terminate this Lease under Paragraph 23(a)(iii).
"Remaining Premises" shall mean the Related Premises
which are not Affected Premises under Paragraph 18.
"Renewal Term" shall mean any extension of the Term
pursuant to Paragraph 5(b).
"Rent" shall mean, collectively, Basic Rent and
Additional Rent.
"Site Assessment" shall mean a Site Assessment as
defined in Paragraph 10(c).
"State" shall mean the State of Texas.
"Surviving Obligations" shall mean any obligations of
Tenant under this Lease, actual or contingent, which arise on or prior to the
expiration or prior termination of this Lease or which survive such expiration
or termination by their own terms.
"Term" shall mean the Term as defined in Paragraph 5.
"Termination Amount" shall mean the greater of (a)
Fair Market Value or (b) the sum of the Acquisition Cost and any Prepayment
Premium which Landlord will be required to pay in prepaying any Loan with
proceeds of the Termination Amount.
"Termination Date" shall mean the Termination Date as
defined in Paragraph 18.
"Termination Event" shall mean a Termination Event as
defined in Paragraph 18.
"Termination Notice" shall mean Termination Notice as
defined in Paragraph 18(a).
"Third Party Purchaser" shall mean the Third Party
Purchaser as defined in Paragraph 33.
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<PAGE> 11
3. Title and Condition.
(a) The Leased Premises are demised and let
subject to (i) the rights of any Persons in possession of the Leased Premises,
(ii) the existing state of title of any of the Leased Premises, including any
Permitted Encumbrances, (iii) any state of facts which an accurate survey or
physical inspection of the Leased Premises might show, (iv) all Legal
Requirements, including any existing violation of any thereof, and (v) the
condition of the Leased Premises as of the commencement of the Term, without
representation or warranty by Landlord.
(b) Tenant acknowledges that the Leased Premises
are in good condition and repair at the inception of this Lease. LANDLORD
LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS.
TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN
ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE
DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY OF THE LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION
AS TO (i) ITS FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE,
(ii) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF
ANY DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi)
COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x)
MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY (xiv)
OPERATION OR (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE; AND ALL RISKS
INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE
LEASED PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE
LEASED PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT. IN
THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY
NATURE, WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b)
HAVE BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION
OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE
LEASED PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER
LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(c) Tenant represents to Landlord that Tenant has
examined the title to the Leased Premises prior to the execution and delivery
of this Lease and has found the same to be satisfactory for the purposes
contemplated hereby. Tenant acknowledges that (i) fee simple title (both legal
and equitable) to the Leased Premises is in Landlord and that Tenant has only
the leasehold right of possession and use of the Leased Premises and certain
rights of first refusal as provided herein, (ii) the Improvements conform to
all material Legal Requirements and all Insurance Requirements, (iii) all
easements necessary or appropriate for the use or operation of the Leased
Premises have been obtained, (iv) all contractors and subcontractors who have
performed work on or supplied materials to the Leased Premises have been
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fully paid, and all materials and supplies have been fully paid for, (v) the
Improvements have been fully completed in all material respects in a
workmanlike manner of first class quality, and (vi) all Equipment necessary or
appropriate for the use or operation of the Leased Premises has been installed
and is presently fully operative in all material respects.
(d) Landlord hereby assigns to Tenant, without
recourse or warranty whatsoever, all warranties, guaranties, indemnities and
similar rights which Landlord may have against any manufacturer, seller,
engineer, contractor or builder in respect of any of the Leased Premises. Such
assignment shall remain in effect until an Event of Default occurs or until the
expiration or earlier termination of this Lease, whereupon such assignment
shall cease and all of said warranties, guaranties, indemnities and other
rights shall automatically revert to Landlord.
4. Use of Leased Premises; Quiet Enjoyment.
(a) Tenant may occupy and use the Leased Premises
for all uses required by a clinical research organization, including but not
limited to, medical and transient housing and dormitory use in connection with
clinical research facilities and for no other purpose without the prior written
consent of Landlord which shall not be unreasonably withheld. Tenant shall not
use or occupy or permit any of the Leased Premises to be used or occupied, nor
do or permit anything to be done in or on any of the Leased Premises, in a
manner which would or might (i) violate any Law or Legal Requirement, (ii) make
void or voidable or cause any insurer to cancel any insurance required by this
Lease, or make it difficult or impossible to obtain any such insurance at
commercially reasonable rates, (iii) cause structural injury to any of the
Improvements or (iv) constitute a public or private nuisance or waste.
(b) Subject to the provisions hereof, so long as
no Event of Default has occurred and is continuing, Tenant shall quietly hold,
occupy and enjoy the Leased Premises throughout the Term, without any
hindrance, ejection or molestation by Landlord with respect to matters that
arise after the date hereof, provided that Landlord or its agents may upon two
(2) days' prior notice to Tenant (except in the event of an emergency, in which
event no notice shall be required), enter upon and examine any of the Leased
Premises at such reasonable times as Landlord may select for the purpose of
inspecting the Leased Premises, verifying compliance or non-compliance by
Tenant with its obligations hereunder and the existence or non-existence of an
Event of Default or event which with the passage of time and/or notice would
constitute an Event of Default, showing the Leased Premises to prospective
Lenders and purchasers and taking such other action with respect to the Leased
Premises as is permitted by any provision hereof. Landlord shall use
reasonable efforts to minimize any interference with Tenant's operations as a
result of such inspections and shall indemnify Tenant for any damages to the
Leased Premises directly resulting from such inspection.
5. Term.
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(a) Subject to the provisions hereof, Tenant
shall have and hold the Leased Premises for an initial term (such term, as
extended or renewed in accordance with the provisions hereof, being called the
"Term") commencing on the date hereof (the "Commencement Date") and ending on
the last day of the one hundred eightieth (180th) calendar month next following
the date hereof (the "Expiration Date").
(b) Provided that if, on or prior to the
Expiration Date or any other Renewal Date (as hereinafter defined) this Lease
shall not have been terminated pursuant to any provision hereof and no Event of
Default shall exist, then on the Expiration Date and on the fifth (5th), tenth
(10th) and fifteenth (15th) anniversaries of the Expiration Date (the
Expiration Date and each such anniversary being a "Renewal Date"), Tenant shall
have the option to extend the Term for an additional period of five (5) years.
Any such extension of the Term shall be subject to all of the provisions of
this Lease, as the same may be amended, supplemented or modified. Tenant may
exercise each of its options to extend the Term by giving written notice of
such extension to Landlord at least eighteen (18) months prior to expiration of
the Term then in effect.
(c) If Tenant does not exercise its option
pursuant to Paragraph 5(b) to extend the Term, or if an Event of Default
occurs, then Landlord shall have the right during the remainder of the Term
then in effect and, in any event, Landlord shall have the right during the last
year of the Term, to (i) advertise the availability of any of the Leased
Premises for sale or reletting and to erect upon any of the Leased Premises
signs indicating such availability and (ii) show any of the Leased Premises to
prospective purchasers or tenants or their agents at such reasonable times as
Landlord may select.
6. Basic Rent. Tenant shall pay to Landlord, as annual
rent for the Leased Premises during the Term, the amounts determined in
accordance with Exhibit "D" hereto ("Basic Rent"), commencing on the first day
of December, 1995, and continuing on the first day of each March, June,
September and December thereafter during the Term (each such day being a "Basic
Rent Payment Date"). Each such rental payment shall be made (a) to Landlord at
its address set forth above and/or to one other Person, at such address and in
such proportions as Landlord may direct by fifteen (15) days' prior written
notice to Tenant (in which event Tenant shall give Landlord notice of each such
payment concurrent with the making thereof), and (b) no later than each Basic
Rent Payment Date. Pro rata Basic Rent for the period from the date hereof
through the last day of the month hereof shall be paid on the date hereof.
7. Additional Rent.
(a) Tenant shall pay and discharge, as additional
rent (collectively, "Additional Rent"):
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(i) except as otherwise specifically
provided herein, all costs and expenses of Tenant, Landlord, Lender (to the
extent specifically provided herein) and Indemnitees specifically referenced
herein which are incurred in connection or associated with (A) the ownership,
use, non-use, occupancy, possession, operation, condition, design,
construction, maintenance, alteration, repair or restoration of any of the
Leased Premises, (B) the performance of any of Tenant's obligations under this
Lease, (C) any sale or other transfer of any of the Leased Premises to Tenant
under this Lease, (D) the adjustment, settlement or compromise of any insurance
claims involving or arising from any of the Leased Premises, (E) the
prosecution, defense or settlement of any litigation involving or arising from
any of the Leased Premises, this Lease, or the sale of the Leased Premises to
Landlord in which Landlord is the prevailing party or in which a settlement is
reached or under Paragraph 15 hereof, (F) the exercise or enforcement by
Landlord, its successors and assigns, of any of its rights under this Lease,
(G) any amendment to or modification or termination of this Lease made at the
request of Tenant, (H) Costs of Landlord's counsel incurred in connection with
any act undertaken by Landlord (or its counsel) at the request of Tenant, or
incurred in connection with any act of Landlord performed on behalf of Tenant,
and (I) any other items specifically required to be paid by Tenant under this
Lease;
(ii) after the date all or any portion of
any installment of Basic Rent is due and not paid, an amount equal to five
percent (5%) of the amount of such unpaid installment or portion thereof (the
"Late Charge"), provided, however, that with respect to the first installment
of Basic Rent or portion thereof that is late in any Lease Year, the Late
Charge shall not be due and payable until the expiration of five (5) days
following the due date thereof;
(iii) interest at the rate (the
"Default Rate") of three percent (3%) over the Prime Rate per annum on the
following sums until paid in full: (A) all overdue installments of Basic Rent
from the respective due dates thereof, (B) all overdue amounts of Additional
Rent relating to obligations which Landlord shall have paid on behalf of Tenant,
from the date of payment thereof by Landlord, and (C) all other overdue amounts
of Additional Rent, from the date when any such amount becomes overdue.
(b) Tenant shall pay and discharge (i) any
Additional Rent referred to in Paragraph 7(a)(i) when the same shall become
due, provided that amounts which are billed to Landlord or any third party, but
not to Tenant, shall be paid within ten (10) days after Landlord's demand for
payment thereof, and (ii) any other Additional Rent, within ten (10) days after
Landlord's demand for payment thereof.
(c) In no event shall amounts payable under
Paragraph 7(a)(ii) and (iii) exceed the maximum amount permitted by applicable
Law.
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8. Net Lease; Non-Terminability.
(a) This is a net lease and all Monetary
Obligations shall be paid without notice or demand and without set-off,
counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense (collectively, a "Set-Off").
(b) Except as otherwise expressly provided
herein, this Lease and the rights of Landlord and the obligations of Tenant
hereunder shall not be affected by any event or for any reason, including the
following: (i) any damage to or theft, loss or destruction of any of the
Leased Premises, (ii) any Condemnation, (iii) Tenant's acquisition of ownership
of any of the Leased Premises other than pursuant to an express provision of
this Lease, (iv) any default on the part of Landlord hereunder or under any
Note, Mortgage, Assignment or any other agreement, (v) any latent or other
defect in any of the Leased Premises, (vi) the breach of any warranty of any
seller or manufacturer of any of the Equipment, (vii) any violation of
Paragraph 4(b) or any other provision of this Lease by Landlord, (viii) the
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution or winding-up of, or other proceeding affecting Landlord, (ix) the
exercise of any remedy, including foreclosure, under any Mortgage or
Assignment, (x) any action with respect to this Lease (including the
disaffirmance hereof) which may be taken by Landlord, any trustee, receiver or
liquidator of Landlord or any court under the Federal Bankruptcy Code or
otherwise, (xi) any interference with Tenant's use of the Leased Premises,
(xii) market or economic changes or (xiii) any other cause, whether similar or
dissimilar to the foregoing, any present or future Law to the contrary
notwithstanding.
(c) The obligations of Tenant hereunder shall be
separate and independent covenants and agreements, all Monetary Obligations
shall continue to be payable in all events (or, in lieu thereof, Tenant shall
pay amounts equal thereto), and the obligations of Tenant hereunder shall
continue unaffected unless the requirement to pay or perform the same shall
have been terminated pursuant to an express provision of this Lease. All Rent
payable by Tenant hereunder shall constitute "rent" for all purposes (including
Section 502(b)(6) of the Bankruptcy Code).
(d) Except as otherwise expressly provided
herein, Tenant shall have no right and hereby waives all rights which it may
have under any Law (i) to quit, terminate or surrender this Lease or any of the
Leased Premises, or (ii) to any Set-Off of any Monetary Obligations.
9. Payment of Impositions.
(a) Tenant shall, before interest or penalties
are due thereon, pay and discharge all taxes (including real and personal
property, franchise, sales and rent taxes), all charges for any Easement
Agreement maintained for the benefit of any of the Leased Premises, all
assessments and levies, all permit,
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inspection and license fees, all rents and charges for water, sewer, utility
and communication services relating to the any of Leased Premises, all ground
rents and all other public charges whether of a like or different nature, even
if unforeseen or extraordinary, imposed upon or assessed against (i) Tenant,
(ii) Tenant's possessory interest in the Leased Premises, (iii) any of the
Leased Premises, (iv) Landlord as a result of or arising in respect of the
acquisition, ownership, occupancy, leasing, use, possession or sale of any of
the Leased Premises, any activity conducted on any of the Leased Premises by
Tenant or any Person claiming by, through or under Tenant, or the Rent, or (v)
any Lender by reason of any Note, Mortgage, Assignment or other document
evidencing or securing a Loan and which (as to this clause (v)) is normal and
customary and Landlord has agreed to pay (collectively, the "Impositions");
provided, that Impositions shall not include (A) income, excess profits or
other taxes of Landlord (or Lender) which are determined on the basis of
Landlord's (or Lender's) net income or net worth (unless such taxes are in
lieu of or a substitute for any other tax, assessment or other charge upon or
with respect to the Leased Premises which, if it were in effect, would be
payable by Tenant under the provisions hereof or by the terms of such tax,
assessment or other charge), (B) any estate, inheritance, succession, gift or
similar tax imposed on Landlord or (C) any capital gains tax imposed on
Landlord in connection with the sale of the Leased Premises to any Person. If
any Imposition may be paid in installments without interest or penalty, Tenant
shall have the option to pay such Imposition in installments; in such event,
Tenant shall be liable only for those installments which accrue or become due
and payable during the Term. Tenant shall prepare and file all tax reports
required by governmental authorities which relate to the Impositions. Tenant
shall deliver to Landlord (1) copies of all settlements and notices pertaining
to the Impositions which may be issued by any governmental authority within ten
(10) days after Tenant's receipt thereof, (2) receipts for payment of all taxes
required to be paid by Tenant hereunder within thirty (30) days after the due
date thereof and (3) receipts for payment of all other Impositions within ten
(10) days after Landlord's request therefor.
(b) Landlord shall have the right during the
occurrence of a monetary Event of Default to require Tenant to pay to Landlord
an additional monthly sum (each an "Escrow Payment") sufficient to pay the
Escrow Charges (as hereinafter defined) as they become due. As used herein,
"Escrow Charges" shall mean real estate taxes on the Leased Premises or
payments in lieu thereof and premiums on any insurance required by this Lease.
Landlord shall determine the amount of the Escrow Charges and of each Escrow
Payment. The Escrow Payments may be commingled with other funds of Landlord or
other Persons and no interest thereon shall be due or payable to Tenant.
Landlord shall apply the Escrow Payments to the payment of the Escrow Charges
in such order or priority as Landlord shall determine or as required by law.
If at any time the Escrow Payments theretofore paid to Landlord shall be
insufficient for the payment of the Escrow Charges, Tenant, within
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ten (10) days after Landlord's demand therefor, shall pay the amount of the
deficiency to Landlord.
10. Compliance with Laws and Easement Agreements;
Environmental Matters.
(a) Tenant shall, at its expense, comply with and
conform to, and cause any other Person occupying any part of the Leased
Premises to comply with and conform to, all Insurance Requirements and Legal
Requirements (including all applicable Environmental Laws). Tenant shall not
at any time (i) cause, permit or suffer to occur any Environmental Violation or
(ii) permit any sublessee, assignee or other Person occupying the Leased
Premises under or through Tenant to cause, permit or suffer to occur any
Environmental Violation.
(b) Tenant, at its sole cost and expense, will at
all times promptly and faithfully abide by, discharge and perform all of the
covenants, conditions and agreements contained in any Easement Agreement on the
part of Landlord or the occupier to be kept and performed thereunder. Tenant
will not alter, modify, amend or terminate any Easement Agreement, give any
consent or approval thereunder, or enter into any new Easement Agreement
without, in each case, prior written consent of Landlord.
(c) Upon prior written notice from Landlord,
which notice may be given not more often than once every five (5) years, unless
an Event of Default has occurred and is continuing or Landlord has a reasonable
belief that an Environmental Violation exists or except in connection with the
sale, financing or refinancing of any of the Related Premises, Tenant shall
permit such persons as Landlord may designate ("Site Reviewers") to visit the
Leased Premises and perform, as agents of Tenant, environmental site
investigations and assessments ("Site Assessments") on the Leased Premises for
the purpose of determining whether there exists on the Leased Premises any
Environmental Violation or any condition which could result in any
Environmental Violation. Such Site Assessments may include both above and
below the ground testing for Environmental Violations and such other tests as
may be necessary, in the opinion of the Site Reviewers, to conduct the Site
Assessments. Tenant shall supply to the Site Reviewers such historical and
operational information regarding the Leased Premises as may be reasonably
requested by the Site Reviewers to facilitate the Site Assessments, and shall
make available for meetings with the Site Reviewers appropriate personnel
having knowledge of such matters. The cost of performing and reporting any Site
Assessments in connection with a sale, financing, refinancing or Event of
Default shall be paid by Landlord unless an Environmental Violation exists.
The cost of performing and reporting a Site Assessment on each Related Premises
every five (5) years or if an Environmental Violation exists shall be paid by
Tenant.
(d) If an Environmental Violation occurs or is
found to exist and, in Landlord's reasonable judgment, the cost of remediation
of the same is likely to exceed $500,000, Tenant shall
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provide to Landlord, within ten (10) days after Landlord's request therefor,
adequate financial assurances that Tenant will effect such remediation in
accordance with applicable Environmental Laws. Such financial assurances shall
be a bond or letter of credit satisfactory to Landlord in form and substance
and in an amount equal to or greater than Landlord's reasonable estimate, based
upon a Site Assessment performed pursuant to Paragraph 10(c), of the
anticipated cost of such remedial action.
(e) Notwithstanding any other provision of this
Lease, if an Environmental Violation occurs or is found to exist and on the
date the Term would otherwise terminate or expire such Environmental Violation
has not been cured, then, at the option of Landlord, the Term shall be
automatically extended beyond the date of termination or expiration and this
Lease shall remain in full force and effect beyond such date until the earlier
to occur of (i) the completion of all remedial action in accordance with
applicable Environmental Laws or (ii) the date specified in a written notice
from Landlord to Tenant terminating this Lease.
(f) If Tenant fails to promptly commence to
comply with any requirement of any Environmental Law in connection with any
Environmental Violation which occurs or is found to exist, Landlord shall have
the right (but no obligation) to take any and all actions as Landlord shall
deem necessary or advisable in order to cure such Environmental Violation.
(g) Tenant shall notify Landlord immediately
after becoming aware of any Environmental Violation (or alleged Environmental
Violation) or noncompliance with any of the covenants contained in this
Paragraph 10 and shall forward to Landlord immediately upon receipt thereof
copies of all orders, reports, notices, permits, applications or other
communications relating to any such violation or noncompliance.
(h) All future leases, subleases or concession
agreements relating to the Leased Premises entered into by Tenant shall contain
covenants of the other party thereto which are substantially similar to the
covenants contained in clauses (a) and (g) of Paragraph 10.
11. Liens; Recording.
(a) Tenant shall not, directly or indirectly,
create or permit to be created or to remain and shall promptly discharge or
remove any lien, levy or encumbrance on any of the Leased Premises or on any
Rent or any other sums payable by Tenant under this Lease, other than any
Mortgage or Assignment, the Permitted Encumbrances and any mortgage, lien,
encumbrance or other charge created by or resulting solely from any act or
omission of Landlord. NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE
FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR
TO ANYONE HOLDING OR OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER
TENANT, AND THAT NO MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN
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AND TO ANY OF THE LEASED PREMISES. LANDLORD MAY AT ANY TIME POST ANY NOTICES
ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD.
(b) Tenant shall execute, deliver and record,
file or register (collectively, "record") all such instruments as may be
required or permitted by any present or future Law in order to evidence the
respective interests of Landlord and Tenant in any of the Leased Premises, and
shall cause a memorandum of this Lease (or, if such a memorandum cannot be
recorded, this Lease), and any supplement hereto or thereto, to be recorded in
such manner and in such places as may be required or permitted by any present
or future Law in order to protect the validity and priority of this Lease.
12. Maintenance and Repair.
(a) Tenant shall at all times maintain each
Related Premises and the Adjoining Property in as good repair and appearance as
each is in on the date hereof, ordinary wear and tear excepted, and fit to be
used for their intended use in accordance with the practices generally
recognized as then acceptable by other companies in its industry or observed by
Tenant with respect to the other real properties owned or operated by it,
whichever is the higher standard. In the case of the Equipment, Tenant shall
at all times maintain it in as good mechanical condition as it was on the later
of the date hereof or the date of its installation, except for ordinary wear
and tear. Tenant shall take every other action necessary or appropriate for the
preservation and safety of each Related Premises. Tenant shall promptly make
all Alterations of every kind and nature, whether foreseen or unforeseen as of
the date hereof, which may be required to comply with the foregoing
requirements of this Paragraph 12(a). Landlord shall not be required to make
any Alteration, whether foreseen or unforeseen, or to maintain any of the
Related Premises or Adjoining Property in any way, and Tenant hereby expressly
waives any right which may be provided for in any Law now or hereafter in
effect to make Alterations at the expense of Landlord or to require Landlord to
make Alterations. Any Alteration made by Tenant pursuant to this Paragraph 12
shall be made in conformity with the provisions of Paragraph 13.
(b) If any Improvement, now or hereafter
constructed, shall (i) encroach upon any setback or any property, street or
right-of-way adjoining any of the Leased Premises, (ii) violate the provisions
of any restrictive covenant affecting any of the Leased Premises, (iii) hinder
or obstruct any easement or right-of-way to which any of the Leased Premises is
subject or (iv) impair the rights of others in, to or under any of the
foregoing, Tenant shall, promptly after receiving notice or otherwise acquiring
knowledge thereof, either (A) obtain from all necessary parties waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation, hindrance, obstruction or impairment, whether the same
shall affect Landlord, Tenant or both, or (B) take such action as shall be
necessary to remove all such encroachments, hindrances or
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obstructions and to end all such violations or impairments, including, if
necessary, making Alterations.
13. Alterations and Improvements.
(a) Tenant shall have the right, without having
obtained the prior written consent of Landlord and Lender, to make (i)
non-structural Alterations to the Leased Premises and (ii) to install Equipment
in the Improvements or accessions to the Equipment that, as to such Equipment
or accessions, do not cost, in any individual instance, in excess of $250,000,
so long as at the time of construction or installation of any such Equipment or
Alterations no Event of Default exists and the value and utility of the Leased
Premises is not diminished thereby. If the cost of any Equipment or accessions
thereto is in excess of $250,000 or Tenant desires to make structural
alterations to any Related Premises, the prior written approval of Landlord and
Lender shall be required, such approval not to be unreasonably withheld,
delayed or conditioned. Tenant shall not construct upon the Land any
additional buildings without having first obtained the prior written consent of
Landlord and Lender. As to any Equipment that is replaced by Tenant, Tenant
shall have the right to apply any salvage value paid to Landlord toward the
cost of new Equipment.
(b) If Tenant makes any Alterations pursuant to
this Paragraph 13 or as required by Paragraph 12 or 17 (such Alterations and
actions being hereinafter collectively referred to as "Work"), then (i) the
market value of the Leased Premises shall not be lessened by any such Work or
its usefulness impaired, (ii) all such Work shall be performed by Tenant in a
good and workmanlike manner, (iii) all such Work shall be expeditiously
completed in compliance with all Legal Requirements, (iv) all such Work shall
comply with the requirements of all insurance policies required to be
maintained by Tenant hereunder, (v) if any such Work involves the replacement
of Equipment or parts thereto, all replacement Equipment or parts shall have a
value and useful life equal to the greater of (A) the value and useful life on
the date hereof of the Equipment being replaced or (B) the value and useful
life of the Equipment being replaced immediately prior to the occurrence of the
event which required its replacement (assuming such replaced Equipment was then
in the condition required by this Lease), (vi) Tenant shall promptly discharge
or remove all liens filed against any of the Leased Premises arising out of
such Work, (vii) Tenant shall procure and pay for all permits and licenses
required in connection with any such Work, (viii) all such Work shall be the
property of Landlord and shall be subject to this Lease, and Tenant shall
execute and deliver to Landlord any document requested by Landlord evidencing
the assignment to Landlord of all estate, right, title and interest (other than
the leasehold estate created hereby) of Tenant or any other Person thereto or
therein, and (ix) Tenant shall comply, to the extent requested by Landlord or
required by this Lease, with the provisions of Paragraph 19(a), whether or not
such Work involves restoration of the Leased Premises.
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14. Permitted Contests. Notwithstanding any other
provision of this Lease, Tenant shall not be required to (a) pay any
Imposition, (b) discharge or remove any lien referred to in Paragraph 11 or 13
or (c) take any action with respect to any encroachment, violation, hindrance,
obstruction or impairment referred to in Paragraph 12(b) (such non-compliance
with the terms hereof being hereinafter referred to collectively as "Permitted
Violations"), so long as at the time of such non-compliance no Event of Default
exists and so long as Tenant shall contest, in good faith, the existence,
amount or validity thereof, the amount of the damages caused thereby, or the
extent of its or Landlord's liability therefor by appropriate proceedings which
shall operate during the pendency thereof to prevent or stay (i) the collection
of, or other realization upon, the Permitted Violation so contested, (ii) the
sale, forfeiture or loss of any of the Leased Premises or any Rent to satisfy
or to pay any damages caused by any Permitted Violation, (iii) any interference
with the use or occupancy of any of the Leased Premises, (iv) any interference
with the payment of any Rent, (v) the cancellation or increase in the rate of
any insurance policy or a statement by the carrier that coverage will be denied
or (vi) the enforcement or execution of any injunction, order or Legal
Requirement with respect to the Permitted Violation. In the event of such
contest, Tenant shall provide Landlord security which, together with any
security that Tenant is obligated by Law to provide to third parties, is
satisfactory, in Landlord's reasonable judgment, to assure that such Permitted
Violation is corrected, including all Costs, interest and penalties that may be
incurred or become due in connection therewith. While any proceedings which
comply with the requirements of this Paragraph 14 are pending and the required
security is held by Landlord, Landlord shall not have the right to correct any
Permitted Violation thereby being contested unless Landlord is required by law
to correct such Permitted Violation and Tenant's contest does not prevent or
stay such requirement as to Landlord. Each such contest shall be promptly and
diligently prosecuted by Tenant to a final conclusion, except that Tenant, so
long as the conditions of this Paragraph 14 are at all times complied with, has
the right to attempt to settle or compromise such contest through negotiations.
Tenant shall pay any and all losses, judgments, decrees and Costs in connection
with any such contest and shall, promptly after the final determination of such
contest, fully pay and discharge the amounts which shall be levied, assessed,
charged or imposed or be determined to be payable therein or in connection
therewith, together with all penalties, fines, interest and Costs thereof or in
connection therewith, and perform all acts the performance of which shall be
ordered or decreed as a result thereof. No such contest shall subject Landlord
to the risk of any civil or criminal liability.
15. Indemnification.
(a) Tenant shall pay, protect, indemnify, defend,
save and hold harmless Landlord, Lender and all other Persons described in
Paragraph 30 (each an "Indemnitee") from and against any and all liabilities,
losses, damages (including punitive damages), penalties, Costs (including
attorneys' fees and costs),
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causes of action, suits, claims, demands or judgments of any nature whatsoever,
howsoever caused, without regard to the form of action and whether based on
strict liability, gross negligence, negligence or any other theory of recovery
at law or in equity, arising from (i) any matter pertaining to the
representations, warranties and covenants of Tenant with respect to the
acquisition (or the negotiations leading thereto) or ownership of the Leased
Premises, or pertaining to the use, non-use, occupancy, operation, management,
condition, design, construction, maintenance, repair or restoration of any of
the Leased Premises or Adjoining Property, (ii) any injury to or death of any
person or any loss of or damage to any property (including the Leased Premises)
in any manner arising from any of the Leased Premises or Adjoining Property,
whether or not Indemnitee has or should have knowledge or notice of any defect
or condition causing or contributing to said injury, death or loss, (iii) any
violation by Tenant of any provision of this Lease, any contract or agreement
to which Tenant is a party, any Legal Requirement or any Permitted Encumbrance
or (iv) any alleged, threatened or actual Environmental Violation, including
(A) liability for response costs and for costs of removal and remedial action
incurred by the United States Government, any state or local governmental unit
or any other Person, or damages from injury to or destruction or loss of
natural resources, including the reasonable costs of assessing such injury,
destruction or loss, incurred pursuant to Section 107 of CERCLA, or any
successor section or act or provision of any similar state or local Law, (B)
liability for costs and expenses of abatement, correction or clean-up, fines,
damages, response costs or penalties which arise from the provisions of any of
the other Environmental Laws and (C) liability for personal injury or property
damage arising under any statutory or common-law tort theory, including damages
assessed for the maintenance of a public or private nuisance or for carrying on
of a dangerous activity.
(b) In case any action or proceeding is brought
against any Indemnitee by reason of any such claim, (i) Tenant shall have the
right, except in the event of a conflict of interest or a dispute between
Tenant and any such Indemnitee or during the continuance of an Event of
Default, to defend such action or proceeding by retaining counsel reasonably
satisfactory to such Indemnitee, and such Indemnitee will cooperate and assist
in the defense of such action or proceeding if reasonably requested to do so by
Tenant (it being understood that in any such instance Landlord may employ
counsel of its choice to monitor the defense of any such action) or (ii) in the
event of a conflict of interest or a dispute or an Event of Default such
Indemnitee shall have the right to retain counsel at the sole cost and expense
of Tenant to resist or defend such action or proceeding.
(c) The obligations of Tenant under this
Paragraph 15 shall survive any termination, expiration or rejection in
bankruptcy of this Lease with respect to any matter that occurred or existed
prior to such termination, expiration or rejection.
16. Insurance.
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(a) Tenant shall maintain the following insurance
on or in connection with the Leased Premises:
(i) Insurance against physical loss or
damage to the Improvements and Equipment as provided under a standard "All
Risk" property policy including but not limited to flood (to the extent that a
Related Premises is in a flood zone) coverage in amounts not less than the
actual replacement cost of the Improvements and Equipment and earthquake
coverage in an amount not less than $5,000,000. Such policies (other than with
respect to the earthquake coverage) shall contain Replacement Cost and Agreed
Amount Endorsements and shall contain deductibles not more than $50,000 per
occurrence.
(ii) Commercial general liability
insurance against claims for personal and bodily injury, death or property
damage occurring on, in or as a result of the use of the Leased Premises, in an
amount not less than $10,000,000 per occurrence/annual aggregate and all
coverage extensions that are usual and customary for properties of this size
and type provided, however, that the Landlord shall have the right to require
such higher limits as may be reasonable and customary for properties of this
size and type.
(iii) Worker's compensation insurance
covering all persons employed by Tenant in connection with any work done on or
about any of the Leased Premises for which claims for death, disease or bodily
injury may be asserted against Landlord, Tenant or any of the Leased Premises
or, in lieu of such Worker's Compensation Insurance, a program of
self-insurance complying with the rules, regulations and requirements of the
appropriate agency of the State.
(iv) Comprehensive boiler and machinery
insurance on any of the Equipment or any other equipment on or in the Leased
Premises including but not limited to service interruption, expediting
expenses, ammonia contamination, hazardous clean-up and comprehensive object
definition, in an amount not less than $5,000,000 for damage to property
resulting from such covered perils as found in a standard comprehensive boiler
& machinery policy; provided, that such policies may contain sublimits in such
lesser amounts as shall be reasonably acceptable to Landlord with respect to
service interruption, expediting expenses, ammonia contamination and hazardous
materials. Such policies shall contain a deductible not to exceed $100,000.
(v) Business Income/Interruption
Insurance to include Loss of Rents at limits sufficient to cover 100% of the
annual rental income with a period of indemnity not less than one year from the
time of loss.
(vi) During any period in which
substantial Alterations at any Related Premises are being undertaken, builder's
risk insurance covering the total completed value including any "soft costs"
with respect to the Improvements being
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altered or repaired (on a completed value, non-reporting basis), replacement
cost of work performed and equipment, supplies and materials furnished in
connection with such construction or repair of Improvements or Equipment,
together with such "soft cost" endorsements and such other endorsements as
Landlord may reasonably require and general liability, worker's compensation
and automobile liability insurance with respect to the Improvements being
constructed, altered or repaired.
(vii) Such other insurance (or other terms
with respect to any insurance required pursuant to this Paragraph 16, including
without limitation amounts of coverage, deductibles, form of mortgagee clause)
on or in connection with any of the Leased Premises, which at the time is usual
and commonly obtained in connection with properties similar in type of building
size, use and location to the Leased Premises.
(b) The insurance required by Paragraph 16(a)
shall be written by companies which have a Best's rating of A:X or above (or an
equivalent rating based on insurance standards then in effect) and are approved
to write insurance policies by the State Insurance Department for the State.
The insurance policies shall be in amounts sufficient at all times to satisfy
any coinsurance requirements thereof. The insurance referred to in Paragraphs
16(a)(i), 16(a)(iv) and 16(a)(vi) shall name Landlord as Owner and Lender as
loss payee and Tenant as its interest may appear under this Lease. The
insurance referred to in Paragraph 16(a)(ii) shall name Landlord and Lender as
additional insureds, and the insurance referred to in Paragraph 16(a)(v) shall
name Landlord as insured and Lender and Landlord as loss payee solely with
respect to Rent payable to or for the benefit of Landlord under this Lease. If
said insurance or any part thereof shall expire, be withdrawn, become void,
voidable, unreliable or unsafe for any reason, including a breach of any
condition thereof by Tenant or the failure or impairment of the capital of any
insurer, or if for any other reason whatsoever said insurance shall become
reasonably unsatisfactory to Landlord, Tenant shall immediately obtain new or
additional insurance reasonably satisfactory to Landlord.
(c) Each insurance policy referred to in clauses
(i), (iv), (v) and (vi) of Paragraph 16(a) shall contain standard
non-contributory mortgagee clauses in favor of and acceptable to Lender. Each
policy required by any provision of Paragraph 16(a), except clause (iii)
thereof, shall provide that it may not be cancelled except after thirty (30)
days' prior notice to Landlord and Lender unless the reason for cancellation is
nonpayment, in which event the notice period shall be ten (10) days. Each such
policy shall also provide that any loss otherwise payable thereunder shall be
payable notwithstanding (i) any act or omission of Landlord or Tenant which
might, absent such provision, result in a forfeiture of all or a part of such
insurance payment, (ii) the occupation or use of any of the Leased Premises for
purposes more hazardous than those permitted by the provisions of such policy,
(iii) any foreclosure or other action or proceeding taken by Lender pursuant
to any provision of the Mortgage, Note,
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Assignment or other document evidencing or securing the Loan upon the happening
of an event of default therein or (iv) any change in title to or ownership of
any of the Leased Premises.
(d) Tenant shall pay as they become due all
premiums for the insurance required by Paragraph 16(a), shall renew or replace
each policy and deliver to Landlord evidence of the payment of the full premium
therefor or installment then due at least five (5) days prior to the expiration
date of such policy, and shall promptly deliver to Landlord certificates of
insurance and, within fifteen (15) days following the written request of
Landlord, all original policies or certified copies thereof. In the event of
Tenant's failure to comply with any of the foregoing requirements, Landlord
shall be entitled, but not obligated, to procure such insurance. Any sums
expended by Landlord in procuring such insurance shall be Additional Rent and
shall be repaid by Tenant immediately upon written demand therefor and upon
submission of evidence of Landlord's payment of such sums, together with
interest at the Default Rate from the date of such demand by Landlord until
paid by Tenant.
(e) Anything in this Paragraph 16 to the contrary
notwithstanding, any insurance which Tenant is required to obtain pursuant to
Paragraph 16(a) may be carried under a "blanket" or umbrella policy or policies
covering other properties or liabilities of Tenant, provided that such
"blanket" or umbrella policy or policies otherwise comply with the provisions
of this Paragraph 16. Tenant shall promptly deliver to Landlord certificates
of insurance with respect to each "blanket" or umbrella policy and, within
fifteen (15) days following the written request of Landlord, original policies
or certified copies thereof.
(f) Tenant shall have the replacement cost and
insurable value of the Improvements and Equipment determined from time to time
as required by the replacement cost and agreed amount endorsements and shall
deliver to Landlord the new replacement cost and agreed amount endorsement or
certificate evidencing such endorsement promptly upon Tenant's receipt thereof.
(g) Tenant shall promptly comply with and conform
to (i) all provisions of each insurance policy required by this Paragraph 16
and (ii) all requirements of the insurers thereunder applicable to Landlord,
Tenant or any of the Leased Premises or to the use, manner of use, occupancy,
possession, operation, maintenance, alteration or repair of any of the Leased
Premises, even if such compliance necessitates Alterations or results in
interference with the use or enjoyment of any of the Leased Premises.
(h) Tenant shall not carry separate insurance
concurrent in form or contributing in the event of a Casualty with that
required in this Paragraph 16 unless (i) Landlord and Lender are included
therein as named insureds, with loss payable as provided herein, and (ii) such
separate insurance complies with the other provisions of this Paragraph 16.
Tenant shall
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immediately notify Landlord of such separate insurance and shall deliver to
Landlord the original policies or certified copies therefor.
(i) All policies shall contain effective waivers
by the carrier against all claims for insurance premiums against Landlord and
shall contain full waivers of subrogation against the Landlord.
(j) All proceeds of any insurance required under
Paragraph 16(a) shall be payable as follows:
(i) Except for proceeds payable to a
Person other than Landlord, Tenant or Lender, all proceeds of insurance
required under clauses (ii), (iii), (iv) and (vii) of Paragraph 16(a), proceeds
of insurance required under clause (v) of Paragraph 16(a) with respect to Rent
payable to or for the benefit of Landlord under this Lease and proceeds
attributable to the general liability coverage provisions of Builder's Risk
insurance under clause (vi) of Paragraph 16(a) shall be payable to Landlord or,
if required by the Mortgage, to Lender.
(ii) Proceeds of insurance required under
clause (i) of Paragraph 16(a) and proceeds attributable to Builder's Risk
insurance (other than its general liability coverage provisions) under clause
(vi) of Paragraph 16(a) up to and including $250,000 shall be payable to Tenant
so long as no Event of Default exists and in excess of $250,000 shall be
payable to Landlord (or Lender) and applied as set forth in Paragraph 17.
Tenant shall apply the Net Award to restoration of the Leased Premises in
accordance with the applicable provisions of this Lease.
(iii) Each insurer is hereby authorized
and directed to make payment under said policies, including return of unearned
premiums, to the extent allocable to the Leased Premises, directly to Landlord
or, if required by the Mortgage, to Lender instead of to Landlord and Tenant
jointly, and Tenant hereby appoints each of Landlord and Lender as Tenant's
attorneys-in-fact to endorse any draft therefor; provided, however, that if no
Event of Default exists, proceeds up to and including $250,000 shall be paid to
Tenant, unless Tenant has delivered a Termination Notice.
17. Casualty and Condemnation.
(a) If any Casualty to any Related Premises
occurs, Tenant shall give Landlord and Lender immediate notice thereof. So
long as no Event of Default exists Tenant is hereby authorized to adjust,
collect and compromise all claims under any of the insurance policies required
by Paragraph 16(a) (except public liability insurance claims payable to a
Person other than Tenant, Landlord or Lender) and to execute and deliver on
behalf of Landlord all necessary proofs of loss, receipts, vouchers and
releases required by the insurers and Landlord shall have the right to join
with Tenant therein. Any final adjustment,
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settlement or compromise of any such claim shall be subject to the prior
written approval of Landlord, which shall not be unreasonably withheld or
delayed, and Landlord shall have the right to prosecute or contest, or to
require Tenant to prosecute or contest, any such claim, adjustment, settlement
or compromise. If an Event of Default exists, Tenant shall not be entitled to
adjust, collect or compromise any such claim or to participate with Landlord in
any adjustment, collection and compromise of the Net Award payable in
connection with a Casualty. Tenant agrees to sign, upon the reasonable request
of Landlord, all such proofs of loss, receipts, vouchers and releases. Except
as specifically provided in Paragraph 16(j) hereof, each insurer is hereby
authorized and directed to make payment under said policies, including return
of unearned premiums, directly to Landlord or, if required by the Mortgage, to
Lender instead of to Landlord and Tenant jointly, and Tenant hereby appoints
each of Landlord and Lender as Tenant's attorneys-in-fact to endorse any draft
therefor. The rights of Landlord under this Paragraph 17(a) shall be extended
to Lender if and to the extent that any Mortgage so provides.
(b) Tenant, immediately upon receiving a
Condemnation Notice, shall notify Landlord and Lender thereof. So long as no
Event of Default exists, Tenant is authorized to collect, settle and compromise
the amount of any Net Award and Landlord shall have the right to join with
Tenant herein. If an Event of Default exists, Landlord shall be authorized to
collect, settle and compromise the amount of any Net Award and Tenant shall not
be entitled to participate with Landlord in any Condemnation proceeding or
negotiations under threat thereof or to contest the Condemnation or the amount
of the Net Award therefor. No agreement with any condemnor in settlement or
under threat of any Condemnation shall be made by Tenant without the written
consent of Landlord which shall not be unreasonably withheld, conditioned or
delayed. Subject to the provisions of this Paragraph 17(b), Tenant hereby
irrevocably assigns to Landlord any award or payment to which Tenant is or may
be entitled by reason of any Condemnation, whether the same shall be paid or
payable for Tenant's leasehold interest hereunder or otherwise; but nothing in
this Lease shall impair Tenant's right to any award or payment on account of
Tenant's trade fixtures, equipment or other tangible property which is not part
of the Equipment, moving expenses or loss of business, if available, to the
extent that and so long as (i) Tenant shall have the right to make, and does
make, a separate claim therefor against the condemnor and (ii) such claim does
not in any way reduce either the amount of the award otherwise payable to
Landlord for the Condemnation of Landlord's fee interest in the Leased Premises
or the amount of the award (if any) otherwise payable for the Condemnation of
Tenant's leasehold interest hereunder. The rights of Landlord under this
Paragraph 17(b) shall also be extended to Lender if and to the extent that any
Mortgage so provides.
(c) If any Partial Casualty (whether or not
insured against) or Partial Condemnation shall occur to any Related Premises,
this Lease shall continue, notwithstanding such
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event, and there shall be no abatement or reduction of any Monetary
Obligations. Promptly after such Partial Casualty or Partial Condemnation,
Tenant, as required in Paragraph 12(a), shall commence and diligently continue
to restore the Leased Premises as nearly as possible to their value, condition
and character immediately prior to such event (assuming the Leased Premises to
have been in the condition required by this Lease). So long as no Event of
Default exists, any Net Award up to and including $250,000 shall be paid by
Landlord to Tenant and Tenant shall restore the Leased Premises in accordance
with the requirements of Paragraph 13(b) of this Lease. Any Net Award in
excess of $250,000 shall (unless such Casualty resulting in the Net Award is a
Termination Event) be made available by Landlord (or Lender if the terms of the
Mortgage so require) to Tenant for the restoration of any of the Leased
Premises pursuant to and in accordance with and subject to the provisions of
Paragraph 19 hereof. If any Casualty or Condemnation which is not a Partial
Casualty or Partial Condemnation shall occur, Tenant shall comply with the
terms and conditions of Paragraph 18.
18. Termination Events.
(a) If (i) all of any Related Premises shall be
taken by a Condemnation or (ii) any substantial portion of any Related Premises
shall be taken by a Condemnation or all or any substantial portion of any
Related Premises shall be totally damaged or destroyed by a Casualty and, in
any such case, Tenant certifies and covenants to Landlord that it will forever
abandon operations at the Related Premises so taken or damaged, (any one or all
of the Related Premises described in the above clauses (i) and (ii) above being
hereinafter referred to as the "Affected Premises" and each of the events
described in the above clauses (i) and (ii) shall hereinafter be referred to as
a "Termination Event"), then (x) in the case of (i) above, Tenant shall be
obligated, within thirty (30) days after Tenant receives a Condemnation Notice
and (y) in the case of (ii) above, Tenant shall have the option, within thirty
(30) days after Tenant receives a Condemnation Notice or thirty (30) days after
the Casualty, as the case may be, to give to Landlord written notice (a
"Termination Notice") of the Tenant's option (A) to terminate this Lease as to
the Affected Premises in the form described in Paragraph 18(b).
(b) A Termination Notice shall contain (i) notice
of Tenant's intention to terminate this Lease as to the Affected Premises on
the first Basic Rent Payment Date which occurs at least ninety (90) days after
the Fair Market Value Date (the "Termination Date"), (ii) a binding and
irrevocable offer of Tenant to pay the Termination Amount and (iii) if the
Termination Event is an event described in Paragraph 18(a)(ii), the
certification and covenant described therein and a certified resolution of the
Board of Directors of Tenant authorizing the same. Promptly upon the delivery
to Landlord of a Termination Notice, Landlord and Tenant shall commence to
determine Fair Market Value.
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(c) If Landlord shall reject such offer to
terminate this Lease as to the Affected Premises by written notice to Tenant (a
"Rejection"), which Rejection shall contain the written consent of Lender, not
later than thirty (30) days following the Fair Market Value Date, then this
Lease shall terminate as to the Affected Premises on the Termination Date;
provided that, if Tenant has not satisfied all Monetary Obligations and all
other obligations and liabilities under this Lease which have arisen as to the
Affected Property (collectively, "Remaining Obligations") on or prior to the
Termination Date, then Landlord may, at its option, extend the date on which
this Lease may terminate as to the Affected Premises to a date which is no
later than the first Basic Rent Payment Date after the Termination Date on
which Tenant has satisfied all Remaining Obligations. Upon such termination
(i) all obligations of Tenant hereunder as to the Affected Premises shall
terminate except for any Surviving Obligations, (ii) Tenant shall immediately
vacate and shall have no further right, title or interest in or to any of the
Affected Premises and (iii) the Net Award shall be retained by Landlord.
Notwithstanding anything to the contrary hereinabove contained, if Tenant shall
have received a Rejection and, on the date when this Lease would otherwise
terminate as provided above, Landlord shall not have received the full amount
of the Net Award payable by reason of the applicable Termination Event, then
the date on which this Lease is to terminate automatically shall be extended to
the first Basic Rent Payment Date after the receipt by Landlord of the full
amount of the Net Award provided that, if Tenant has not satisfied all
Remaining Obligations on such date, then Landlord may, at its option, extend
the date on which this Lease may terminate to a date which is no later than the
first Basic Rent Payment Date after such date on which Tenant has satisfied all
such Remaining Obligations.
(d) Unless Tenant shall have received a Rejection
not later than the thirtieth (30th) day following the Fair Market Value Date,
Landlord shall be conclusively presumed to have accepted such offer. If such
offer is accepted by Landlord then, on the Termination Date, Tenant shall pay
to Landlord the Termination Amount, less any credit of the Net Award received
and retained by Landlord or Lender and allowed against the Relevant Amount, and
all Remaining Obligations and, if requested by Tenant, Landlord shall convey to
Tenant or its designee the Affected Premises or the remaining portion thereof,
if any, all in accordance with Paragraph 20.
(e) In the event of the termination of this Lease
as to the Affected Premises as hereinabove provided, this Lease shall remain in
full force and effect as to the Remaining Premises; provided, that the Basic
Rent for the Remaining Premises to be paid after such termination shall be the
Basic Rent otherwise payable hereunder with respect to the Leased Premises
multiplied by a percentage equal to the sum of the percentages set forth on
Exhibit "F" for the Remaining Premises.
19. Restoration.
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(a) Landlord (or Lender if required by any
Mortgage) shall hold any Net Award in excess of $250,000 in a fund (the
"Restoration Fund") and disburse amounts from the Restoration Fund only in
accordance with the following conditions:
(i) prior to commencement of
restoration, (A) the architects, contracts, contractors, plans and
specifications for the restoration shall have been approved by Landlord, and
(B) Landlord and Lender shall be provided with acceptable performance and
payment bonds which insure satisfactory completion of and payment for the
restoration, are in an amount and form and have a surety acceptable to
Landlord, and name Landlord and Lender as additional dual obligees.
(ii) at the time of any disbursement, no
Event of Default shall exist and no mechanics' or materialmen's liens shall
have been filed against any of the Leased Premises and remain undischarged,
unless such mechanic's or materialmen's lien shall have been bonded or
otherwise secured in a manner satisfactory to Landlord;
(iii) disbursements shall be made from
time to time in an amount not exceeding the cost of the work completed since
the last disbursement, upon receipt of (A) satisfactory evidence, including
architects' certificates, of the stage of completion, the estimated total cost
of completion and performance of the work to date in a good and workmanlike
manner in accordance with the contracts, plans and specifications, (B) waivers
of liens, (C) contractors' and subcontractors' sworn statements as to completed
work and the cost thereof for which payment is requested, (D) evidence
satisfactory to Landlord with respect to the absence of any additional liens or
encumbrances and (E) other evidence of cost and payment so that Landlord and
Lender can verify that the amounts disbursed from time to time are represented
by work that is completed, in place and free and clear of mechanics' and
materialmen's lien claims;
(iv) each request for disbursement shall
be accompanied by a certificate of Tenant, signed by the president or a vice
president of Tenant, describing the work for which payment is requested,
stating the cost incurred in connection therewith, stating that Tenant has not
previously received payment for such work and, upon completion of the work,
also stating that the work has been fully completed and complies with the
applicable requirements of this Lease;
(v) Landlord may retain ten percent
(10%) of the Restoration Fund until the restoration is fully completed;
(vi) the Restoration Fund shall not be
commingled with Landlord's other funds and shall bear interest at a rate agreed
to by Landlord and Tenant; and
(vii) such other reasonable conditions as
Landlord or Lender may impose.
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(b) Prior to commencement of restoration and at
any time during restoration, if the estimated cost of completing the
restoration work free and clear of all liens, as reasonably determined by
Landlord, exceeds the amount of the Net Award available for such restoration,
the amount of such excess shall, upon demand by Landlord, be paid by Tenant to
Landlord to be added to the Restoration Fund. Any sum so added by Tenant which
remains in the Restoration Fund upon completion of restoration shall be
refunded to Tenant. For purposes of determining the source of funds with
respect to the disposition of funds remaining after the completion of
restoration, the Net Award shall be deemed to be disbursed prior to any amount
added by Tenant.
(c) If any sum remains in the Restoration Fund
after completion of the restoration and any refund to Tenant pursuant to
Paragraph 19(b), such sum shall be retained by Landlord or, if required by a
Note or Mortgage, paid by Landlord to a Lender.
20. Procedures Upon Purchase.
(a) If the Leased Premises or any of the Related
Premises are purchased by Tenant pursuant to any provision of this Lease,
Landlord need not convey any better title thereto than that which was conveyed
to Landlord, and Tenant or its designee shall accept such title, subject,
however, to the Permitted Encumbrances and to all other liens, exceptions and
restrictions on, against or relating to any of the Leased Premises or the
applicable Related Premises and to all applicable Laws, but free of the lien of
and security interest created by any Mortgage or Assignment and liens,
exceptions and restrictions on, against or relating to the Leased Premises or
the applicable Related Premises which have been created by or resulted solely
from acts of Landlord after the date of this Lease, unless the same are
Permitted Encumbrances or customary utility easements benefiting the Leased
Premises or were created with the concurrence of Tenant or as a result of a
default by Tenant under this Lease.
(b) Upon the date fixed for any such purchase of
the Leased Premises or any of the Related Premises pursuant to any provision of
this Lease (any such date the "Purchase Date"), Tenant shall pay to Landlord,
or to any Person to whom Landlord directs payment, the Relevant Amount therefor
specified herein, in Federal Funds, less any credit of the Net Award received
and retained by Landlord or a Lender allowed against the Relevant Amount, and
Landlord shall deliver to Tenant (i) a special warranty deed which describes
the premises being conveyed and conveys the title thereto as provided in
Paragraph 20(a), (ii) such other instruments as shall be necessary to transfer
to Tenant or its designee any other property (or rights to any Net Award not
yet received by Landlord or a Lender) then required to be sold by Landlord to
Tenant pursuant to this Lease and (iii) any Net Award received by Landlord, not
credited to Tenant against the Relevant Amount and required to be delivered by
Landlord to Tenant pursuant to this Lease; provided, that if any Monetary
Obligations remain outstanding on such date, then Landlord may deduct from the
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Net Award the amount of such Monetary Obligations. If on the Purchase Date any
Monetary Obligations remain outstanding and no Net Award is payable to Tenant
by Landlord or the amount of such Net Award is less than the amount of the
Monetary Obligations, then Tenant shall pay to Landlord on the Purchase Date
the amount of such Monetary Obligations. Upon the completion of such purchase,
this Lease and all obligations and liabilities of Tenant hereunder with respect
to the applicable Related Premises (but not with respect to the Remaining
Premises) shall terminate, except any Surviving Obligations.
(c) If the completion of such purchase shall be
delayed after (i) the Termination Date, in the event of a purchase pursuant to
Paragraph 18 or, (ii) the date scheduled for such purchase, in the event of a
purchase under any other provision of this Lease then (x) Rent shall continue
to be due and payable until completion of such purchase and (y) at Landlord's
sole option, Fair Market Value shall be redetermined and the Relevant Amount
payable by Tenant pursuant to the applicable provision of this Lease shall be
adjusted to reflect such redetermination.
(d) Any prepaid Monetary Obligations paid to
Landlord shall be prorated as of the Purchase Date, and the prorated unapplied
balance shall be deducted from the Relevant Amount due to Landlord; provided,
that no apportionment of any Impositions shall be made upon any such purchase.
21. Assignment and Subletting; Prohibition against
Leasehold Financing.
(a) Except as specifically provided in this
Paragraph 21, Tenant may not assign this Lease, voluntarily or involuntarily,
whether by operation of law or otherwise, or sublet any of the Related Premises
at any time to any other Person without the prior written consent of Landlord,
and any such purported assignment or sublease shall be null and void.
(b) Notwithstanding the foregoing, Tenant shall
have the right, upon thirty (30) days prior written notice to Landlord and
Lender, with no consent of Landlord or Lender being required or necessary, to
sublet any Related Premises or assign this Lease to any Person (a "Preapproved
Assignee") that (i) is a wholly owned subsidiary of Tenant or a Person that
controls, is controlled by, or under common control with Tenant or that (ii)
immediately following such assignment will have a publicly traded unsecured
senior debt rating of "A" or better from Moody's Investors Service, Inc. or a
rating of "A" or better from Standard & Poor's Corporation, or in the event all
of such rating agencies cease to furnish such ratings, then a comparable rating
by any rating agency reasonably acceptable to Landlord and Lender.
(c) If Tenant desires to assign this Lease to a
Person who would not be a Preapproved Assignee, then Tenant shall not less than
forty-five (45) days prior to the date on which it desires to make such
assignment, submit to Landlord or Lender information regarding the following
with respect to such assignee,
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(i) credit, (2) capital structure, (3) management, (4) operating history and
(5) the proposed use of the Leased Premises such as environmental concerns.
Landlord's and Lender's consent to such assignment shall not be unreasonably
withheld and shall be based on their review of the foregoing criteria.
(d) No Related Premises shall be subleased during
the Term to any other Person without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed, and which consent
shall be granted or withheld based on a review of the proposed use of the
sublet portion of the Improvements, taking into account factors related to the
proposed subtenant's use of the applicable Related Premises, such as
environmental concerns.
(e) If Tenant assigns all its rights and interest
under this Lease, the assignee under such assignment shall expressly assume all
the obligations of Tenant hereunder, actual or contingent, including
obligations of Tenant which may have arisen on or prior to the date of such
assignment, by a written instrument delivered to Landlord at the time of such
assignment. Each sublease of any of the Related Premises shall be subject and
subordinate to the provisions of this Lease. No assignment or sublease made as
permitted by this Paragraph 21 shall affect or reduce any of the obligations of
Tenant hereunder, and all such obligations shall continue in full force and
effect as obligations of a principal and not as obligations of a guarantor, as
if no assignment or sublease had been made. No assignment or sublease shall
impose any additional obligations on Landlord under this Lease.
(f) Tenant shall, within ten (10) days after the
execution and delivery of any assignment or sublease consented to by Landlord
or to which no consent is required or necessary, deliver a duplicate original
copy thereof to Landlord which, in the event of an assignment, shall be in
recordable form.
(g) As security for performance of its
obligations under this Lease, Tenant hereby grants, conveys and assigns to
Landlord all right, title and interest of Tenant in and to all subleases now in
existence or hereafter entered into for any or all of the Leased Premises, any
and all extensions, modifications and renewals thereof and all rents, issues
and profits therefrom. Landlord hereby grants to Tenant a license to collect
and enjoy all rents and other sums of money payable under any sublease of any
of the Leased Premises, provided, however, that Landlord shall have the
absolute right at any time following the occurrence of an Event of Default to
revoke said license and to collect such rents and sums of money and to retain
the same. Tenant shall not consent to, cause or allow any modification or
alteration of any of the terms, conditions or covenants of any of the subleases
or the termination thereof, without the prior written approval of Landlord
which consent shall not be unreasonably withheld nor shall Tenant accept any
rents more than thirty (30) days in advance of the accrual thereof nor do nor
permit anything to be done, the doing of which, nor omit or refrain from doing
anything,
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the omission of which, will or could be a breach of or default in the terms of
any of the subleases.
(h) Tenant shall not have the power to mortgage,
pledge or otherwise encumber its interest under this Lease or any sublease of
any of the Related Premises, and any such mortgage, pledge or encumbrance made
in violation of this Paragraph 21 shall be void.
22. Events of Default.
(a) The occurrence of any one or more of the
following (after expiration of any applicable cure period as provided in
Paragraph 22(b)) shall, at the sole option of Landlord, constitute an "Event of
Default" under this Lease:
(i) a failure by Tenant to make any
payment of any Monetary Obligation, regardless of the reason for such failure;
(ii) a failure by Tenant duly to perform
and observe, or a violation or breach of, any other provision hereof not
otherwise specifically mentioned in this Paragraph 22(a);
(iii) any representation or warranty made
by Tenant herein or in any certificate, demand or request made pursuant hereto
proves to be incorrect, now or hereafter, in any material respect as of the
date made;
(iv) Tenant shall (A) voluntarily be
adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of
a receiver or trustee for itself or for any of the Related Premises, (C) file a
petition seeking relief under the bankruptcy or other similar laws of the
United States, any state or any jurisdiction, (D) make a general assignment
for the benefit of creditors, or (E) be unable to pay its debts as they mature;
(v) a court shall enter an order,
judgment or decree appointing, without the consent of Tenant, a receiver or
trustee for it or for any of the Related Premises or approving a petition filed
against Tenant which seeks relief under the bankruptcy or other similar laws of
the United States, any state or any jurisdiction, and such order, judgment or
decree shall remain undischarged or unstayed sixty (60) days after it is
entered;
(vi) any one (1) of the buildings
constituting a part of the Improvements shall have been vacated or any of such
buildings shall have been abandoned;
(vii) the estate or interest of Tenant in
any of the Related Premises shall be levied upon or attached in any proceeding
and such estate or interest is about to be sold or transferred or such process
shall not be vacated or discharged within sixty (60) days after it is made;
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(viii) an Event of Default (as defined in
the Guaranty) beyond any applicable cure period shall occur under the Guaranty;
or
(ix) a failure by Tenant to perform or
observe, or a violation or breach or a misrepresentation by Tenant under, any
provision of an Assignment or any other document between Tenant and Lender
beyond any notice and cure period provided for therein, if such failure,
violation, breach or misrepresentation gives rise to a default beyond any
applicable cure period with respect to any Loan.
(b) No notice or cure period shall be required in
any one or more of the following events: (A) the occurrence of an Event of
Default under clause (i) (except as otherwise set forth below), (iii) (except
as otherwise set forth below), (iv), (v), (vi), (vii), (viii) or (ix) of
Paragraph 22(a); (B) the default consists of a failure to provide any insurance
required by Paragraph 16 or an assignment or sublease entered into in violation
of Paragraph 21; or (C) the default is such that any delay in the exercise of a
remedy by Landlord could reasonably be expected to cause irreparable harm to
Landlord. If the default consists of the failure to pay any Monetary
Obligation under clause (i) of Paragraph 22(a), the applicable cure period
shall be three (3) days from the date on which notice is given, but Landlord
shall not be obligated to give notice of, or allow any cure period for, any
such default more than one (1) time with respect to the payment of Basic Rent
or more than one (1) time with respect to any other Monetary Obligation within
any consecutive twelve (12) month period. If the default consists of a default
under clause (ii) of Paragraph 22(a), other than the events specified in
clauses (B) and (C) of the first sentence of this Paragraph 22(b), or a
default under clause (iii) of Paragraph 22(a) to the extent that the
representation that proves to be incorrect relates to clause (ii) of Paragraph
3(c), is reasonably susceptible of cure and is not otherwise an event specified
in clause (C) above, the applicable cure period shall be twenty (20) days from
the date on which notice is given or, if the default cannot be cured within
such twenty (20) day period and delay in the exercise of a remedy would not (in
Landlord's reasonable judgment) cause any material adverse harm to Landlord or
any of the Leased Premises, the cure period shall be extended for the period
required to cure the default (but such cure period, including any extension,
shall not in the aggregate exceed sixty (60) days), provided that Tenant shall
commence to cure the default within the said twenty-day period and shall
actively, diligently and in good faith proceed with and continue the curing of
the default until it shall be fully cured.
23. Remedies and Damages Upon Default.
(a) If an Event of Default shall have occurred
and is continuing, Landlord shall have the right, at its sole option, then or
at any time thereafter, to exercise its remedies and to collect damages from
Tenant in accordance with this Paragraph 23, subject in all events to
applicable Law, without demand upon or
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notice to Tenant except as otherwise provided in Paragraph 22(b) and this
Paragraph 23.
(i) Landlord may give Tenant notice of
Landlord's intention to terminate this Lease on a date specified in such
notice. Upon such date, this Lease, the estate hereby granted and all rights
of Tenant hereunder shall expire and terminate. Upon such termination, Tenant
shall immediately surrender and deliver possession of the Leased Premises to
Landlord in accordance with Paragraph 26. If Tenant does not so surrender and
deliver possession of all of the Leased Premises, Landlord may re-enter and
repossess any of the Leased Premises not surrendered, with or without legal
process, by peaceably entering any of the Leased Premises and changing locks or
by summary proceedings, ejectment or any other lawful means or procedure. Upon
or at any time after taking possession of any of the Leased Premises, Landlord
may, by peaceable means or legal process, remove any Persons or property
therefrom. Landlord shall be under no liability for or by reason of any such
entry, repossession or removal. Notwithstanding such entry or repossession,
Landlord may (A) exercise the remedy set forth in and collect the damages
permitted by Paragraph 23(a)(iii) or (B) collect the damages set forth in
Paragraph 23(b)(i) or 23(b)(ii).
(ii) After repossession of any of the
Leased Premises pursuant to clause (i) above, Landlord shall have the right to
relet any of the Leased Premises to such tenant or tenants, for such term or
terms, for such rent, on such conditions and for such uses as Landlord in its
sole discretion may determine, and collect and receive any rents payable by
reason of such reletting. Landlord may make such Alterations in connection
with such reletting as it may deem advisable in its sole discretion.
Notwithstanding any such reletting, Landlord may collect the damages set forth
in Paragraph 23(b)(ii).
(iii) Landlord may, upon notice to Tenant,
require Tenant to make an irrevocable offer to terminate this Lease in its
entirety for an amount (the "Default Termination Amount") specified in the next
sentence. The "Default Termination Amount" shall be the greatest of (A) the
Fair Market Value of the Leased Premises or (B) the sum of the Acquisition Cost
and Prepayment Premium which Landlord will be required to pay in prepaying any
Loan with proceeds of the Default Termination Amount or (C) an amount equal to
the Present Value of the entire Basic Rent from the date of such purchase to
the date on which the then Term would expire, assuming that the Term has been
extended for all extension periods, if any, provided for in this Lease. Upon
such notice to Tenant, Tenant shall be deemed to have made such offer and
shall, if requested by Landlord, within ten (10) days following such request,
deposit with Landlord as payment against the Default Termination Amount the
amount described in (B) above, Landlord and Tenant shall promptly commence to
determine Fair Market Value. Within thirty (30) days after the Fair Market
Value Date, Landlord shall accept or reject such offer. If Landlord accepts
such offer then, on the tenth (10th) business day after such acceptance, Tenant
shall pay to Landlord the Default
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Termination Amount and, at the request of Tenant, Landlord will convey the
Leased Premises to Tenant or its designee in accordance with Paragraph 20. Any
rejection by Landlord of such offer shall have no effect on any other remedy
Landlord may have under this Lease.
(iv) Landlord may declare by notice to
Tenant the entire Basic Rent (in the amount of Basic Rent then in effect) for
the remainder of the then current Term to be immediately due and payable.
Tenant shall immediately pay to Landlord all such Basic Rent discounted to its
Present Value, all accrued Rent then due and unpaid, all other Monetary
Obligations which are then due and unpaid and all Monetary Obligations which
arise or become due by reason of such Event of Default (including any Costs of
Landlord). Upon receipt by Landlord of all such accelerated Basic Rent and
Monetary Obligations, this Lease shall remain in full force and effect and
Tenant shall have the right to possession of the Leased Premises from the date
of such receipt by Landlord to the end of the Term, and subject to all the
provisions of this Lease, including the obligation to pay all increases in
Basic Rent and all Monetary Obligations that subsequently become due, except
that (A) no Basic Rent which has been prepaid hereunder shall be due thereafter
during the said Term and (B) Tenant shall have no option to extend or renew the
Term.
(b) The following constitute damages to which
Landlord shall be entitled if Landlord exercises its remedies under Paragraph
23(a)(i) or 23(a)(ii):
(i) If Landlord exercises its remedy
under Paragraph 23(a)(i) but not its remedy under Paragraph 23(a)(ii) (or
attempts to exercise such remedy and is unsuccessful in reletting the Leased
Premises) then, upon written demand from Landlord, Tenant shall pay to
Landlord, as liquidated and agreed final damages for Tenant's default and in
lieu of all current damages beyond the date of such demand (it being agreed
that it would be impracticable or extremely difficult to fix the actual
damages), an amount equal to the Present Value of the excess, if any, of (A)
all Basic Rent from the date of such demand to the date on which the Term is
scheduled to expire hereunder in the absence of any earlier termination,
re-entry or repossession over (B) the then fair market rental value of the
Leased Premises for the same period. Tenant shall also pay to Landlord all of
Landlord's reasonable and customary Costs in connection with the repossession
of the Leased Premises and any attempted reletting thereof.
(ii) If Landlord exercises its remedy
under Paragraph 23(a)(i) or its remedies under Paragraph 23(a)(i) and
23(a)(ii), then Tenant shall, until the end of what would have been the Term in
the absence of the termination of the Lease, and whether or not any of the
Leased Premises shall have been relet, be liable to Landlord for, and shall pay
to Landlord, as liquidated and agreed current damages on the date on which the
same are due and payable under the terms of this Lease all Monetary Obligations
which would be payable under this Lease by
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Tenant in the absence of such termination less the net proceeds, if any, of any
reletting pursuant to Paragraph 23(a)(ii), after deducting from such proceeds
all of Landlord's Costs (including the items listed in the last sentence of
Paragraph 23(b)(i) hereof) incurred in connection with such repossessing and
reletting; provided, that if Landlord has not relet the Leased Premises, such
Costs of Landlord shall be considered to be Monetary Obligations payable by
Tenant. Tenant shall be and remain liable for all sums aforesaid, and Landlord
may recover such damages from Tenant and institute and maintain successive
actions or legal proceedings against Tenant for the recovery of such damages.
Nothing herein contained shall be deemed to require Landlord to wait to begin
such action or other legal proceedings until the date when the Term would have
expired by its own terms had there been no such Event of Default.
(c) Notwithstanding anything to the contrary
herein contained, in lieu of or in addition to any of the foregoing remedies
and damages, Landlord may exercise any remedies and collect any damages
available to it at law or in equity. If Landlord is unable to obtain full
satisfaction pursuant to the exercise of any remedy, it may pursue any other
remedy which it has hereunder or at law or in equity.
(d) Landlord shall not be required to mitigate
any of its damages hereunder unless required to by applicable Law. If any Law
shall validly limit the amount of any damages provided for herein to an amount
which is less than the amount agreed to herein, Landlord shall be entitled to
the maximum amount available under such Law.
(e) No termination of this Lease, repossession or
reletting of any of the Leased Premises, exercise of any remedy or collection
of any damages pursuant to this Paragraph 23 shall relieve Tenant of any
Surviving Obligations.
(f) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF
LANDLORD OR TENANT HEREUNDER, EACH OF LANDLORD AND TENANT WAIVES ANY RIGHT TO A
TRIAL BY JURY.
(g) Upon the occurrence of any Event of Default,
Landlord shall have the right (but no obligation) to perform any act required
of Tenant hereunder and, if performance of such act requires that Landlord
enter the Leased Premises, Landlord may enter the Leased Premises for such
purpose.
(h) No failure of Landlord (i) to insist at any
time upon the strict performance of any provision of this Lease or (ii) to
exercise any option, right, power or remedy contained in this Lease shall be
construed as a waiver, modification or relinquishment thereof. A receipt by
Landlord of any sum in satisfaction of any Monetary Obligation with knowledge
of the breach of any provision hereof shall not be deemed a waiver of such
breach, and no waiver by Landlord of any provision hereof shall be deemed to
have been made unless expressed in a writing signed by Landlord.
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(i) Tenant hereby waives and surrenders, for
itself and all those claiming under it, including creditors of all kinds, (i)
any right and privilege which it or any of them may have under any present or
future Law to redeem any of the Leased Premises or to have a continuance of
this Lease after termination of this Lease or of Tenant's right of occupancy or
possession pursuant to any court order or any provision hereof, and (ii) the
benefits of any present or future Law which exempts property from liability for
debt or for distress for rent.
(j) Except as otherwise provided herein, all
remedies are cumulative and concurrent and no remedy is exclusive of any other
remedy. Each remedy may be exercised at any time an Event of Default has
occurred and is continuing and may be exercised from time to time. No remedy
shall be exhausted by any exercise thereof.
24. Notices. All notices, demands, requests, consents,
approvals, offers, statements and other instruments or communications required
or permitted to be given pursuant to the provisions of this Lease shall be in
writing and shall be deemed to have been given for all purposes when delivered
in person or by Federal Express or other reliable 24-hour delivery service or
five (5) business days after being deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the other party at its address stated above. A copy of any notice
given by Tenant to Landlord shall simultaneously be given by Tenant to Reed
Smith Shaw & McClay, 2500 One Liberty Place, Philadelphia, PA 19103,
Attention: Chairman, Real Estate Department. Copies of any notice given by
Landlord to Tenant shall simultaneously be given by Landlord to (i) Shaw,
Pittman, Potts & Trowbridge, 2300 N Street N.W., Washington, D.C. 20037-1128,
Attention: Craig E. Chason, and (ii) Bracewell & Patterson, L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, TX 77002-2781. For the
purposes of this Paragraph, any party may substitute another address stated
above (or substituted by a previous notice) for its address by giving fifteen
(15) days' notice of the new address to the other party, in the manner provided
above.
25. Estoppel Certificate. At any time upon not less than
ten (10) days' prior written request by either Landlord or Tenant (the
"Requesting Party") to the other party (the "Responding Party"), the Responding
Party shall deliver to the Requesting Party a statement in writing, executed by
an authorized officer of the Responding Party, certifying (a) that, except as
otherwise specified, this Lease is unmodified and in full force and effect, (b)
the dates to which Basic Rent, Additional Rent and all other Monetary
Obligations have been paid, (c) that, to the knowledge of the signer of such
certificate and except as otherwise specified, no default by either Landlord or
Tenant exists hereunder, (d) such other matters as the Requesting Party may
reasonably request, and (e) if Tenant is the Responding Party that, except as
otherwise specified, there are no proceedings pending or, to the knowledge of
the signer, threatened, against
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Tenant before or by any court or administrative agency which, if adversely
decided, would materially and adversely affect the financial condition and
operations of Tenant. Any such statements by the Responding Party may be
relied upon by the Requesting Party, any Person whom the Requesting Party
notifies the Responding Party in its request for the Certificate is an intended
recipient or beneficiary of the Certificate, any Lender or their assignees and
by any prospective purchaser or mortgagee of any of the Leased Premises. Any
certificate required under this Paragraph 25 and delivered by Tenant shall
state that, in the opinion of each person signing the same, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to the subject matter of such certificate, and shall
briefly state the nature of such examination or investigation.
26. Surrender. Upon the expiration or earlier
termination of this Lease, Tenant shall peaceably leave and surrender the
Leased Premises to Landlord in the same condition in which the Leased Premises
was at the commencement of this Lease, except as repaired, rebuilt, restored,
altered, replaced or added to as permitted or required by any provision of this
Lease, and except for ordinary wear and tear. Upon such surrender, Tenant
shall (a) remove from the Leased Premises all property which is owned by Tenant
or third parties other than Landlord and (b) repair any damage caused by such
removal. Property not so removed shall become the property of Landlord, and
Landlord may thereafter cause such property to be removed from the Leased
Premises. The cost of removing and disposing of such property and repairing
any damage to any of the Leased Premises caused by such removal shall be paid
by Tenant to Landlord upon demand. Landlord shall not in any manner or to any
extent be obligated to reimburse Tenant for any such property which becomes the
property of Landlord pursuant to this Paragraph 26.
27. No Merger of Title. There shall be no merger of the
leasehold estate created by this Lease with the fee estate in any of the Leased
Premises by reason of the fact that the same Person may acquire or hold or own,
directly or indirectly, (a) the leasehold estate created hereby or any part
thereof or interest therein and (b) the fee estate in any of the Leased
Premises or any part thereof or interest therein, unless and until all Persons
having any interest in the interests described in (a) and (b) above which are
sought to be merged shall join in a written instrument effecting such merger
and shall duly record the same.
28. Books and Records.
(a) Tenant shall keep or cause Guarantor to keep
adequate records and books of account with respect to the finances and business
of Tenant (or Guarantor and its consolidated subsidiaries, including Tenant)
generally and with respect to the Leased Premises, in accordance with generally
accepted accounting principles ("GAAP") consistently applied, and shall permit
Landlord by its agents, accountants and attorneys, upon reasonable notice to
Tenant, to examine (and make copies of) the records and
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books of account wherever located and to discuss the finances and business with
the officers of Tenant, at such reasonable times as may be requested by
Landlord. Upon the request of Lender or Landlord (either telephonically or in
writing), Tenant shall provide the requesting party with copies of any
information to which such party would be entitled in the course of a personal
visit.
(b) Tenant shall deliver or shall cause Guarantor
to deliver to Landlord within fifteen (15) days after the filing of the same
with the Securities and Exchange Commission (the "SEC") or (if Tenant or
Guarantor is not required to make any such filings with the SEC) within ninety
(90) days of the close of each fiscal year, annual audited financial statements
of Tenant (or Guarantor and its consolidated subsidiaries, including Tenant)
prepared by nationally recognized independent certified public accountants.
Tenant shall also furnish or shall cause Guarantor to furnish to Landlord
within fifteen (15) days after the filing of the same with the SEC or (if
Tenant or Guarantor is not required to make any such filings with the SEC)
within forty-five (45) days after the end of each of the three remaining
quarters unaudited financial statements and all other quarterly reports of
Tenant (or Guarantor and its consolidated subsidiaries, including Tenant),
certified by Tenant's or Guarantor's chief financial officer, and all filings,
if any, of Form 10-K, Form 10-Q and other required filings with the SEC
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
or any other Law. All financial statements of Tenant (or Guarantor and its
consolidated subsidiaries, including Tenant) shall be prepared in accordance
with GAAP consistently applied. All annual financial statements shall be
accompanied (i) by an opinion of said accountants stating that (A) there are no
qualifications as to the scope of the audit and (B) the audit was performed in
accordance with GAAP and (ii) by the affidavit of the president or a vice
president of Tenant or Guarantor, dated within five (5) days of the delivery of
such statement, stating that (C) the affiant knows of no Event of Default, or
event which, upon notice or the passage of time or both, would become an Event
of Default which has occurred and is continuing hereunder or, if any such event
has occurred and is continuing, specifying the nature and period of existence
thereof and what action Tenant has taken or proposes to take with respect
thereto and (D) except as otherwise specified in such affidavit, that Tenant
has fulfilled all of its obligations under this Lease which are required to be
fulfilled on or prior to the date of such affidavit.
29. Determination of Value.
(a) Whenever a determination of Fair Market Value
or Fair Market Rental Value is required pursuant to any provision of this
Lease, such Fair Market Value or Fair Market Rental Value shall be determined
in accordance with the following procedure:
(i) Landlord and Tenant shall endeavor
to agree upon such Fair Market Value within ten (10) days after the date (the
"Applicable Initial Date") on which (A) Tenant provides
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Landlord with notice of its intention to terminate this Lease with respect to
an Affected Premises pursuant to Paragraph 18, (B) Landlord provides Tenant
with notice of its intention to redetermine Fair Market Value pursuant to
Paragraph 20(c), (C) Landlord provides Tenant with notice of Landlord's
intention to require Tenant to make an offer to terminate this Lease with
respect to the Leased Premises pursuant to Paragraph 23(a)(iii). Landlord and
Tenant shall endeavor to agree on Fair Market Rental Value on the date (also,
an "Applicable Initial Date") which is six (6) calendar months prior to the
expiration of the then current Term unless Tenant has not exercised its option
pursuant to Paragraph 5(b) to have the Term extended. Upon reaching such
agreement, the parties shall execute an agreement setting forth the amount of
such Fair Market Value or Fair Market Rental Value, as the case may be.
(ii) If the parties shall not have signed
such agreement within ten (10) days after the Applicable Initial Date, each of
Landlord and Tenant shall within thirty (30) days after the Applicable Initial
Date select an appraiser and notify the other in writing of the name, address
and qualifications of such appraiser. Such two appraisers shall endeavor to
agree upon Fair Market Value or Fair Market Rental Value based on a written
appraisal made by each of them as of the Relevant Date (and given to Landlord
by Tenant). If such two appraisers shall agree upon a Fair Market Value or
Fair Market Rental Value, the amount of such Fair Market Value or Fair Market
Rental Value as so agreed shall be binding and conclusive.
(iii) If such two appraisers shall be
unable to agree upon a Fair Market Value or Fair Market Rental Value within
twenty (20) days after the selection of appraisers by Landlord and Tenant, then
such appraisers shall advise Landlord and Tenant of their respective
determinations of Fair Market Value or Fair Market Rental Value and shall
select a third appraiser to make the determination of Fair Market Value or Fair
Market Rental Value. The selection of the third appraiser shall be binding and
conclusive upon Landlord and Tenant.
(iv) If such two appraisers shall be
unable to agree upon the designation of a third appraiser within ten (10) days
after the expiration of the twenty (20) day period referred to in clause (iii)
above, or if such third appraiser does not make a determination of Fair Market
Value or Fair Market Rental Value within twenty (20) days after his selection,
then such third appraiser or a substituted third appraiser, as applicable,
shall, at the request of either party hereto (with respect to the other party),
be appointed by the President or Chairman of the American Arbitration
Association in New York, New York. The determination of Fair Market Value or
Fair Market Rental Value made by the third appraiser appointed pursuant hereto
shall be made within twenty (20) days after such appointment.
(v) If a third appraiser is selected,
Fair Market Value or Fair Market Rental Value shall be the average of the
determination of Fair Market Value or Fair Market Rental Value
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made by the third appraiser and the determination of Fair Market Value or Fair
Market Rental Value made by the appraiser (selected pursuant to Paragraph
29(a)(ii) hereof) whose determination of Fair Market Value or Fair Market
Rental Value is nearest to that of the third appraiser. Such average shall be
binding and conclusive upon Landlord and Tenant.
(vi) All appraisers selected or appointed
pursuant to this Paragraph 29(a) shall (A) be independent qualified MAI
appraisers, (B) have no right, power or authority to alter or modify the
provisions of this Lease, (C) utilize the definition of Fair Market Value or
Fair Market Rental Value hereinabove set forth above, (D) be registered in the
State if the State provides for or requires such registration and (E) if the
appraisers are selected or appointed for the purpose of determining Fair Market
Rental Value, such appraisers shall have not less than ten years of experience
in appraising similar leases.
(vii) The Cost of the procedure described
in this Paragraph 29(a) above with respect to a determination of Fair Market
Value shall be borne entirely by Tenant. The Cost of the procedure described
in this Paragraph 29(a) above with respect to a determination of Fair Market
Rental Value shall be shared equally by Landlord and Tenant.
(b) If, by virtue of any delay, Fair Market Value
is not determined by the expiration or termination of the then current Term,
then the date on which the Term would otherwise expire or terminate shall be
extended with respect to the Leased Premises or the Affected Premises, as
applicable, to the date specified for termination in the particular provision
of this Lease pursuant to which the determination of Fair Market Value is being
made. If, by virtue of any delay, Fair Market Rental Value is not determined
by the expiration or termination of the then current Term, then until Fair
Market Rental Value is determined, Tenant shall continue to pay Basic Rent
during the succeeding Renewal Term in the same amount which it was obligated
under this Lease to pay prior to the commencement of the Renewal Term. When
Fair Market Rental Value is determined, the appropriate Basic Rent shall be
calculated retroactive to the commencement of the Renewal Term and Tenant shall
either receive a refund from Landlord (in the case of an overpayment) or shall
pay any deficiency to Landlord (in the case of an underpayment).
(c) In determining Fair Market Value as defined
in clause (b) of the definition of Fair Market Value, the appraisers shall add
(a) the present value of the Rent for the remaining Term, assuming the Term has
been extended for all extension periods provided herein (with assumed increases
in the CPI (as defined in Exhibit D) to be determined by an investment banker
retained by each appraiser) and (b) the present value of the Leased Premises or
the applicable Related Premises, as the case may be, as of the end of such
Term. The appraisers shall further assume that no default then exists under
the Lease, that Tenant has complied (and will comply) with all provisions of
the Lease,
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and that Guarantor has not violated (and will not violate) any of the financial
covenants set forth in the Guaranty.
(d) In determining Fair Market Rental Value, the
appraisers shall determine with respect to each Related Premises the amount
that a willing tenant would pay, and a willing landlord of a comparable
building located in Austin, Texas, would accept, at arm's length, to rent a
building of comparable size and quality as the Improvements, taking into
account: (i) the age, quality and condition (as required by the Lease) of the
Improvements; (ii) that the Leased Premises will be leased as a whole or
substantially as a whole to a single user; (c) a lease term of five (5) years;
(d) an absolute triple net lease; and (e) such other items that professional
real estate appraisers customarily consider.
30. Non-Recourse as to Landlord. Anything contained
herein to the contrary notwithstanding, any claim based on or in respect of any
liability of Landlord under this Lease shall be enforced only against the
Leased Premises and not against any other assets, properties or funds of (a)
Landlord, (b) any director, officer, general partner, limited partner, employee
or agent of Landlord, or any general partner of Landlord, any of its general
partners or shareholders (or any legal representative, heir, estate, successor
or assign of any thereof), (c) any predecessor or successor partnership or
corporation (or other entity) of Landlord, or any of its general partners,
either directly or through Landlord or its general partners or any predecessor
or successor partnership or corporation or their shareholders, officers,
directors, employees or agents (or other entity), or (d) any other Person
(including Carey Property Advisors, Carey Fiduciary Advisors, Inc., W.P. Carey
& Co., Inc., W.P. Carey Incorporated and any Person affiliated with any of the
foregoing, or any director, officer, employee or agent of any thereof).
Notwithstanding the foregoing, Tenant shall not be prohibited from seeking
injunctive relief or to recover the proceeds of any insurance required by the
terms of this Lease.
31. Financing. If Landlord desires to obtain or
refinance any Loan, Tenant shall agree, upon request of Landlord, to supply any
such Lender with such notices and information as Tenant is required to give to
Landlord hereunder and to extend the rights of Landlord hereunder to any such
Lender and to consent to such financing if such consent is requested by such
Lender. Tenant shall provide any other consent or statement and shall execute
any and all other documents that such Lender requires in connection with such
financing, including any environmental indemnity agreement and subordination,
non-disturbance and attornment agreement, so long as the same do not materially
adversely affect any right, benefit or privilege of Tenant under this Lease or
materially increase Tenant's obligations under this Lease. Such subordination,
nondisturbance and attornment agreement may require Tenant to confirm that (a)
Lender and its assigns will not be liable for any misrepresentation, act or
omission of Landlord and (b) Lender and its assigns will not be
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subject to any counterclaim, demand or offsets which Tenant may have against
Landlord.
32. Subordination. This Lease and Tenant's interest
hereunder shall be subordinate to any Mortgage or other security instrument
hereafter placed upon the Leased Premises by Landlord, and to any and all
advances made or to be made thereunder, to the interest thereon, and all
renewals, replacements and extensions thereof, provided that a separate
instrument in recordable form duly executed by the holder of any such Mortgage
or other security instrument and delivered to Tenant shall provide for the
recognition of this Lease and all Tenant's rights hereunder unless and until an
Event of Default exists or Landlord shall have exercised its right to terminate
this Lease pursuant to any applicable provision hereof.
33. Sale of Related Premises by Landlord. If at any time
or from time to time Landlord sells any one or more of the Related Premises
(any such premises, a "Landlord Sale Premises") either to Tenant or to any
third party (a "Third Party Purchaser"), then Landlord and Tenant agree that
(i) the Lease shall be bifurcated with respect to the remaining Leased Premises
and the Landlord Sale Premises; (ii) Tenant will attorn to any purchaser with
respect to the Landlord Sale Premises purchased so long as such purchaser
assumes the obligations of Landlord under the Lease with respect to the
Landlord Sale Premises; and (iii) the terms of the Lease will remain in full
force and effect with respect to the Landlord Sale Premises except that the
Basic Rent will be that percentage of the then Basic Rent which is allocated to
the Landlord Sale Premises as set forth on Exhibit "F" attached hereto and made
a part hereof; and (iv) the terms of the Lease will remain in full force and
effect with respect to the remaining Related Premises except that the Basic
Rent will be the sum of the percentages of the then Basic Rent which is
allocated to the remaining Related Premises as set forth on Exhibit "F"
attached hereto and made a part hereof. At the request of Landlord, Tenant
will execute such documents confirming the agreements referred to above and
such other agreements as Landlord may reasonably request provided that such
agreements will not result in any cost to Tenant and will not increase the
liabilities and obligations of Tenant hereunder.
34. Tax Treatment; Reporting. Landlord and Tenant each
acknowledge that each shall treat this transaction as a true lease for state
law purposes and shall report this transaction as a Lease for Federal income
tax purposes. For Federal income tax purposes each shall report this Lease as
a true lease with Landlord as the owner of the Leased Premises and Equipment
and Tenant as the lessee of such Leased Premises and Equipment including: (1)
treating Landlord as the owner of the property eligible to claim depreciation
deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the
"Code") with respect to the Leased Premises and Equipment, (2) Tenant reporting
its Rent payments as rent expense under Section 162 of the Code, and (3)
Landlord reporting the Rent payments as rental income.
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<PAGE> 46
35. Right of First Refusal.
(a) Except as otherwise provided in Paragraph
35(e), and provided an Event of Default does not then exist, if Landlord shall
enter into a contract (the "Sale Contract") for the sale of the entire Leased
Premises or any Related Premises (in either case, the "Sale Premises") with a
Third Party Purchaser, which Sale Contract shall be conditioned upon Tenant's
failure to exercise its right under this Paragraph 35(a), then promptly
following the execution thereof, Landlord shall give written notice to Tenant,
together with a copy of the executed Sale Contract.
For a period of twenty (20) days following
receipt of such notice, Tenant shall have the right and option, exercisable by
written notice to Landlord given within said twenty (20) day period, to elect
to purchase the Sale Premises at the purchase price and upon all the terms and
conditions set forth in the Sale Contract except that no contingencies
contained in such Sale Contract as to environmental assessments, engineering
studies, inspection of the Sale Premises, availability of financing, sale of
other property, state of the title to or encumbrances on the Sale Premises, or
any other condition or contingency to the Third Party Purchaser's obligation to
purchase the Sale Premises which pertains to the condition of the Sale
Premises, the Third Party Purchaser's ability to take certain action or any
other factor beyond the control of Landlord, shall apply to Tenant's obligation
to purchase the Sale Premises under this Paragraph 35, and Tenant shall be
obligated to purchase the Sale Premises without any such condition or
contingency.
If at the expiration of the aforesaid twenty
(20) day period Tenant shall have failed to exercise the aforesaid option,
Landlord may sell the Sale Premises to such Third Party Purchaser upon the
terms set forth in such contract.
(b) Except as otherwise specifically provided
herein, the closing date for any purchase of the Sale Premises by Tenant
pursuant to this Paragraph 35 shall be the later to occur of (i) ninety (90)
days after the date of Tenant's notice to Landlord of its intention to purchase
the Sale Premises upon the terms of the Sale Contract or (ii) the closing date
provided in such Sale Contract. At such closing Landlord shall convey the Sale
Premises to Tenant in accordance with, and Tenant shall pay to Landlord the
purchase price and other consideration set forth in, the applicable Sale
Contract.
(c) Tenant shall have the right to exercise the
foregoing right of first refusal upon (i) each proposed sale of the Sale
Premises prior to the seventh (7th) anniversary of this Lease and (ii)
notwithstanding the lack of exercise by Tenant in (i) above, one (1) time after
the seventh (7th) anniversary of this Lease; provided, that if, following
compliance with the procedure described in Paragraph 35(a), a Third Party
Purchaser does not purchase the Sale Premises, such event shall not count as an
exercise of Tenant's right of first refusal. Notwithstanding
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anything to the contrary, if Tenant fails to exercise the right of first
refusal granted pursuant to this Paragraph (c), subsection (ii), after the
seventh (7th) anniversary of this Lease and the sale to the Third Party
Purchaser is consummated, or if the Term of this Lease shall terminate or
expire, then in any such case such rights of first refusal granted pursuant to
this Paragraph 35 shall terminate and be null and void and of no further force
and effect.
(d) If Tenant does not exercise its right of
first refusal to purchase the Sale Premises and the Sale Premises are
transferred to a Third Party Purchaser, Tenant will attorn to any Third Party
Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify
Tenant in writing of such transfer. At the request of Landlord, Tenant will
execute such documents confirming the agreement referred to above and such
other agreements as Landlord may reasonably request, provided that such
agreements do not increase the liabilities and obligations of Tenant hereunder.
(e) The provisions of Paragraph 35 shall not
apply to or prohibit (i) any mortgaging, subjection to deed of trust or other
hypothecation of Landlord's interest in the Leased Premises or any Related
Premises, (ii) any sale of the Leased Premises or any Related Premises pursuant
to a private power of sale under or judicial foreclosure of any Mortgage or
other security instrument or device to which Landlord's interest in the Leased
Premises or any Related Premises is now or hereafter subject, (iii) any
transfer of Landlord's interest in the Leased Premises or any Related Premises
to a Lender, beneficiary under deed of trust or other holder of a security
interest therein by deed in lieu of foreclosure, (iv) any transfer of the
Leased Premises or any Related Premises to any governmental or
quasi-governmental agency with power of condemnation, (v) any transfer of the
Leased Premises or any Related Premises to any affiliate of Landlord or to any
entity for whom W.P. Carey & Co., Inc., W.P. Carey Incorporated or any of
their affiliates provides management services or investment advice, (vi) any
Person to whom Landlord sells all or substantially all of its assets, or (vii)
any transfer of the Leased Premises or any Related Premises to any of the
successors or assigns of any of the Persons referred to in the foregoing
clauses (i) through (vi).
36. Miscellaneous.
(a) The paragraph headings in this Lease are used
only for convenience in finding the subject matters and are not part of this
Lease or to be used in determining the intent of the parties or otherwise
interpreting this Lease.
(b) As used in this Lease, the singular shall
include the plural and any gender shall include all genders as the context
requires and the following words and phrases shall have the following meanings:
(i) "including" shall mean "including without limitation"; (ii) "provisions"
shall mean "provisions, terms, agreements, covenants and/or conditions"; (iii)
"lien"
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shall mean "lien, charge, encumbrance, title retention agreement, pledge,
security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean
"obligation, duty, agreement, liability, covenant and/or condition"; (v) "any
of the Leased Premises" shall mean "the Leased Premises or any part thereof or
interest therein"; (vi) "any of the Land" shall mean "the Land or any part
thereof or interest therein"; (vii) "any of the Improvements" shall mean "the
Improvements or any part thereof or interest therein"; (viii) "any of the
Equipment" shall mean "the Equipment or any part thereof or interest therein";
and (ix) "any of the Adjoining Property" shall mean "the Adjoining Property or
any part thereof or interest therein".
(c) Any act which Landlord is permitted to
perform under this Lease may be performed at any time and from time to time by
Landlord or any person or entity designated by Landlord. Each appointment of
Landlord as attorney-in-fact for Tenant hereunder is irrevocable and coupled
with an interest. Except as otherwise specifically provided herein, Landlord
shall have the right, at its sole option, to withhold or delay its consent
whenever such consent is required under this Lease for any reason or no reason.
Time is of the essence with respect to the performance by Tenant of its
obligations under this Lease.
(d) Landlord shall in no event be construed for
any purpose to be a partner, joint venturer or associate of Tenant or of any
subtenant, operator, concessionaire or licensee of Tenant with respect to any
of the Leased Premises or otherwise in the conduct of their respective
businesses.
(e) This Lease and any documents which may be
executed by Tenant on or about the effective date hereof at Landlord's request
constitute the entire agreement between the parties and supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the Leased Premises and the transactions provided for
herein. Landlord and Tenant are business entities having substantial
experience with the subject matter of this Lease and have each fully
participated in the negotiation and drafting of this Lease. Accordingly, this
Lease shall be construed without regard to the rule that ambiguities in a
document are to be construed against the drafter.
(f) This Lease may be modified, amended,
discharged or waived only by an agreement in writing signed by the party
against whom enforcement of any such modification, amendment, discharge or
waiver is sought.
(g) The covenants of this Lease shall run with
the land and bind Tenant, its successors and assigns and all present and
subsequent encumbrancers and subtenants of any of the Leased Premises, and
shall inure to the benefit of Landlord, its successors and assigns. If there
is more than one Tenant, the obligations of each shall be joint and several.
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(h) Notwithstanding any provision in this Lease
to the contrary, all Surviving Obligations of Tenant shall survive the
expiration or termination of this Lease with respect to any Related Premises.
(i) If any one or more of the provisions
contained in this Lease shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
(j) All exhibits attached hereto are incorporated
herein as if fully set forth.
(k) This Lease shall be governed by and construed
and enforced in accordance with the Laws of the State.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease
to be duly executed under seal as of the day and year first above written.
LANDLORD:
ABI (TX) QRS 12-11, INC.,
a Texas corporation
By: /s/Howard J. Altmann
------------------------------
Title: Senior Vice President
---------------------------
: TENANT:
PHARMACO LSR INTERNATIONAL INC.,
a Texas corporation
By: /s/Stephen L. Waechter
------------------------------
Title: Treasurer and CFO
---------------------------
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EXHIBIT A
PREMISES
LOT 1:
Lot 2, RESUBDIVISION OF PART OF LOTS 3, 4, 5, 6, 7 AND 8, BLOCK 3, FREEWATER
ADDITION, a subdivision in Travis County, Texas, according to the map or plat
thereof recorded in Book 78, Page 269, Plat Records, Travis County, Texas,
being locally known as 706A & B Ben White Boulevard West.
LOT 2:
DESCRIPTION OF 1.66 ACRES, MORE OR LESS, OF LAND AREA, BEING A PORTION OF LOT 1
OF ONE PARK PLACE II, A SUBDIVISION IN THE CITY OF AUSTIN, TRAVIS COUNTY,
TEXAS, ACCORDING TO THE MAP OR PLAT THEREOF RECORDED IN VOLUME 82, PAGE 138,
PLAT RECORDS OF TRAVIS COUNTY, TEXAS, BEING LOCALLY KNOWN AS 1112 BEN WHITE
BOULEVARD WEST AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS
FOLLOWS:
BEGINNING at an iron rod set at the intersection of the north line of Ben White
Boulevard West, and the east line of the aforereferenced Lot 1, same being the
west line of the Missouri Pacific Railroad Right-of-Way, for the southeast
corner of the herein described tract of land;
THENCE leaving the PLACE OF BEGINNING and said Missouri Pacific Railroad
Right-of-Way, and crossing Lot 1 with the north line of Ben White Boulevard
West, the following two (2) courses:
1. with a right breaking curve having a radius length of 2849.79
feet and a chord which bears N 86 degrees 42 minutes 30
seconds W 71.02 feet to an iron rod set; and
2. N 86 degrees 02 minutes 30 seconds W 281.84 feet to an "x" set
in concrete in the intersection of the north line of Ben
White Boulevard West and the west line of Lot 1, same
being the east line of Lot B of K.R.T. Addition, a subdivision
in the City of Austin, Travis County, Texas, as recorded in
Volume 68, Page 71 of the Plat Records of Travis County,
Texas, for the southwest corner of the herein described
tract of land;
THENCE leaving Ben White Boulevard West with the common line of Lot 1 and Lot
B, the following two (2) courses:
1. N 25 degrees 35 minutes E 125.17 feet to an iron rod found; and
2. N 25 degrees 47 minutes E 123.85 feet to an iron rod found in
the south line of Lot 2 of the aforereferenced One Park
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EXHIBIT A
Place II, for the northwest corner of Lot 1, same being the
northeast corner of Lot B, also being the northwest corner of
the herein described tract of land;
THENCE leaving Lot B, with the common line of Lot 1 and said Lot 2 the
following two (2) courses:
1. S 59 degrees 43 minutes 30 seconds E 65.07 feet to
an iron rod found; and
2. N 88 degrees 53 minutes E 259.79 feet to an iron rod found in
the west line of the Missouri Pacific Railroad Right-of-Way,
for the northeast corner of Lot 1, same being the southeast
corner of Lot 2, and being the northeast corner of the herein
described tract of land;
THENCE leaving Lot 2, with the common line of the Missouri Pacific Railroad
Right-of-Way and Lot 1, S 18 02' W 231.60 feet to the PLACE OF BEGINNING.
There are contained within these metes and bounds 1.66 acres, more or less, of
land area as described from record information and measurements made on the
ground on January 12, 1991, and visually inspected on September 15, 1995, by
McMinn Land Surveying Company of Austin, Texas.
LOT 3:
LOT 2, ONE PARK PLACE II, a subdivision in Travis County, Texas, according to
the map or plat thereof recorded in Book 82, Page 138, Plat Records, Travis
County, Texas, being locally known as 4009 Banister Lane.
LOT 4:
LOT 3, ONE PARK PLACE II, a subdivision in Travis County, Texas, according to
the map or plat thereof recorded in Book 82, Page 138, Plat Records, Travis
County, Texas, being locally known as 4005 Banister Lane.
MACHINERY AND EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and appliances of every
kind and nature whatsoever now or hereafter affixed or attached to or installed
in any of the Leased Premises (except as hereafter provided), including all
electrical, anti-pollution, heating, lighting (including hanging fluorescent
lighting), incinerating, power, air cooling, air conditioning, humidification,
sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing
and ventilating systems, devices
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and machinery and all engines, pipes, pumps, tanks (including exchange tanks and
fuel storage tanks), motors, conduits, ducts, steam circulation coils, blowers,
steam lines, compressors, oil burners, boilers, doors, windows, loading
platforms, lavatory facilities, stairwells, fencing (including cyclone fencing),
passenger and freight elevators, overhead cranes and garage units, together with
all additions thereto, substitutions therefor and replacements thereof required
or permitted by the Lease, but excluding all personal property, trade fixtures,
machinery and office, manufacturing and warehouse equipment which are not
necessary to the operation, as buildings, of the buildings which constitute part
of the Leased Premises, including without limitation the following items that
are located on the Leased Premises but are specifically excluded from the
Equipment:
(1) Office furniture and office equipment;
(2) Track filing/storage systems;
(3) Clinical storage systems, i.e., refrigerators or freezers (walk-in
or free standing);
(4) Medical and laboratory equipment;
(5) All items of equipment related to PBX/Voicemail systems;
(6) All items of equipment related to VAX Computer Systems;
(7) All items of equipment related to the computer network;
(8) All items of equipment related to the video conference system;
(9) Clinic kitchen and laundry equipment;
(10) Medical telimetry/clock system; and
(11) Mail room equipment.
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EXHIBIT C
PERMITTED ENCUMBRANCES
1. Restrictive Covenants filed for record in the Real Property Records of
Travis County, Texas in Volume 10094, Page 875. (As to Lot 3 only).
2. Standby fees, taxes and assessments by any taxing authority for the year
1995, and any subsequent year, and subsequent taxes and assessments by
any taxing authority for prior years due to change in land usage or
ownership.
3. Electric Utitlity Easement granted to the City of Austin from Pharmaco
LSR International Inc., and filed or to be filed for record in the Real
Property Records of Travis County, Texas. (Easement for electric and
telephone line.) (As to Lot 1 only.)
4. Easement five feet (5') in width reserved along the northwest lot line
for public utilities, and filed for record in the Plat Records of Travis
County, Texas in Volume 78, Page 269. (As to Lot 1 only.)
5. Easement five feet (5') in width reserved along the most southerly
southeast lot line, and filed for record in the Plat Records of Travis
County, Texas in Volume 78, Page 269. (As to Lot 1 only.)
6. Easement seven and one-half feet (7.5') in width by sixteen feet (16')
in length located on the subject property as shown on plat, and filed for
record in the Plat Records of Travis County, Texas in Volume 78, Page
269. (As to Lot 1 only.)
7. Easement seven and one-half feet (7.5') in width by thirty-seven feet
(37') in length is located on the subject property as shown on plat, and
filed for record in the Plat Records of Travis County, Texas in Volume
78, Page 269. (As to Lot 1 only.)
8. Easement granted to the City of Austin from Joe R. Long, and filed for
record in the Deed Records of Travis County, Texas in Volume 6803, Page
821. (Easement for electric and telephone lines.) (As to Lot 1 only.)
9. Declaration and Agreement for Private Driveway dated June 11, 1983,
executed by Mission Development Corporation and filed for record in the
Deed Records of Travis County, Texas in Volume 8203, Page 196, as amended
by Modification and Amendment of Declaration and Agreement for Private
Driveway dated November 21, 1983, executed by Mission Development
Corporation and filed for record in the Deed Records of Travis
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<PAGE> 54
EXHIBIT C
County, Texas in Volume 8345, Page 313. (Lot 2, Lot 3 and Lot 4 only.)
10. Covenant to Maintain Storm Water Management Facility dated December 18,
1985, executed by and between Two Park Place Joint Venture, a Texas joint
venture, and the City of Austin, and filed for record in the Real
Property Records of Travis County, Texas in Volume 9561, Page 888. (As
to Lot 3 only.)
11. Easement dated March 13, 1985, from Two Park Place Joint Venture, a
Texas joint venture, to the City of Austin and filed for record in the
Real Property Records of Travis County, Texas in Volume 9083, Page 948.
(Easement to cover transformer pads, electric and telephone, utility and
distribution lines across subject property, save and except under
existing buildings, as provided by Exhibit to document.) (As to Lot 3
only.)
12. Correction Easement from Pharmaco LSR International Inc., a Texas
corporation, to the city of Austin and filed or to be filed for record in
the Real Property Records of Travis County, Texas. (Easement for
underground electric/telephone line.) (As to Lot 2, Lot 3, and Lot 4
only.)
13. Easement five feet (5') in width reserved along the west 354.89 feet of
the south lot line for public utilities of Lot 3 only, as shown on plat,
recorded in Volume 67, Page 54; in Volume 82, Page 34; and in Volume 82,
Page 138, Plat Records of Travis County, Texas, and the west lot line for
public utilities of Lot 2 only, as shown on plat, recorded in Volume 67,
Page 54; in Volume 82, Page 34; and in Volume 82, Page 138, Plat Records
of Travis County, Texas.
14. Easement five and one-half feet (5.5') in width is reserved along the
east lot line for public utilities, as shown on plat, recorded in Volume
67, Page 54 and in Volume 82, Page 34, Plat Records of Travis County,
Texas. (Lot 2 and Lot 3 only.) Also shown along a portion of the east
lot line of Lot 2, on plat recorded in Volume 82, Page 138, Plat Records,
Travis County, Texas.
15. Easement twelve and one-half feet (12.5') in width reserved along the
southeast lot line of Lot 4 only, for drainage, and along a portion of
the northwest lot line of Lot 3 only, as shown on plat recorded in Volume
82, Page 34, Plat Records of Travis County, Texas.
16. Easement seven and one-half feet (7.5') in width reserved along the
north portion of the northwest lot line for drainage and public
utilities, as shown on plat, recorded in Volume 82, Page 34, and in
Volume 82, Page 138, Plat Records of Travis County, Texas. (Lot 3 only.)
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<PAGE> 55
EXHIBIT C
17. Easement twenty-five feet (25') in width reserved across the southwest
portion of the lot for drainage and public utilities, as shown on plat,
recorded in Volume 82, Page 34, Plat Records of Travis County, Texas.
(Lot 3 only.)
18. Easement forty-five feet (45') in width reserved across the west portion
of lot for ingress and egress and public utilities, as shown on plat,
recorded in Volume 82, Page 34, and in Volume 82, Page 138, Plat Records,
Travis County, Texas. (Lot 2 and Lot 3 only.)
19. Easement fifteen feet (15') in width reserved across the southwest
portion of lot for drainage, as shown on plat, recorded in Volume 82,
Page 138, Plat Records of Travis County, Texas. (Lot 3 only.)
20. Easement seven and one-half feet (7.5') in width reserved along the
southeast lot line for drainage, as shown on plat, recorded in Volume 82,
Page 138, Plat Records of Travis County, Texas of Lot 4 only.
21. Easement fifteen feet (15') in width reserved along the east line of Lot
3 only, and along the north portion of the east lot line of Lot 2 only,
for public utilities, as shown on plat, recorded in Volume 82, Page 138,
Plat Records of Travis County, Texas.
22. Public Utility Easement ten feet (10') in width located in the northeast
corner of Lot 4 only, and across a portion of the northwest line of Lot 3
only, as shown on plat recorded in Volume 82, Page 138, Plat Records,
Travis County, Texas.
23. Any and all building lines and other items affecting the subject
property as shown on plats recorded in Volume 67, Page 54; Volume 82,
Page 34; Volume 82, Page 138; and Volume 78, Page 269, Plat Records,
Travis County, Texas. (Lot 1, Lot 2, Lot 3 and Lot 4.)
24. Any and all items reflected on those four (4) certain surveys dated
September 15, 1995, and revised on October 12, 1995, prepared by C.
Michael McMinn, Registered Public Surveyor No. 4267. (Lot 1, Lot 2, Lot
3 and Lot 4.)
-3-
<PAGE> 56
EXHIBIT D
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided for
in Paragraphs 2, 3 and 4 below, Basic Rent payable in respect of the Term shall
be $1,302,000 per annum, payable quarterly in advance on each Basic Rent
Payment Date, in equal installments of $325,500 each.
2. CPI Adjustments to Basic Rent. The Basic Rent shall
be subject to adjustment, in the manner hereinafter set forth, for increases in
the index known as United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, All Urban Consumers, United States City
Average, All Items, (1982-84=100) ("CPI") or the successor index that most
closely approximates the CPI. If the CPI shall be discontinued with no
successor or comparable successor index, Landlord and Tenant shall attempt to
agree upon a substitute index or formula, but if they are unable to so agree,
then the matter shall be determined by arbitration in accordance with the rules
of the American Arbitration Association then prevailing in New York City. Any
decision or award resulting from such arbitration shall be final and binding
upon Landlord and Tenant and judgment thereon may be entered in any court of
competent jurisdiction. In no event will the Basic Rent as adjusted by the CPI
adjustment be less than the Basic Rent in effect for the three (3) year period
immediately preceding such adjustment.
3. Effective Dates of CPI Adjustments. Basic Rent shall
not be adjusted to reflect changes in the CPI until the third (3rd) anniversary
of the Basic Rent Payment Date on which the first full quarterly installment of
Basic Rent shall be due and payable (the "First Full Basic Rent Payment Date").
As of the third (3rd) anniversary of the First Full Basic Rent Payment Date and
thereafter on the sixth (6th), ninth (9th) and twelfth (12th) anniversaries of
the First Full Basic Rent Payment Date, Basic Rent shall be adjusted to reflect
increases in the CPI during the most recent three (3) year period immediately
preceding each of the foregoing dates (each such date being hereinafter
referred to as the "Basic Rent Adjustment Date").
4. Method of Adjustment for CPI Adjustment.
(a) As of each Basic Rent Adjustment Date when
the average CPI determined in clause (i) below exceeds the Beginning CPI (as
defined in this Paragraph 4(a)), the Basic Rent in effect immediately prior to
the applicable Basic Rent Adjustment Date shall be multiplied by a fraction,
the numerator of which shall be the difference between (i) the average CPI for
the three (3) most recent calendar months (the "Prior Months") ending prior to
such Basic Rent Adjustment Date for which the CPI has been published on or
before the forty-fifth (45th) day preceding such Basic Rent Adjustment Date and
(ii) the Beginning CPI, and the denominator of
-1-
<PAGE> 57
EXHIBIT D
which shall be the Beginning CPI. An amount equal to the lesser of (x) the
product of such multiplication or 13.5% of the Basic Rent in effect immediately
prior to such Basic Rent Adjustment Date shall be added to the Basic Rent in
effect immediately prior to such Basic Rent Adjustment Date. As used herein,
"Beginning CPI" shall mean the average CPI for the three (3) calendar months
corresponding to the Prior Months, but occurring three (3) years earlier. If
the average CPI determined in clause (i) is the same or less than the Beginning
CPI, the Basic Rent will remain the same for the ensuing three (3) year period.
(b) Effective as of a given Basic Rent Adjustment
Date, Basic Rent payable under this Lease until the next succeeding Basic Rent
Adjustment Date shall be the Basic Rent in effect after the adjustment provided
for as of such Basic Rent Adjustment Date.
(c) Notice of the new annual Basic Rent shall be
delivered to Tenant on or before the tenth (10th) day preceding each Basic Rent
Adjustment Date.
5. Basic Rent During Each Renewal Term. During each
Renewal Term, Basic Rent for the entire Renewal Term shall be an amount equal
to the Fair Market Rental Value as of the first day of the applicable Renewal
Term, as determined in accordance with Paragraph 29 of the Lease.
-2-
<PAGE> 58
ACQUISITION COST
<TABLE>
<S> <C>
Lot 1 $6,003,358
Lot 2 $1,780,126
Lot 3 $2,934,679
Lot 4 $1,846,837
</TABLE>
PERCENTAGE ALLOCATION OF BASIC RENT
<TABLE>
<S> <C>
Lot 1 47.8%
Lot 2 14.2%
Lot 3 23.3%
Lot 4 14.7%
-----
100.0%
</TABLE>
If any of the Related Premises ceases to be subject to this Lease, the
percentage shown on this Exhibit F for each of the Related Premises which
remains subject to this Lease shall be adjusted proportionately so that the
total of such percentages shall be 100%.
-1-
<PAGE> 1
EXHIBIT No. 10.44
FOR SETTLEMENT PURPOSES
AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT AND GENERAL RELEASE (the "Agreement")
is made and entered into on January 31, 1996, by and between Jamie
Donelan ("Employee") and Applied Bioscience International Inc. ("Employer").
WHEREAS, Employee is currently employed by Employer;
and
WHEREAS, the parties agree that it is in their mutual
interest for the employment relationship between Employee and Employer to be
discontinued.
NOW, THEREFORE, in consideration of the mutual
promises, covenants and agreements set forth in this Agreement, the
sufficiency of which the parties acknowledge, it is agreed as follows:
1. (a) Employee's final day as an active employee of
Employer will be January 31, 1996, (the "Separation Date"). Employee will
continue to receive her base salary, including employer matching for 401(k)
contribution through the Separation Date. During the period prior to the
Separation Date, the Employee will continue to perform such transitional
activities as are consistent with her former duties and responsibilities as
requested by Employer.
(b) During the period from February 1, 1996,
through September 15, 1996, (the "Transition Period), in consideration for
Employee's promises in this Agreement, Employer agrees to pay Employee an
amount equivalent to six months base salary, or Fifty-Two Thousand Five Hundred
Dollars ($52,500.00). This sum will be disbursed to Employee in fifteen (15)
installments with each of the initial ten installments being equal to $4,375
and the final five installments being equal to $1,750. Such installments shall
be paid on each of Employee's fifteen (15) regularly scheduled payroll dates
during the Transition Period. During the Transition Period, the Employee will
not be eligible for employer matching for 401(k) contributions. To the extent,
during the Transition Period, the Employee makes any 401(k) contributions and
under the terms of the 401(k) plan, the Employer is required to match such
contribution, any monies paid by the Employer with respect to such match shall
be refunded to the Employer through an after-tax payroll deduction. During the
Transition Period, the Employer may request the continuing assistance of
Employee for up to five (5) hours per month in the transfer of her previous
duties and responsibilities with Employer.
(c) Employer will also pay Employee by separate
check any EVA bonus for 1995 for which Employee is eligible under the terms and
conditions of the EVA Plan, as ultimately determined and approved by the APBI
Compensation Committee. Employer will use the same formula for Employee as for
other officers and employees of Employer and Employer acknowledges that
Employee's target bonus under the 1995 EVA bonus plan is 40% of her base pay.
Employee will not be eligible for any EVA bonus or other bonus for 1996. To
the extent any EVA bonus for 1995 is earned by Employee, Employee will be paid
such bonus at the same time as 1995 bonuses are generally paid to the
Employer's officers and employees.
1
<PAGE> 2
(d) During the period from February 1, 1996,
through July 31, 1996, Employer will also pay on Employee's behalf the cost of
maintaining Employee's current group health insurance in accordance with the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"). Thereafter,
Employee may continue her group health insurance at her own expense in
accordance with COBRA. If Employee obtains new employment and Employee would
be eligible to participate in that new employer's group health insurance plan
with no exclusion for any pre-existing health condition of Employee, Employee
shall promptly notify Employer in writing of that fact and Employer shall be
entitled to discontinue its group health insurance premium payments on
Employee's behalf.
(e) Employer will also pay Employee by separate
check any vacation pay that is accrued but unused as of the Separation Date.
(f) Subsequent to the date hereof, Employee will
not receive any additional option awards or grants from Employer. Employer
acknowledges that for purposes of the vesting of any of Employee's currently
outstanding options September 15, 1996 shall be considered her last day of
employment and that Employee will have ninety (90) days from such date to
exercise any vested stock options pursuant to the terms of the APBI Stock
Incentive Program (1990).
(g) At the end of the Transition Period or
earlier if permitted under the terms of the Employer's Section 401(k) Plan,
Employer shall take all steps necessary to ensure the prompt distribution to
Employee of the proceeds of her Section 401(k) account in accordance with the
terms of the Section 401(k) Plan and all applicable legal requirements.
(h) During the Transition Period, Employer will
provide the services of a designated outplacement assistance firm selected by
the Employee (and approved by the Employer) to help the Employee in her
transition. Employee acknowledges and agrees that in no event will Employer's
cost in providing such outplacement assistance exceed $10,000.
(i) The Employer agrees that if the Employee is
made a party, or is threatened to be made a party, to any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that she was an officer or employee of the
Employer or while providing the continuing assistance to the Employer as
contemplated by Section 1(b) or is or was serving at the request of the
Employer as an officer, member, trustee, employee or agent of another
corporation, partnership, trust or other enterprise, including service with
respect to any benefit plans whether or not the basis of such Proceeding is the
Employee's alleged action in an official capacity while serving as an officer,
member, trustee, employee or agent, the Employee shall be indemnified and held
harmless by the Employer to the fullest extent permitted or authorized by the
Employer's certificate of incorporation or bylaws against all cost, expense,
liability and loss (including, without limitation, reasonable attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by the Employee in connection
therewith. No proceeding shall be settled without the approval of the Employer
which shall not be unreasonably withheld. The Employer's indemnification
obligation to the Employee shall include the obligation to provide legal
counsel to defend the Employee in any such Proceeding.
(j) The Employer and Employee have mutually
agreed upon the contents of a
2
<PAGE> 3
letter of reference which the Employer agrees it will provide to the Employee's
prospective employers upon request by the Employee or prospective employers.
The form of the letter is Attachment 1 to this Agreement. Employee may tailor
this letter, as necessary, for the specific request. The Employer agrees that
it will direct all reference inquiries to the present or succeeding chief
financial officer to ensure that communications to prospective employers are
consistent with the letter of reference. The Employer agrees that it will use
reasonable efforts so as to assure that no information regarding the Employee's
employment other than verification of employment, title and salary, shall be
provided by its employees other than the chief financial officer or his
successor. Telephone references about Employee shall be consistent in content
with Attachment 1 and with the other provisions of this paragraph.
(k) The Employer agrees to pay documented legal
fees for counsel representing Employee in the negotiation of this Agreement but
not to exceed $500 in total.
(l) The Employer agrees to give Employee a used
personal computer from its current office facilities. The selection of such
computer shall be at the sole discretion of the Employer and Employee
acknowledges that it will not be a Pentium computer.
(m) Except as otherwise expressly provided in
this Agreement, Employee shall be entitled to no compensation, benefits or
other remuneration following the Separation Date. Subsequent to the Separation
Date (or earlier if requested), Employee shall no longer have access to the
Employer's offices.
(n) The Employer will make the 1995 Employer
contribution to Employee's account in the money purchase pension plan
maintained by ENVIRON no later than September 15, 1996.
(o) The payment referenced in Paragraph 1(b)
above, represents a payment to which Employee would not otherwise be entitled
but for her promises in this Agreement. All payments referenced in this
Paragraph will be subject to all legally required deductions.
2. Employee agrees that she will use her best efforts to
seek new employment promptly following the Separation Date. In the event that
Employee has been unable to find a position during the Transition Period at a
base salary equal to at least seventy-five percent (75%) of her base salary
with Employer as of the Separation Date, she may so advise Employer in writing
(including providing Employer with reasonable supporting materials reflecting
the foregoing) and Employer agrees to pay Employee up to an additional two
months base salary, or up to Seventeen Thousand Five Hundred Dollars
($17,500.00), subject to all legally required deductions.
3. Employer and Employee agree that they will make no
negative or disparaging statements regarding the other or their affiliates.
4. Nothing in this Agreement shall be construed as an
admission of liability by Employer, its affiliates, or its current or former
officers, directors, employees or agents, and Employer specifically disclaims
liability to or wrongful treatment of Employee on the part of itself, its
affiliates, or its current or former officers, directors, employees and agents.
3
<PAGE> 4
5. Employee represents that she has not filed any
complaints or charges against Employer with the Equal Employment Opportunity
Commission ("EEOC"), or with any other federal, state or local agency or court,
and covenants that she will not do so at any time in the future, and that if
any agency or court assumes jurisdiction of any complaint or charge against
Employer on behalf of Employee, Employee will promptly request that agency or
court to withdraw from the matter.
6. Employee covenants not to sue, and fully and forever
releases and discharges Employer, its parents, officers, employees, agents,
attorneys and representatives (collectively, the "Releasees") from any and all
claims, liens, demands, obligations, agreements, causes of action, suits, costs
and expenses (including attorneys' fees), damages (whether pecuniary, actual
compensatory, punitive or exemplary) or liabilities of any nature or kind
whatsoever in law or equity or otherwise, whether now known or unknown,
existing or arising in the future, arising out of or in any way connected with
Employee's employment with Employer or the termination of such employment;
provided, however that nothing in this Agreement shall impair or preclude
Employee's right to take action to enforce the terms of this Agreement. This
release includes, but is not limited to, claims arising under federal, state or
local laws prohibiting employment discrimination, including but not limited to
Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination
in Employment Act, as amended, the Americans with Disabilities Act, claims for
attorneys' fees or costs, and any and all claims regarding any claimed
employment contract, whether written, oral, implied or otherwise, relating to
Employer's right to terminate its employees, claims under the Employee
Retirement Income Security Act, as mandated, or any other claims under federal,
state or local law, common law or any other law in any way relating to
Employee's employment with Employer or the termination of that employment;
further provided, however, that this release and covenant not to sue shall not
affect Employee's right, if any, to obtain unemployment compensation if she has
not obtained new employment at the end of the period specified in 1(b).
7. Employee agrees, without limiting the generality of
the above release, not to sue or otherwise institute or cause to be instituted
or to in any way participate in or voluntarily assist in the prosecution of any
complaints, charges or grievances against any Releasee concerning any claims
released in this Agreement.
8. Employee acknowledges that all confidential
information regarding the business of Employer compiled by, created by,
obtained by, or furnished to, Employee during her employment with Employer is
the exclusive property of Employer. On or before the Separation Date, Employee
will return to Employer all originals and copies of any material involving such
confidential information and agrees that she will not, directly or indirectly,
divulge or use such information, whether or not such information is in written
or other tangible form. Employee also will return to Employer upon or before
execution of this Agreement any items in her possession, custody or control
that are the property of Employer, including, but not limited to, her employee
manual, identification card and office keys.
9. Employee acknowledges that she has been given at
least twenty-one (21) days to consider this Agreement and that she has seven
(7) days from the date she executes this Agreement in which to revoke it and
that this Agreement will not be effective or enforceable nor the amounts set
forth in Paragraph 1(b) paid until the later of the end of the seven-day
revocation period or the scheduled payment date. Revocation can be made by
delivery of a written notice of
4
<PAGE> 5
revocation to Stephen L. Waechter, Chief Financial Officer, Applied Bioscience
International Inc., 4350 North Fairfax Drive, Suite 300, Arlington, Virginia
22203, 5:00 p.m. on or before the seventh calendar day after Employee signs
this Agreement.
10. Employee hereby acknowledges that she understands the
significance of this Agreement, and represents that the terms of this Agreement
are fully understood and voluntarily accepted by her.
11. Employer and Employee agree that the terms of this
Agreement are confidential and they will not discuss the Agreement, the fact of
settlement, or the negotiations and communications leading to this Agreement,
with anyone other than: (i) her family members; (ii) their counsel or tax
advisor; or (iii) as required by compulsory legal process.
12. This Agreement shall be binding on Employer and
Employee and upon their respective heirs, administrators, representatives,
executors, successors and assigns and shall inure to the benefit of the
Releasees and each of them and to their respective heirs, administrators,
representatives, executors, successors and assigns.
13. This Agreement sets forth the entire agreement
between Employee and Employer and fully supersedes any and all prior agreements
or understanding between them regarding its subject matter. This Agreement may
only be modified by written agreement signed by both parties.
14. This Agreement shall be governed in all respect by
Virginia law, without regard to its conflict of laws principles.
5
<PAGE> 6
PLEASE READ CAREFULLY.
THIS AGREEMENT AND GENERAL RELEASE INCLUDES
A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
DATED: February 7, 1996 /s/ Jamie Donelan
------------------------ -----------------
Jamie Donelan
DATED: February 7, 1996 APPLIED BIOSCIENCE INTERNATIONAL INC.
-----------------------
By: /s/ Stephen L. Waechter
--------------------------------------
Stephen L. Waechter
Senior Vice President, Chief Financial Officer
6
<PAGE> 1
EXHIBIT No. 10.45
January 2, 1996
Carol P. Hanna
Controller and Director - Corporate Taxation
Applied Bioscience International Inc.
4350 North Fairfax Drive, Suite 300
Arlington, Virginia 22203
Re: Key Employee Appreciation Plan
Dear Carol:
As you are aware, on December 11, 1995, Applied Bioscience
International Inc. ("APBI") announced the engagement of Lehman Brothers to
assist in a strategic evaluation of whether shareholder value could be enhanced
through the separation of APBI's two core businesses, Pharmaco International
and ENVIRON. As I have indicated to you, this evaluation is at a very
preliminary stage and at this point the separation of the business units is by
no means a foregone conclusion. Having said this, it is clear that APBI is
going through a major transitional period which will include an ongoing
restructuring and reevaluation of APBI's corporate/finance function. Because
of the uncertainty related to any transition of this nature, and APBI's
recognition of both your past contribution to the company, as well as the
importance of your continuing assistance during this transitional period, APBI
would like to continue your employment on the terms set forth herein.
1. Terms of Continuing Employment.
Set forth below are the terms and conditions of your continuing
employment with APBI:
A. Employment and Duties. APBI agrees to continue to employ you
and you agree to remain in the employ of APBI for the
Employment Term (as herein defined). Unless otherwise agreed,
you will be employed in your current position with
substantially the same duties and responsibilities that you
are currently performing in such position.
B. Compensation.
(i) Your base salary and current bonus opportunities
during the Employment Term will remain at least as
high as their current level and will be subject to
periodic review and possible upward adjustment.
(ii) In addition, if APBI is subject to a change of
control (as herein defined) you will receive a
one-time bonus equal to 35% of your annual base
salary. This bonus would be paid to you within 30
days subsequent to a change of control.
<PAGE> 2
C. Employment Term. The "Employment Term" shall mean the period
of your continuing employment with APBI commencing with the
date hereof and ending on the second anniversary of such date.
The Employment Term shall automatically be extended for
successive periods of one year each unless you notify APBI or
APBI notifies you by written notice delivered at least six
months prior to the end of the then current Employment Term
that the Employment Term is not to be extended.
Notwithstanding the foregoing, in the event of a change in
control you may elect to terminate your employment at any time
following the date 90 days subsequent to such change of
control.
D. Compensation Protection.
(i) APBI reserves the right to terminate your employment
but, subject to subsection 1.D (ii) below, in the
event APBI exercises such right during the Employment
Term, APBI shall be obligated to continue to pay or
provide to you as severance the following:
(a) your full base salary in accordance with
APBI's normal payroll practices for the
twelve-month period following your
termination; provided that APBI's obligation
to make such payment during the last six
months of such period shall be mitigated on a
dollar-for-dollar basis by any compensation
you receive from your new employer, if any,
during such period;
(b) all employee benefits which you are receiving
as of the date of your termination, including
health and disability coverage for the
twelve-month period following your
termination; and
(c) all stock options previously granted to you
will vest as of the date of your termination.
(ii) As we have previously discussed, in the event APBI's
two business units are separated there may be a
possibility that you will be offered comparable
employment (including comparable compensation and
benefits) in Arlington with either Pharmaco
International, ENVIRON or another successor entity.
If this occurs, and you elect to accept such
employment, the severance protection set forth in
Section 1.D(i) above will continue to apply for the
one-year period commencing with your employment with
such successor entity. If you are offered such
comparable employment and you elect not to accept
such employment but are subsequently terminated by
APBI, your severance would be limited to your full
base salary for six months and you would only be
eligible to continue to receive employee benefits for
such six-month period. Also, if you decide to
terminate your employment following a change of
control (as contemplated by Section 1C hereof) or if
you are terminated for cause, with cause being
defined as an act of fraud, embezzlement or theft in
connection with your duties, or a repeated failure to
follow the directions of APBI's Board of Directors or
APBI's Chief Executive Officer or Chief Financial
Officer, you would not
<PAGE> 3
be eligible to receive any severance or other
benefits otherwise contemplated herein.
E. Change of Control. As used herein, "change of control" shall
have occurred if at any time during the Employment Term any of
the following events shall occur:
(i) Any person, corporation, partnership or other similar
entity becomes the beneficial owner, directly or
indirectly, of securities of APBI representing fifty
percent or more of the combined voting power of
APBI's then outstanding securities;
(ii) As a result of merger, consolidation, reorganization,
spin-off, stock sale or otherwise, APBI (or an
affiliate) owns less than 51% of the combined voting
power of the then-outstanding securities or other
equity interests of either Pharmaco LSR International
Inc. (i.e., Pharmaco International) or APBI
Environmental Sciences Group Inc. (i.e., ENVIRON); or
(iii) Either Pharmaco LSR International Inc. or APBI
Environmental Sciences Group Inc. sells all or
substantially all of their respective assets to a
company in which APBI (or an affiliate) owns less
than 51% of the combined voting power of the
then-outstanding voting stock or equity interests.
2. Miscellaneous.
A. Entire Agreement/Modification. This agreement supersedes any
prior plans, agreements or understandings that have been given
to you. No provision of this agreement may be modified,
waived or discharged except in writing signed by you and an
appropriate officer of APBI.
B. Governing Law. This agreement shall be governed by the laws
of the Commonwealth of Virginia.
Since very few individuals are being offered ongoing employment on terms
similar to those contained herein, I expect you to keep this information
private and confidential. Again, we appreciate your ongoing efforts on behalf
of APBI and hope that you find the employment terms offered hereby attractive.
We are requesting that you indicate your acceptance of such terms by
<PAGE> 4
signing two counterparts of this letter in the space provided below, with one
original to be returned to APBI and the other original retained in your
permanent records.
Sincerely,
APPLIED BIOSCIENCE INTERNATIONAL INC.
By: /s/ Stephen Waechter
------------------------
Stephen Waechter
Senior Vice President
Chief Financial Officer
Accepted and Agreed to:
Signature: /s/ Carol P. Hanna
-------------------------
Print Name: Carol P. Hanna
------------------------
<PAGE> 1
EXHIBIT 11
Applied Bioscience International Inc. and Subsidiaries
Computation of Earnings Per Share
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
(Loss) income from continuing operations $(5,328) $ 2,865 $(13,873)
Loss from discontinued operations (1,716) (12,873) (12,133)
Extraordinary loss (897) - -
--------- --------- ---------
Net loss $(7,941) $(10,008) $(26,006)
========= ========= =========
Weighted average common and common
equivalent shares outstanding (a) 28,457 28,129 28,254
========= ========= =========
Primary (loss) earnings per common share-
Continuing operations $(0.19) $0.10 $(0.49)
Loss from discontinued operations (0.06) (0.46) (0.43)
Extraordinary loss (0.03) - -
--------- --------- ---------
Primary loss per share $(0.28) $(0.36) $(0.92)
========= ========= =========
FULLY DILUTED EARNINGS PER SHARE:
(Loss) income from continuing operations $(5,328) $ 2,865 $(13,873)
Loss from discontinued operations (1,716) (12,873) (12,133)
Extraordinary loss (897) - -
--------- --------- ---------
Net loss $(7,941) $(10,008) $(26,006)
========= ========= =========
Weighted average common and common
equivalent shares outstanding (a) 28,457 28,129 28,254
========= ========= =========
Fully diluted (loss) earnings per common share-
Continuing operations $(0.19) $ 0.10 $(0.49)
Loss from discontinued operations (0.06) (0.46) (0.43)
Extraordinary loss (0.03) - -
--------- --------- ---------
Fully diluted loss per share $(0.28) $(0.36) $(0.92)
========= ========= =========
</TABLE>
(a) In the calculation of common stock equivalents, stock options are
assumed to be exercised at the beginning of the period. The proceeds
from the options exercised are assumed to be used to purchase common
stock at (i) the average market price during the period for primary
earnings per share and (ii) the higher of the average or last market
price during the period for fully diluted earnings per share.
<PAGE> 1
EXHIBIT 21
Applied Bioscience International Inc. and Subsidiaries
SUBSIDIARIES
The subsidiaries of Applied Bioscience International Inc., as of March 15,
1996, are as follows:
<TABLE>
<CAPTION>
Jurisdiction of Incorporation or
Name of Subsidiary Organized in
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Pharmaco International Inc. Texas
Pharmaco International Holdings Inc. Delaware
Pharmaco LSR GmbH Germany
Pharmaco LSR S.A. France
Notsallow 33 Ltd. United Kingdom
Pharmaco Investments, Inc. Delaware
Pharmaco UK Ltd. United Kingdom
APBI Environmental Sciences Group, Inc. Virginia
ENVIRON International Investments, Inc. Delaware
Paragon Global Services, S.A. Luxembourg
APBI Investor Relations, Inc. New Jersey
APBI Finance Corporation Delaware
Leicester Clinical Research Centre Ltd. United Kingdom
PLSR Scandinavia AB Sweden
Pharmaco LSR S.L. Spain
PLSR Beteiligungsverwaltungs GmbH Germany
PLSR Sp. zo.o. Poland
PLSR Praha, s.r.o. Czech Republic
Clinix International Inc. Delaware
Cambridge Applied Nutrition Toxicology and Biosciences Limited United Kingdom
Clinical Technology Centre (International) Limited United Kingdom
Clinical Science Research International Limited United Kingdom
</TABLE>
Pharmaco International Inc.; Pharmaco UK Ltd.; APBI Environmental Sciences
Group, Inc.; APBI Investor Relations, Inc., APBI Finance Corporation, Leicester
Clinical Research Centre, Ltd., and Clinix International Inc., are wholly owned
subsidiaries of Applied Bioscience International Inc.
Pharmaco International Holdings Inc. and Pharmaco Investments, Inc. are wholly
owned subsidiaries of Pharmaco International Inc.
Pharmaco LSR S.A., Notsallow 33 Ltd., PLSR Scandinavia AB, Pharmaco LSR S.L.,
and PLSR Beteiligungsverwaltungs GmbH are wholly owned subsidiaries of
Pharmaco International Holdings Inc.
Pharmaco LSR GmbH is owned 74% by Pharmaco International Holdings Inc., and 26%
by PLSR Beteiligungsverwaltungs GmbH.
PLSR Sp. zo.o. and PLSR Praha, s.r.o. are wholly owned subsidiaries of PLSR
Beteiligungsverwaltungs GmbH.
ENVIRON International Investments, Inc. and Paragon Global Services, S.A. are
wholly owned subsidiaries of APBI Environmental Sciences Group, Inc.
Cambridge Applied Nutrition Toxicology and Bioscience Limited, Clinical
Technology Centre (International) Limited and Clinical Science Research
International Limited are wholly owned subsidiaries of Pharmaco U.K. Ltd.
APBI Environmental Sciences Group, Inc., does business under the trade name
ENVIRON.
Clinix International Inc., does business under the trade name the Chicago
Center for Clinical Research.
<PAGE> 1
EXHIBIT No. 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 22, 1996, included in the Form 10-K into Applied
Bioscience International Inc.'s previously filed Registration Statement on Form
S-8, File No. 33-56678.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Applied
Bioscience International Inc. Consolidated Balance Sheet and Statement of
Operations included within this Form 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,304
<SECURITIES> 0
<RECEIVABLES> 57,745
<ALLOWANCES> (3,319)
<INVENTORY> 231
<CURRENT-ASSETS> 77,087
<PP&E> 45,672
<DEPRECIATION> (24,157)
<TOTAL-ASSETS> 115,157
<CURRENT-LIABILITIES> 43,696
<BONDS> 894
0
0
<COMMON> 297
<OTHER-SE> 67,582
<TOTAL-LIABILITY-AND-EQUITY> 115,157
<SALES> 0
<TOTAL-REVENUES> 183,253
<CGS> 0
<TOTAL-COSTS> 201,899
<OTHER-EXPENSES> 2,816
<LOSS-PROVISION> 1,689
<INTEREST-EXPENSE> 3,054
<INCOME-PRETAX> (21,462)
<INCOME-TAX> (16,134)
<INCOME-CONTINUING> (5,328)
<DISCONTINUED> (1,716)
<EXTRAORDINARY> (897)
<CHANGES> 0
<NET-INCOME> (7,941)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
