<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
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AMENDMENT NO. 1
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-15515
APPLIED BIOSCIENCE INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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DELAWARE 22-2734293
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4350 N. FAIRFAX DRIVE, ARLINGTON, VA 22203-1627
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (703) 516-2490
------------------------
Indicate by checkmark 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 / /
The number of shares outstanding of the registrant's classes of common
stock, par value $0.01 per share, was 29,559,699 as of August 7, 1996.
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<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
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PAGE
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Item 1. Financial Statements.
Consolidated Condensed Statements of Operations for the Three-Month Periods
Ended June 30, 1996, and 1995 and the Six-Month Periods Ended June 30,
1996, and 1995........................................................... 3
Consolidated Condensed Balance Sheets as of June 30, 1996, and
December 31, 1995........................................................ 4
Consolidated Condensed Statements of Cash Flows for the Six-Month Periods
Ended June 30, 1996, and 1995............................................ 5
Notes to Consolidated Condensed Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 7
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
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Item 1. Legal Proceedings.......................................................... 11
Item 2. Changes in Securities...................................................... 11
Item 3. Defaults upon Senior Securities............................................ 11
Item 4. Submission of Matters to a Vote of Security Holders........................ 11
Item 5. Other Information.......................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................... 11
SIGNATURES.............................................................................. 12
</TABLE>
2
<PAGE> 3
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Life sciences revenues, net of subcontractor costs
of $4,057, $8,120, $8,813, and $14,980,
respectively..................................... $28,045 $35,164 $53,600 $68,518
Environmental sciences revenues, net of
subcontractor costs of $1,053, $1,885, $1,935,
and $3,243, respectively......................... 11,577 12,728 23,411 25,147
------- ------- ------- -------
39,622 47,892 77,011 93,665
------- ------- ------- -------
Direct costs -- Life sciences...................... 18,327 24,749 34,622 48,798
Direct costs -- Environmental sciences............. 8,114 8,743 16,907 17,432
Selling, general and administrative expenses....... 11,133 12,494 21,498 24,062
------- ------- ------- -------
37,574 45,986 73,027 90,292
------- ------- ------- -------
Operating income................................... 2,048 1,906 3,984 3,373
Interest -- (expense).............................. (66) (818) (81) (1,647)
-- income................................. 114 39 257 110
Other (expense) income, net........................ (74) 243 (159) 287
------- ------- ------- -------
Income before provision for income taxes........... 2,022 1,370 4,001 2,123
Provision for income taxes......................... 805 595 1,557 912
------- ------- ------- -------
Net income......................................... $ 1,217 $ 775 $ 2,444 $ 1,211
======= ======= ======= =======
Weighted average number of common shares
outstanding...................................... 30,141 28,425 29,935 28,429
======= ======= ======= =======
Earnings per share................................. $ 0.04 $ 0.03 $ 0.08 $ 0.04
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
<PAGE> 4
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 3,840 $ 11,304
Accounts receivable, net........................................... 59,369 54,426
Prepaid expenses and other current assets.......................... 7,101 6,601
Deferred tax asset................................................. 3,614 4,756
-------- --------
Total current assets....................................... 73,924 77,087
PROPERTY AND EQUIPMENT, at cost less accumulated depreciation and
amortization....................................................... 20,382 21,515
GOODWILL, less accumulated amortization.............................. 9,887 10,041
OTHER ASSETS......................................................... 7,410 6,514
-------- --------
TOTAL ASSETS......................................................... $ 111,603 $115,157
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............................... $ 331 $ 322
Accounts payable................................................... 4,052 7,089
Accrued liabilities................................................ 19,133 26,749
Advance billings................................................... 11,119 9,536
-------- --------
Total current liabilities.................................. 34,635 43,696
-------- --------
LONG-TERM DEBT....................................................... 435 572
-------- --------
DEFERRED RENT........................................................ 2,817 3,010
-------- --------
Total liabilities.......................................... 37,887 47,278
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 40,000,000 shares authorized,
30,266,000 and 29,724,000 shares issued and outstanding,
respectively.................................................... 303 297
Paid-in capital.................................................... 72,497 69,598
Retained earnings.................................................. 5,588 3,144
Treasury stock, at cost, 713,000 shares............................ (4,335) (4,335)
Unrealized gain on investments..................................... 233 --
Cumulative translation adjustment.................................. (353) (425)
Deferred compensation.............................................. (217) (400)
-------- --------
Total stockholders' equity................................. 73,716 67,879
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $ 111,603 $115,157
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1996 1995
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Cash flows from operating activities:
Net income.......................................................... $ 2,444 $ 1,211
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization.................................... 3,988 6,088
Other............................................................ 1,327 361
Change in operating assets and liabilities....................... (15,036) 857
-------- --------
Net cash (used in) provided by operating activities......... (7,277) 8,517
-------- --------
Cash flows from investing activities:
Purchases of property and equipment................................. (2,729) (5,054)
Proceeds from sale of property and equipment........................ -- 2,061
Other............................................................... (135) --
-------- --------
Net cash used in investing activities....................... (2,864) (2,993)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt, net.................................... (128) (49,666)
Other long-term borrowings.......................................... -- 42,250
Proceeds from issuance of stock..................................... 2,710 --
-------- --------
Net cash provided by (used in) financing activities......... 2,582 (7,416)
-------- --------
Effect of exchange rate changes on cash............................... 95 (1,125)
-------- --------
Net decrease in cash and cash equivalents............................. (7,464) (3,017)
Cash and cash equivalents, beginning of the period.................... 11,304 7,944
-------- --------
Cash and cash equivalents, end of the period.......................... $ 3,840 $ 4,927
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
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APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared following generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited consolidated condensed
financial statements reflect all the normal recurring adjustments that, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. The results for the interim periods may not
necessarily be indicative of the results for the entire fiscal year.
These financial statements should be read in conjunction with the Company's
annual audited financial statements, as filed with the Securities and Exchange
Commission on Form 10-K, for the year ended December 31, 1995.
2. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-based Compensation." SFAS No. 123 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.
The Company has elected to adopt the disclosure provisions of SFAS No. 123. The
adoption of this standard had no effect on the Company's results of operations.
3. EARNINGS PER COMMON SHARE
Earnings per common share were computed using the weighted average number
of common stock and common stock equivalents outstanding during the year. Common
equivalent shares are calculated using the treasury stock method and consist
primarily of shares issuable upon exercise of stock options.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated condensed
financial statements of prior periods to conform to the current period
presentation.
5. SIGNIFICANT EVENTS
On June 21, 1996, the Company announced that it had entered into a merger
agreement with Pharmaceutical Product Development, Inc. The proposed merger will
be accounted for as a pooling-of-interests transaction. Subject to the receipt
of shareholder approval and the satisfaction of all other closing conditions,
closing is scheduled for September, 1996. After the merger, financial statements
for the current and preceding periods will reflect the combined results of the
merged businesses, which will file as Pharmaceutical Product Development, Inc.
and subsidiaries.
6
<PAGE> 7
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
In the second quarter of 1996, the Company reported net income of $1.2
million, or $0.04 per share, compared to net income of $0.8 million, or $0.03
per share in the second quarter of 1995. The Company's improvement in net income
is attributable to the strategic decisions made by senior management over the
past two years. The divestiture of the Company's capital-intensive toxicology
business completed in November 1995 coupled with the acquisition of the
Leicester, England, Phase I laboratory are key factors in the Company's
financial improvement. In addition, the sale-leaseback of the Company's real
estate in Austin, Texas, also completed in November 1995, with net proceeds of
approximately $11 million has contributed significantly to the positive change
in net interest of $0.8 million in the quarter as compared to last year.
On June 21, 1996, the Company and Pharmaceutical Product Development, Inc.
("PPD") announced that the two companies had entered into a merger agreement.
The proposed merger would be accounted for as a pooling-of-interests
transaction. The combined operations will form one of the largest publicly
traded contract research organizations, with total net revenues in excess of
$200 million. Under the terms of the merger agreement, holders of APBI stock
will receive between .3125 and .4054 shares of PPD stock for each share of APBI
stock, based on the average closing prices of PPD shares of common stock for the
ten business day period ending five business days prior to the closing of the
transaction ("the Average PPD Stock Price"). This represents merger
consideration of $15.00 per share to APBI shareholders if the Average PPD Stock
Price is between $37.00 and $48.00 per share. If the Average PPD Stock Price is
at or below $37.00, the exchange ratio will be .4054 of a share of PPD common
stock for each share of APBI. Under the terms of the agreement, if the Average
PPD Stock Price is less than $30.00, either party may terminate the merger
agreement. The merger is subject to the approval of both APBI and PPD
shareholders. Subject to the receipt of such approvals and the satisfaction of
all other closing conditions, the merger is expected to close towards the end of
September. On August 8, 1996, the reported closing sales price per share of PPD
common stock on the Nasdaq Stock Market was $30.00.
THREE MONTHS ENDED JUNE 30, 1996 VERSUS THREE MONTHS ENDED JUNE 30, 1995
Total net revenues decreased 17.3% to $39.6 million in the second quarter
of 1996 from $47.9 million in the same quarter last year, with the decrease in
revenues being primarily attributable to the sale of the Company's toxicology
operations in November 1995. The Company's Life Sciences Group, which consists
of Pharmaco and Clinix (doing business as the Chicago Center for Clinical
Research, "CCCR"), generated net revenues of $28.0 million, down $7.1 million or
20.2% from a year ago. Net revenues from ENVIRON, the sole ongoing operation in
the Company's Environmental Sciences Group, were $11.6 million, compared with
$12.7 million in 1995, a decrease of $1.1 million or 9.0%.
After elimination of the net revenues from the Company's former toxicology
operations ($11.7 million in the second quarter of last year), total net
revenues increased 9.6% as compared to 1995. Results of operations which exclude
the results of the divested businesses are considered the results of the
Company's ongoing operations.
Net revenues for the second quarter of 1996 from the ongoing Life Sciences
Group were $28.0 million, an increase of 20.2% from the same quarter of 1995.
The growth in the Company's ongoing Life Sciences Group was due in part to an
increase in the size and scope of contracts in the North American clinical
development and biostatistics business. Net revenues from the Company's North
American clinical development and biostatistics business increased 24.9% to
$13.8 million. Demand for the Company's analytical chemistry services continues
to be strong at the Richmond, Virginia, laboratory. Net revenues in Richmond
increased 12.0% to $3.9 million as compared to $3.5 million in net revenues for
the same period last year. The acquisitions of CCCR and the Phase I facility in
Leicester, England, both completed in the second half of 1995, contributed net
revenues of $2.3 million in the second quarter of 1996.
7
<PAGE> 8
The decrease in second quarter net revenues of ENVIRON is due in part to an
overall slowdown in the environmental consulting industry. The Company believes
this is due in part to the political uncertainties in this election year.
Direct costs decreased 21.1% to $26.4 million from $33.5 million last year
and declined as a percentage of net revenues to 66.7% from 69.9%. In the Life
Sciences Group, direct costs decreased as a percentage of net revenues to 65.3%
from 70.4%. This decrease is principally due to the divestiture of the Company's
toxicology business. In the second quarter of 1995, the worldwide toxicology
business reported direct costs of $8.6 million or 73.6% of net revenues. On an
ongoing basis, Life Sciences' second quarter direct costs of 65.3% compare
favorably to 68.8% last year due to higher labor utilization, the mix of
business within the group, and a focused effort by all business segments to
control costs. At ENVIRON, direct costs as a percentage of net revenues
increased to 70.1% from 68.7% last year. This increase is attributable to lower
consultant utilization. In the second quarter of 1996, ENVIRON's consultant
utilization of 72% was seven percentage points below the 79% utilization rate of
the same quarter of last year.
Selling, general, and administrative ("SG&A") expenses decreased 10.9% to
$11.1 million from $12.5 million in 1995. As a percentage of net revenues, SG&A
expenses increased to 28.1% from 26.1% last year. After elimination of the SG&A
expenses associated with the divested toxicology business last year ($3.0
million), SG&A expenses increased approximately 16.8% or $1.6 million in the
second quarter this year as compared to the second quarter of 1995. SG&A
expenses from CCCR and the Leicester Phase I laboratory (both acquired in the
second half of 1995) account for $0.7 million of the increase. In addition the
Company has incurred incremental rent expense of $0.3 million associated with
the sale-leaseback of its real estate in Austin, Texas, (this increase is
partially offset by lower interest expense). The remaining increase is primarily
attributable to the recent investment in Pharmaco's business development and
marketing organization ($0.3 million), certain litigation costs ($0.3 million)
associated with ENVIRON's air quality practice, and acceleration of deferred
compensation expense ($0.2 million) associated with previously issued restricted
stock. The acceleration was attributable to an increase in the Company's stock
price to above $10.00.
Operating income increased $0.1 million (7.5%) to $2.0 million in the
second quarter of 1996 as compared to $1.9 million for the second quarter of
1995. As a percentage of net revenues, the second quarter operating income
increased to 5.2% in 1996 compared to 4.0% in 1995.
The Company reported a break-even net interest income/expense in the second
quarter compared to net interest expense of $0.8 million last year. In the
second quarter this year, the Company had approximately $7.0 million of cash
invested with no long-term bank debt. At the end of the second quarter last
year, the Company had $37.9 million of debt outstanding at an annual interest
rate of approximately 9.25%.
SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE 30, 1995
Total net revenues decreased 17.8% to $77.0 million for the first six
months of 1996 from $93.7 million last year, with the decrease in revenues being
primarily attributable to the sale of the Company's toxicology operations. The
Company's Life Sciences Group generated total net revenues of $53.6 million,
down $14.9 million or 21.8% from the same six-month period a year ago. The first
six-months' net revenues from ENVIRON were $23.4 million, compared with $25.1
million in 1995, a decrease of $1.7 million or 6.9%.
After eliminating the net revenues from the Company's former toxicology
operations ($22.4 million in the first six months of last year), total net
revenues increased 8.1% as compared to 1995.
Net revenues from the ongoing Life Sciences Group were $53.6 million, an
increase of 16.9% from 1995. The growth in this business segment was due in part
to an increase in the size and scope of contracts in the worldwide clinical
development and biostatistics business. Net revenues from the Company's
worldwide clinical development and biostatistics business increased 10.8% to
$31.9 million. The demand for the Company's analytical chemistry services
continues to be strong at the Richmond, Virginia, laboratory. Net revenues in
Richmond increased 23.7% to $8.2 million as compared to the $6.6 million in
revenues for the same period last year. The acquisitions of CCCR and the Phase I
facility in Leicester, England, both completed in the second half of 1995,
contributed net revenues of $4.9 million in the first six months of 1996.
8
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The 6.9% decrease in net revenues of ENVIRON is due in part to an overall
slowdown in the environmental consulting industry, which the Company believes is
due in part to the political uncertainties in this election year.
Direct costs decreased 22.2% to $51.5 million from $66.2 million last year
and declined as a percentage of net revenues to 66.9% from 70.7%. In the Life
Sciences Group, direct costs decreased as a percentage of net revenues to 64.6%
from 71.2%. This decrease is principally due to the sale of the Company's
toxicology business in the fourth quarter last year. In the first six months of
1995, the worldwide toxicology business reported direct costs of $16.8 million
or 74.9% of net revenues. On an ongoing basis, Life Sciences' direct costs of
64.6% compare favorably to 69.4% last year due to higher labor utilization, the
mix of business within the group, and a focused effort to reduce costs
throughout the entire Company. ENVIRON's direct costs as a percentage of net
revenues increased to 72.2% from 69.3% last year. This increase is attributable
to lower consultant utilization. In the first six months, ENVIRON's consultant
utilization of 72% was seven percentage points below the 79% utilization rate
last year.
SG&A expenses decreased 10.7% to $21.5 million from $24.1 million in 1995.
As a percentage of net revenues, SG&A expenses increased to 27.9% from 25.7%
last year. After factoring out last year's SG&A expenses associated with the
divested toxicology business ($6.0 million), SG&A expenses increased
approximately 18.9% or $3.4 million in the first half of this year as compared
to the same period last year. SG&A expenses from CCCR and the Leicester Phase I
laboratory account for $1.5 million of the increase. In addition, the Company
has incurred incremental rent expense of $0.6 million associated with the sale-
leaseback of its real estate in Austin, Texas. The remaining increase is
primarily attributable to the recent investment in Pharmaco's business
development and marketing organization, certain litigation costs associated with
ENVIRON's air quality practice and acceleration of deferred compensation expense
associated with previously issued restricted stock.
Operating income increased $0.6 million (18.1%) to $4.0 million in the
first half of 1996 as compared to $3.4 million last year. As a percentage of net
revenues, the six-months' operating income increased to 5.2% in 1996 compared to
3.6% in 1995.
The Company reported net interest income of $0.2 million in the first six
months compared to net interest expense of $1.5 million last year. In the first
six months this year, the Company had approximately $7.0 million of cash
invested with no long-term bank debt. During the first six months last year, the
Company had, on average, $37 million of debt outstanding.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company experienced a net
decrease in cash from operating activities of $7.3 million, primarily due to
increases in accounts receivable and decreases in accounts payable and accrued
expenses, offset by increases in advance billings. A portion of the decrease was
attributable to payments made in 1996 of 1995 bonuses and of severance and
transaction costs accrued in 1995 related to the sale of the Company's
toxicology business. Capital expenditures in the first six months of 1996
totaled $2.7 million. The Company experienced an increase in cash from financing
activities of $2.6 million, primarily attributable to proceeds received from the
exercise of stock options. Most of such proceeds were received from employees of
the Company's former toxicology operations, who generally had until February
1996 to exercise stock options which were exercisable at the date those
operations were sold in November 1995.
The Company has a $20.0 million secured revolving line-of-credit facility
which accrues interest on amounts borrowed at a floating rate currently equal to
prime plus 1.0% per year. The rate is adjusted on a quarterly basis and is
subject to reduction if certain covenants related to financial performance are
met. The unused portion of the loan is available to provide working capital and
for general corporate purposes. As of June 30, 1996, the Company has $3.8
million of cash and cash equivalents on hand and has no amounts outstanding
under its 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 June 30, 1996, open letters of credit were issued for $0.7 million.
9
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As of June 30, 1996, the Company has $1.1 million available under a 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.
The Company believes that cash flow generated by its own operating
activities together with its current borrowing capacity is adequate to finance
its world-wide operations and normal growth of its business. Assuming the merger
is consummated, the Company further believes that its cash flow combined with
the cash available at and generated by PPD is sufficient to finance the
world-wide combined operations of the two entities being merged through 1996.
Further growth of the merged companies' businesses may also be funded through
additional borrowings, the sale of non-strategic assets or through issuance of
shares of common stock by the merged Company.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- NONE
ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The 1996 Annual Meeting of Shareholders of the Company was
held on June 20, 1996.
(b) At the Annual Meeting, three directors of the Company were
reelected. Dr. Kenneth H. Harper, Lawrence C. McQuade, and Dr.
Thomas J. Russell were each elected to serve a term ending at
the Annual Meeting of Stockholders to be held in 1997 and
until his successor is elected and qualified. The other
members of the Board of Directors, each of whose terms of
office as director continued after the meeting are as follows:
Kirby L. Cramer, Steven A. Fleckman, Frederick Frank, Frank E.
Loy.
<TABLE>
<CAPTION>
FOR AGAINST
---------- -------
<S> <C> <C>
Dr. Kenneth H. Harper.................................. 24,776,451 236,750
Lawrence C. McQuade.................................... 24,936,251 76,950
Dr. Thomas J. Russell.................................. 24,926,451 86,750
</TABLE>
(c) At the Annual Meeting, the following proposal also was voted
upon:
The stockholders voted on a proposal to amend the Company's
Certificate of Incorporation to provide for the annual
election of Directors. The proposal was approved by the
following vote:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- ------ -------
<S> <C> <C>
19,772,480 77,163 101,850
</TABLE>
(d) Not applicable.
ITEM 5. OTHER INFORMATION -- NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) Exhibit 2.2 Agreement and Plan of Reorganization dated June 20, 1996,
among Pharmaceutical Product Development, Inc. ("PPD"),
Wilmington Merger Corp. and Applied Bioscience International
Inc. (incorporated herein by reference to Annex A of PPD's
Registration Statement filed on Form S-4 with the Securities
and Exchange Commission on July 16, 1996, as amended and
declared effective on August 20, 1996 -- File No. 333-08207).
Exhibit 10.46 Change of Control Agreement between Applied Bioscience
International Inc. and Stephen L. Waechter, dated as of June
18, 1996
Exhibit 10.47 Change of Control Agreement between Applied Bioscience
International Inc. and Carol P. Hanna, dated as of June 18,
1996
(a) Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K -- None
</TABLE>
11
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SIGNATURES
Pursuant to the requirements 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.
(Registrant)
By: /s/ KENNETH H. HARPER
------------------------------------
President, Chief Executive Officer
and Chairman of the Board
By: /s/ CAROL P. HANNA
------------------------------------
Controller
(Chief Accounting Officer)
Date: August 22, 1996
12
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
- ------ ----------
<C> <S> <C>
10.46 Change of Control Agreement -- Stephen L. Waechter........................
10.47 Change of Control Agreement -- Carol P. Hanna.............................
11 Computation of Earnings Per Share.........................................
27 Financial Data Schedule...................................................
</TABLE>
13
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EXHIBIT 10.46
June 18, 1996
Mr. Stephen L. Waechter
Chief Financial Officer
Applied Bioscience International Inc.
4350 North Fairfax Drive, Suite 300
Arlington, Virginia 22203
Dear Steve:
APPLIED BIOSCIENCE INTERNATIONAL INC. ("APBI or the "Company")
considers the continuing maintenance of a sound and vital management to be
essential to protecting and enhancing the best interests of the Company and its
shareholders. In this connection, the Company recognizes that, as is the case
with many publicly held corporations, the uncertainty and questions which a
potential change of control may raise among management may result in the
departure or distraction of management personnel to the detriment of the
Company and its shareholders. The Company further recognizes that the chief
financial officer, as a result of his role, bears increased duties and
responsibilities in responding to a change of control. Accordingly, the
Company's Board of Directors has determined that given the intent of the Board
of Directors to pursue a sale or merger of the Company, it is imperative that
the Company and the Board of Directors be able to rely upon you to remain in
your position and to provide advice, if requested, as to the best interests of
the Company.
In order to induce you to remain in the employ of the Company, this
letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event of a "change in control of the Company"
(as defined in Section 1 hereof) or under the circumstances described below.
1. CHANGE IN CONTROL. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act"); provided that, without limitation, such a change in
control shall be deemed to have occurred if any "person" (as such term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities.
2. COMPENSATION UPON CHANGE OF CONTROL. If you are employed by the
Company upon the occurrence of a change of control, the Company shall make a
lump sum
<PAGE> 2
Mr. Stephen L. Waechter
June 18, 1996
Page 2
payment to you of $250,000. This payment shall be made no later than ten (10)
days following the change of control.
3. COMPENSATION UPON TERMINATION OF EMPLOYMENT. Upon your
termination of employment by the Company (other than for "cause" as defined
herein) prior to a change of control, the Company shall make a lump sum payment
to you equal to twelve (12) months base salary, based upon the salary rate in
effect for you as of the date of your termination of employment. This payment
shall be in lieu of any severance payment to which you may be entitled under an
"employee benefit plan" maintained by the Company or a subsidiary. This
payment shall be made no later than ten (10) days following your termination of
employment. For purposes of this agreement, "cause" shall mean an act or acts
involving fraud, embezzlement or theft from the Company, or your willful and
repeated failure to follow the directions of the Board of Directors that
continues for at least ten (10) days following written notice from the Board of
Directors of such failure to follow directions.
4. LAPSE. Should you voluntarily leave employment prior to a change
of control or if you are terminated for cause prior to a change of control,
this Agreement shall lapse and be of no other force and effect and no
compensation will be payable to you hereunder.
5. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
6. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by registered mail,
return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided that all
notices to the Company shall be directed to the attention of the Chief
Executive Officer of the Company with a copy of the Secretary of the Company,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by you and such officer as may be specifically designated by
the Board of Directors of the Company. No
<PAGE> 3
Mr. Stephen L. Waechter
June 18, 1996
Page 3
waiver by either party hereto at any time of any breach by the party hereto of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. This Agreement supersedes and
replaces in its entirety that certain letter agreement between the Company and
you dated June 14, 1995 other than with respect to the Company stock options
contemplated thereunder all of which remain in full force and effect in
accordance with their terms. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware.
8. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not effect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.
Sincerely,
APPLIED BIOSCIENCE INTERNATIONAL INC.
By: /s/ Kenneth H. Harper
---------------------------------
Kenneth H. Harper
Chief Executive Officer
AGREED TO THIS 18th DAY OF
JUNE, 1996
By: /s/ Stephen L. Waechter
-------------------------------------
Stephen L. Waechter
<PAGE> 1
EXHIBIT 10.47
June 18, 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:
On January 2, 1996, Applied Bioscience International Inc. ("APBI") entered
into an agreement with you to encourage you to remain employed during a period
while APBI explored the enhancement of shareholder value through a spin-off of
an operating subsidiary of APBI or a sale or merger of APBI. APBI seeks to
amend and restate the January 2, 1996 agreement to clarify the intent of the
original agreement and to acknowledge that its obligation to provide severance
benefits to you applies upon the sale or merger of APBI.
As you are aware, APBI is going through a major transitional period which
will include an ongoing restructuring and reevaluation of APBI's
corporate/finance function. It is possible that the corporate/finance
functions of APBI will be relocated to another area. 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 as Controller
and Director-Corporate Taxation with substantially the same
duties and responsibilities that you are currently performing
in such position. You will report to the Chief Financial
Officer of APBI. You will be employed at the Arlington,
Virginia headquarters of APBI.
<PAGE> 2
Carol P. Hanna
June 18, 1996
Page 2
B. Compensation.
(i) Effective as of the date on which a potential change
of control is announced to the public, your annual
base salary will be increased from $94,000 to
$105,000. Your base salary and current bonus
opportunities during the Employment Term will remain
at least as high as their current level (or as
adjusted following the public announcement of a
potential change of control) 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 at the time of the change in control. This
bonus would be paid to you within 30 days subsequent
to a change of control.
C. Employment Term. The "Employment Term" shall mean the period
commencing with the date hereof and ending on March 31, 1997.
D. Compensation Protection.
(i) At the completion of the Employment Term or if APBI
terminates your employment prior to the completion of
the Employment Term (other than for cause as defined
in subsection 1.D (iii) below), 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 three
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 health and dental benefits which
you are receiving as of the date of your
termination for up to twelve months following
such termination, provided that APBI may
provide these benefits by paying the COBRA
premiums for such coverage and that your
right to receive such benefits will terminate
after nine months if you are covered by an
employer group health plan that provides
coverage for preexisting conditions;
(c) all stock options previously granted to you
that have not vested pursuant to their terms
will vest as of the date of your termination;
and
<PAGE> 3
Carol P. Hanna
June 18, 1996
Page 3
(d) all fees required to make executive
outplacement services from Right & Associates
or a comparable entity available to you for
six months following your termination.
(ii) 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 written directions of APBI's Board of
Directors or APBI's Chief Financial Officer, you
would not 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
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.
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.
C. Successors; Binding Agreement. APBI will require any
successor (whether direct or indirect, by purchase merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of APBI, to expressly assume and agree
to perform this agreement in the same manner and to the same
extent that APBI would be required to perform it if no such
succession had taken place.
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 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.
<PAGE> 4
Carol P. Hanna
June 18, 1996
Page 4
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 NO. 11
APPLIED BIOSCIENCE INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER COMMON SHARE:
Net income....................................... $ 1,217 $ 775 $ 2,444 $ 1,211
======= ======= ======= =======
Weighted average number of shares of common stock
outstanding during the period................. 29,540 28,159 29,405 28,166
Common stock equivalents assuming exercise of
stock options(a).............................. 601 266 530 263
------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding............................ 30,141 28,425 29,935 28,429
======= ======= ======= =======
Primary earnings per share....................... $ 0.04 $ 0.03 $ 0.08 $ 0.04
======= ======= ======= =======
FULLY DILUTED EARNINGS PER COMMON SHARE:
Net income....................................... $ 1,217 $ 775 $ 2,444 $ 1,211
======= ======= ======= =======
Weighted average number of shares of common stock
outstanding during the period................. 29,540 28,159 29,405 28,166
Common stock equivalents assuming exercise of
stock options(a).............................. 736 266 781 263
------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding............................ 30,276 28,425 30,186 28,429
======= ======= ======= =======
Fully diluted earnings per share................. $ 0.04 $ 0.03 $ 0.08 $ 0.04
======= ======= ======= =======
</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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Applied
Bioscience International Inc. Consolidated Condensed Balance Sheet and Statement
of Operations included within this Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 3,840
<SECURITIES> 0
<RECEIVABLES> 59,369
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,924
<PP&E> 20,382
<DEPRECIATION> 0
<TOTAL-ASSETS> 111,603
<CURRENT-LIABILITIES> 34,635
<BONDS> 435
0
0
<COMMON> 303
<OTHER-SE> 73,413
<TOTAL-LIABILITY-AND-EQUITY> 111,603
<SALES> 0
<TOTAL-REVENUES> 39,622
<CGS> 0
<TOTAL-COSTS> 37,574
<OTHER-EXPENSES> 74
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 2,022
<INCOME-TAX> 805
<INCOME-CONTINUING> 1,217
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,217
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
