SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2
(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, 1994.
[ ] 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.
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(Exact name of registrant as specified in its charter)
Delaware 22-2734293
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
4350 North Fairfax Drive
Arlington, Virginia 22203-1627
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(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (703) 516-2490
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(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
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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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $136,888,940, as of March 15, 1995.
The number of shares outstanding of the registrant's class of common
stock, par value $.01 per share, was 28,173,470 as of March 15, 1995.
The Form 10-K for the year ended December 31, 1994 (the "1994 Form
10-K") of Applied Bioscience International Inc. (the "Company") is being amended
and restated in response to the comments of the staff of the Division of
Corporation Finance of the Securities and Exchange Commission regarding the
Company's 1994 Form 10-K, which comments were set forth in a letter to Kenneth
H. Harper dated June 30, 1995.
PART I
Item 1. Business.
Applied Bioscience International Inc. (the "Company") provides a broad
range of research and consulting services in the life and environmental
sciences. Services provided include biological safety testing of
pharmaceuticals, biologicals and chemicals (including agrochemical products);
clinical research and development of pharmaceutical products, biologicals and
medical devices; biostatistical analysis; chemical risk assessment and risk
management; and analytical laboratory services. Such services are provided under
contract to clients in the pharmaceutical, general chemical, agrochemical,
biotechnology and other industries throughout the world.
The Company has grown through internal expansion and through
acquisitions, including the acquisition of ENVIRON International Corporation
("ENVIRON") in 1990 and Pharmaco Dynamics Research, Inc. in 1992. The Company
operates through two operating groups, the Life Sciences Group and the
Environmental Sciences Group.
The Company's Life Sciences Group provides life science-related
services through Pharmaco LSR International Inc. and Pharmaco LSR Ltd., wholly
owned subsidiaries of the Company, and through Pharmaco LSR Inc., a subsidiary
of Pharmaco LSR International Inc., Pharmaco LSR S.A., Pharmaco LSR GmbH and
Pharmaco U.K. Ltd. (collectively, "Pharmaco LSR"). Pharmaco LSR S.A. and
Pharmaco LSR GmbH are subsidiaries of Pharmaco LSR Inc., and Pharmaco U.K. Ltd
is a subsidiary of Pharmaco LSR Ltd.
Pharmaco LSR provides, through its divisions and subsidiaries,
contract biological safety ("toxicological") testing services on a worldwide
basis through two laboratories, one located in the United Kingdom and the other
in the United States. The toxicology divisions of Pharmaco LSR conduct studies
designed to test pharmaceutical products, biologicals, chemical compounds and
other substances in order to produce the data required to identify, quantify
and evaluate the risks to humans and the environment resulting from the
manufacture or the use of these substances. These divisions also perform
analytical and metabolic chemistry services. Pharmaco LSR also performs
clinical trials of new and existing pharmaceutical and biotechnology products
and medical devices in humans. It is engaged in the clinical development
process, including analytical chemistry, evaluation of clinical data, data
processing, biostatistical analysis and the preparation of supporting
documentation for compliance with regulatory requirements.
The Company's Environmental Sciences Group provides environmental
science-related services through APBI Environmental Sciences Group, Inc. ("APBI
Environmental Sciences
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Group"), a wholly owned subsidiary of the Company. Services are offered by APBI
Environmental Sciences Group under the trade names ENVIRON and Astrix.
The ENVIRON division of APBI Environmental Sciences Group 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 consumer products and 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.
In 1993, APBI Environmental Sciences Group formed a new division,
Astrix Software Technology ("Astrix"). Astrix develops and markets data analysis
software systems for use in analytical laboratory settings. Its primary product,
Aquarius 2000TM, updates the AquariusTM software that was originally developed
by Environmental Testing and Certification Corp. ("ETC") and is used in over 600
laboratories worldwide.
The market for the Company's services has developed principally as a
result of public concern over the safety of pharmaceutical, chemical and
consumer products; the associated increase in litigation related to exposure to
hazardous substances; legislation in the United States and abroad regulating the
pre-market approval and post-market surveillance of such products and mandating
the management, control and remediation of hazardous substances in the
environment; and increased investment in research and development by
pharmaceutical and biotechnology companies, including increased outsourcing of
product development services.
At the end of 1993, the Company adopted a plan to divest its
environmental analytical laboratory division, ETC, and accordingly retained an
investment banking firm to assist the Company in the ETC divestiture. Although
it was the Company's desire to completely exit the environmental analytical
laboratory business, 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, 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 are operated within
PACE Incorporated, a newly formed entity. As a result of the combination, the
Company through APBI Environmental Sciences Group, owns preferred and common
stock of PACE Incorporated representing approximately 36% of the weighted
average preferred and common stock outstanding. The Company's ownership has been
expected to decline as PACE Incorporated continues to consider combinations with
a number of potential acquisition candidates.
At December 31, 1994, the Company's carrying value of this investment
was approximately $2.3 million.
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In 1994, the Company also completed the sale of its agrochemical
development division, Paragon Global Services ("Paragon"), a division of APBI
Environmental Sciences Group.
The Company was incorporated in September 1986 under the laws of the
State of Delaware.
Services Offered
Life Sciences Group (Pharmaco LSR)
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Pharmaco LSR focuses on the development of pharmaceutical, chemical,
biotechnology and other products through biological safety testing and clinical
testing of the effects of pharmaceutical products on human subjects, in
combination with analytical and consulting services designed to facilitate
timely progression of these products through the development pipeline and to
secure marketing approval. During 1994, 73.8% of the Company's net revenues from
continuing operations were generated by Pharmaco LSR.
Biological Safety Testing
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Through laboratory facilities located at its toxicology services
divisions in the United States and in the United Kingdom, the Company conducts
contract biological safety ("toxicological") studies designed to produce the
data required to identify, quantify and evaluate the risks to humans and the
environment resulting from the manufacture or use of pharmaceutical, chemical,
biotechnology and other products. In addition to its general toxicological
studies, the Company performs studies designed to identify specific areas of
adverse change, such as: carcinogenicity studies to evaluate the potential
cancer-inducing hazards of test substances; reproductive studies to evaluate the
effects of test substances on fertility, pregnancy and subsequent development of
offspring; metabolic studies to track the absorption, distribution and
metabolism of test substances; and inhalation studies to evaluate the effects of
vapors, dusts and liquid aerosols. Tests range from single-exposure experiments
to trials extending over two or more years. Clients use the test results and the
Company's interpretive analyses thereof in connection with the continued
development of products or compounds. Such results are submitted to domestic and
foreign governmental agencies as part of their efforts to obtain marketing
approval of the developed substances.
While both the United States and United Kingdom laboratories offer a
wide range of testing services, each has its own areas of special expertise. The
United States inhalation toxicology unit conducts specialized procedures to
evaluate the potential hazards of exposure to test substances absorbed through
the respiratory tract. Management believes that this facility is among the most
advanced of its kind in the world. The United Kingdom laboratory specializes in
genetic toxicology testing, which involves a determination of whether a given
substance causes genetic or chromosomal mutations, and also specializes in
testing the effects of potential pollutants upon aquatic environments. In
addition, both laboratories perform analytical and metabolic chemistry services
not related to study-room biological safety testing. The Company's consulting
services in the biological safety testing area are designed to assist clients in
making
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efficient decisions as early as possible in the product development process
concerning the identification of factors that may limit the ultimate success of
the product.
During 1994, the toxicological testing services divisions of Pharmaco
LSR accounted for approximately 35.6% of the net revenues of the Company's Life
Sciences Group, and approximately 26.3% of the net revenues from continuing
operations of the Company.
Clinical Research and Development Services
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Through Pharmaco LSR's clinical services division, which operates in
North America and Europe, the Company provides clinical research and development
services to the pharmaceutical, biotechnology and consumer products industries.
Pharmaco LSR's business centers primarily on the clinical testing and
development of new and existing pharmaceutical products. In addition, it
provides services encompassing most aspects of the clinical development process,
including analytical chemistry, the evaluation of clinical data, data processing
and biostatistical analysis, and the preparation of the documentation necessary
to support regulatory submissions for marketing approval. The continuing growth
of the pharmaceutical industry, in combination with the increased emphasis on
cost-effectiveness, has encouraged the search for new products, resulting in
increased spending on research and development, and increased outsourcing of
clinical studies.
Pharmaco LSR's core business is the design and management of
pre-clinical and clinical research programs and trials, in particular for large
pharmaceutical manufacturers. Clinical studies are often divided into the
following phases.
Phase I. Phase I studies, carried out in healthy human volunteers, are
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frequently "first time in man" studies, which are conducted primarily to test
for safety, rather than for efficacy, in treating a particular disease, and to
determine the absorption, distribution, metabolism and excretion of a particular
product in humans. During Phase I development, single and multiple dose
tolerance tests are conducted, which serve to establish safe dosage ranges. The
clinical division of Pharmaco LSR operates one of the largest Phase I facilities
in the United States, with approximately 200 beds.
Phase II. If a drug is established as safe for further testing in
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humans as a result of Phase I trials in healthy volunteers, it may proceed to
Phase II. During Phase II, drugs are administered to a limited number of
patients with a targeted disease primarily to investigate therapeutic efficacy.
These trials may include dose ranging studies to establish optimal dosages and
are usually tested against a placebo or a currently marketed drug.
Phase III. If the drug has proved efficacious and safe in Phase II
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studies, Phase III studies may be commenced. During Phase III, the drug is
tested in a large number 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 U.S. Food and Drug Administration (the "FDA"), and/or the
equivalent regulatory bodies in Europe
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and elsewhere, at the end of Phase III for the purpose of registering the drug
in the United States or other jurisdiction.
The clinical services division of Pharmaco LSR typically monitors from
one to as many as hundreds of investigative sites during the course of Phase III
trials. 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.
Phases IIIb and IV. Once a drug is close to being or has been approved
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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 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
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distribution and are designed to generate data to support additional clinical
indications. The methodology used for these studies is similar to that of Phase
III trials.
Biostatistical Analysis. Pharmaco LSR provides biostatistical support
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consisting primarily of data analysis and statistical reporting of data
collected from in-house studies, as well as studies conducted by Pharmaco LSR's
clients. The Company's biostatistical professionals; which include
statisticians, programmers, data analysts and computer specialists; utilize
state of the art equipment to prepare comprehensive summary documents of
clinical trial results for its clients. The statistical analysis of data
collected during the trials, together with other clinical data, are a major
component of the final report generated for inclusion in a regulatory document.
Other Services. The clinical services division also performs services
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that are complementary to its clinical testing business, including analytical
laboratory services (provided by its laboratory located in Richmond, Virginia),
clinical development consulting, planning and protocol design and regulatory
consulting and liaison services.
The clinical services division of Pharmaco LSR generated approximately
64.4% of the net revenues of the Life Sciences Group, and 47.5% of the Company's
net revenues from continuing operations in 1994.
Environmental Sciences Group (APBI Environmental Sciences Group)
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APBI Environmental Sciences Group currently provides health and
environmental sciences and engineering consulting services through its ENVIRON
division and software products through its Astrix division. During 1994, the
continuing operations of the
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environmental sciences group generated 26.2% of the Company's net revenues from
continuing operations.
ENVIRON
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The ENVIRON division of APBI Environmental Sciences Group 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, consumer products, and the
workplace. ENVIRON's engagements typically involve creative, multidisciplinary
solutions to complex problems. ENVIRON is headquartered in Arlington, Virginia,
and has offices in Princeton, New Jersey; Emeryville, Novato and Irvine,
California; and Houston, Texas.
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 and 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 50% of ENVIRON's professional staff have advanced
degrees at the master's level or above. Of those with advanced degrees,
approximately 29% have attained their Ph.D.
In 1994, ENVIRON generated approximately 98.1% of the net revenues
from continuing operations of the environmental sciences group, and
approximately 25.7% of the net revenues from continuing operations of the
Company. ENVIRON offers services principally in the following areas.
Chemical Risk Assessment and Risk Management. A substantial portion of
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the consulting services provided by the Company through its ENVIRON division
relate to 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. ENVIRON also assists clients 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
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audits to determine compliance with specific laws regulating chemical releases
into 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
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facility 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
assessments are performed in connection with mergers, acquisitions and real
estate transactions by prospective purchasers, sellers and lending institutions
to provide an independent assessment of potential environmental liabilities.
ENVIRON's services in this area also 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 to
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determine 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
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strategic support to clients who are or who anticipate becoming involved in
litigation relating to environmental, occupational and product safety issues.
ENVIRON's litigation support 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.
In addition, ENVIRON's senior staff members have extensive experience providing
expert testimony in the areas of toxicology, risk assessment and contaminant
releases.
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Product Safety Regulation. ENVIRON provides strategic scientific
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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
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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; 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 Services. ENVIRON also provides a variety of other services that
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complement its primary service areas. Such services include facility siting and
permitting; water quality assessments; waste management; emergency planning; and
evaluation of environmental management systems. Such other services have
historically represented a relatively small percentage of the net revenues of
ENVIRON. However, the Company believes that it will have opportunities to expand
its business in these areas in the future.
Investment in EnSys Environmental Products Inc.
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In December 1992, the Company purchased, through its wholly owned
subsidiary, APBI Environmental Sciences Group, 1,824 shares of Series D
Convertible Preferred Stock (the "Series D Stock") of EnSys Environmental
Products Inc. ("EnSys"), and a related warrant (the "Warrant") to purchase 1,500
shares of Series E Convertible Preferred Stock (the "Series E Stock") of EnSys.
EnSys completed an initial public offering of its common stock in October 1993.
In connection with the public offering, the 1,824 shares of EnSys Series D Stock
owned by the Company were converted into 729,600 shares of EnSys common stock.
In addition, the Company exchanged its Warrant to acquire EnSys Series E Stock
for a Warrant to acquire up to 400,000 shares of EnSys common stock and received
an additional Warrant to acquire up to 466,667 additional shares of EnSys common
stock. Each of the common stock shares included in the Warrants has a purchase
price of $7.50 per share and 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 24% if both common stock and warrants are
considered.
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.
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Regulatory Market Forces
The market for the Company's services has developed principally as a
result of public concern over the human health and environmental impact of
pharmaceutical, chemical and consumer products; the associated increase in
litigation related to exposure to hazardous substances; legislation in the
United States and abroad regulating the pre-market approval and post-market
surveillance of such products and mandating the management, control and
remediation of hazardous substances in the environment; and increased investment
in research and development by pharmaceutical and biotechnology companies,
including increased outsourcing of clinical studies.
Many countries have enacted laws and regulations that require
toxicological and other safety testing of various substances to obtain
governmental approval to market them. The most significant of these laws and
regulations concern the safety of pharmaceutical products. The results of
toxicological and, ultimately, clinical tests conducted upon pharmaceutical
products must be submitted to appropriate government agencies, such as the FDA
in the United States, the European Committee for Proprietary Medicinal Products
("CPMP") 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 also must
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 United
States, 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; 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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Clients
The Company
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During the past fiscal year, the Company provided services to over
1,100 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 1994, the Company's ten largest clients accounted for approximately
33% of the Company's net revenues from continuing operations.
In 1994, 28% of the Company's net revenues from continuing operations
were derived from clients outside the United States, in particular from Europe
and Japan, and related principally to biological safety testing. A majority of
the net revenues of Pharmaco LSR's clinical services operations, and virtually
all of the net revenues of ENVIRON, currently are generated by clients in the
United States.
Life Sciences Group (Pharmco LSR)
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The principal markets for the toxicological testing services provided
by the Company include the pharmaceutical, agrochemical, and industrial chemical
industries, biotechnology companies, and, to a lesser extent, certain other
industries, such as those producing food additives, personal and healthcare
products, and veterinary supplies. Clinical research and development services
are provided principally to the pharmaceutical and biotechnology industries.
Environmental Sciences Group (APBI Environmental Sciences Group)
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ENVIRON provides chemical risk assessment and risk management services
to 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.
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The table below sets forth the geographic sources of the Company's
consolidated net revenues from continuing operations for the past three fiscal
years:
Percentage of Net Revenues
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1994 1993 1992
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United States .................... 72% 72% 70%
Europe ........................... 22 21 21
Japan ............................ 6 7 9
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100% 100% 100%
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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
Pharmaco LSR's operating divisions are conducted primarily by personnel based at
their respective facilities in the United States and Europe. ENVIRON conducts
separate marketing activities at each of its six offices, 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 also sponsors exhibits at scientific conferences.
In Japan, the Company is represented by the Chugai Boyeki Trading
Company located in Tokyo with a liaison office in Osaka.
Backlog
Pharmaco LSR maintains an order backlog for biological safety testing
services, 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
LSR, the negotiation and execution of a written agreement for a particular
project may
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extend over a period of months. Accordingly, Pharmaco LSR 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. Pharmaco LSR's order backlog, as described
herein, excludes backlog under signed letters of intent, and also excludes the
portion of order backlog that represents costs paid to subcontractors. The order
backlog of Pharmaco LSR for the services described above under written
agreements, excluding signed letters of intent and net of subcontractor costs,
was $81.4 million at December 31, 1994, compared to $78.2 million at December
31, 1993. During 1994, an increase in the value of the pound sterling, in which
currency the contracts of Pharmaco LSR's United Kingdom subsidiaries are
denominated, increased the value of Pharmaco LSR's order backlog as of December
31, 1994 by $1.2 million (as expressed in dollars). The pre-clinical toxicology
businesses increasingly include services, such as analytical chemistry and
quality assurance which are billed on a time and expenses basis and acute
toxicology which is short term in duration and, therefore, these services are
not represented by an order backlog.
The APBI Environmental Sciences Group's net revenues, including all
net revenues of ENVIRON, are not represented by an order backlog, as the APBI
Environmental Sciences Group engagements are generally of an 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.
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.
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.
The pre-clinical divisions of Pharmaco LSR compete with other
toxicological testing facilities principally on the basis of reputation,
experience and qualifications of professional staff, record for quality of
services, timeliness in providing test results to clients, accuracy of test
results and price. Competitors of Pharmaco LSR include other major independent
laboratories, including those of Huntingdon International Holdings PLC, Hazleton
Laboratories Corporation, a subsidiary of Corning Incorporated ("Hazleton"), and
International Research and Development Corporation. In addition, many large
pharmaceutical and chemical companies maintain in-house testing facilities that
perform a substantial percentage of their testing services. Nevertheless, even
companies with in-house testing facilities typically refer a portion of their
testing studies to
-12-
outside laboratories to assure independence and acceptability of test results to
regulatory authorities, to achieve expeditious completion of a given project, to
take advantage of the special expertise offered by a particular independent
laboratory, or because their internal testing facilities are fully employed.
Pharmaco LSR's clinical services division competes principally against
other independent contract research organizations and analytical laboratories.
In Phase I research, Pharmaco LSR typically competes against a few
well-established companies, such as Hazleton, 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 contract research organization's facility, ability to recruit
subjects on a timely basis, reliability of clinical procedures and timeliness
and accuracy of final report production. In Phase II and Phase III clinical
development trials, Pharmaco LSR competes against a number of substantial
clinical research organizations, including G.H. Besselaar and Associates, a
subsidiary of Corning Incorporated, Quintiles Transnational Corp. and ClinTrials
Research Inc. Competitive factors in Phase II and III 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 ability
to provide biostatistical, regulatory and other peripheral services, such as the
analytical laboratory services provided by Pharmaco LSR's laboratory located in
Richmond, Virginia, also enhances a contract research organization's ability to
attract Phase II and III development trials.
APBI Environmental Sciences Group faces substantial competition in
each market in which it operates. Its divisions rely, in part, on their
reputations to differentiate themselves from competitors.
ENVIRON competes with many firms, ranging from small, local firms to
large, national firms. In addition, because of the increased demand for
environmental consulting services and relatively low barriers to entry in this
field, many new competitors have entered the market since ENVIRON commenced
operations in 1982. 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 creative, multidisciplinary solutions and
significant value-added services.
Government Regulations
The toxicological testing services performed by Pharmaco LSR are
subject to various regulatory requirements designed to assure the quality and
integrity of the testing process. The industry standard for conducting
toxicological testing is embodied in regulations called "Good Laboratory
Practice" ("GLP"). GLP has been adopted by the EPA and the FDA in the United
States, by the Department of Health in the United Kingdom and by similar
regulatory authorities
-13-
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 quality assurance units at each of its laboratory facilities. These
units, which operate as separate departments, monitor ongoing compliance with
GLP regulations by auditing test data and conducting regular inspections of
testing procedures. In addition, the use of animals by the pre-clinical
division for toxicity testing is regulated in both the United States and
the United Kingdom.
The industry standard for the conduct of clinical research and
development studies, such as those conducted by Pharmaco LSR, is embodied in
guidelines called "Good Clinical Practice" ("GCP"). Although GCP has not been
formally adopted as regulations by the FDA or, with certain exceptions, by
similar regulatory authorities in other parts of the world, as a matter of
practice, the FDA and many other regulatory authorities require that test
results submitted to such authorities be based on studies conducted in
accordance with GCP. Certain provisions of GCP have been included in regulations
adopted by the FDA. Several countries within the European community have now
adopted GCP as part of their regulations. GCP stipulates procedures designed
to ensure the quality and integrity of data obtained from clinical testing and
to protect the rights and safety of clinical subjects.
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 in the amount of $10,000,000
with a $2,500,000 self-insured retention. Pharmaco LSR's clinical operations,
which were not previously insured, have now obtained coverage from November
1992. Newly acquired companies will be covered from the date of their
acquisition. Coverage for Pharmaco LSR's pre-clinical laboratories and ENVIRON
extend back to the same periods as in their respective previous policies.
Employees
As of December 31, 1994, the Company had over 1,950 full-time
equivalent employees, of whom approximately 300 had advanced degrees. None of
the Company's employees are
-14-
represented by a labor union or are 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 footnote 17 to the Company's consolidated financial
statements for each of 1994, 1993 and 1992 are the Company's revenues, operating
profit or loss and assets attributable to each geographic area in which the
Company operates.
-15-
Item 2. Properties.
The United Kingdom and United States biological safety testing
laboratories own extensive facilities in Suffolk, England and East Millstone,
New Jersey, respectively. These facilities include animal accommodations and
laboratories with state-of-the-art analytical equipment and security systems.
Pharmaco LSR owns 8 buildings in Austin, Texas, providing approximately 200,000
square feet of clinic and office space. Each of the Company's owned properties
is mortgaged and held as collateral for the Company's long-term debt described
in footnote 9 to the Company's consolidated financial statements.
Square Feet of
Acres of Land Building Space
--------------- ---------------
Pharmaco LSR:
- ------------
Eye, Suffolk, England .............. 30 287000
Cramlington, England ............... 3 16300
East Millstone, New Jersey ......... 50 189000
Austin, Texas ...................... 3 80000
Austin, Texas ...................... 3 42000
Austin, Texas ...................... 2 22700
Austin, Texas (1)(2) ............... 3 36000
Austin, Texas ...................... 2 22600
APBI Environmental Sciences Group:
- ---------------------------------
Houston, Texas ..................... 2 36000
- ------------------------
(1) Currently partially leased to outside tenants.
(2) Currently subject to agreement to sell by Pharmaco LSR with closing
under sales contract scheduled for May, 1995.
-16-
The Company leases major facilities at the following locations:
Square Feet of
Location Building Space
--------- ---------------
Pharmaco LSR
- ------------
Richmond, Virginia ...................... 50,100
Chelmsford and Cambridge, England ....... 8,300
Brussels, Belgium ....................... 6,100
Paris, France ........................... 11,900
Karlsruhe, Germany ...................... 5,500
Columbia, Maryland ...................... 6,400
ENVIRON
- -------
Arlington, Virginia (1) ................. 43,800
Princeton, New Jersey ................... 53,800
Emeryville, California .................. 24,300
Irvine, California ...................... 15,300
Novato, California ...................... 7,400
Houston, Texas .......................... 6,600
- -------------------------
(1) ENVIRON has an option to lease additional space in this building in
1998. Prior to 1989, ENVIRON's principal executive offices were
located in a building in Washington, D.C., subject to a lease expiring
in February 1995. The Company believes that both its owned and leased
facilities have adequate capacity to handle significant additional
business growth.
The Company believes that both its owned and leased facilities have
adequate capacity to handle significant additional business growth.
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.
(a) The Company held its Annual Meeting of Stockholders on October
21, 1994.
-17-
(b) Not applicable.
(c) The sole matter voted upon at the Company's Annual Meeting of
Stockholders was the election of Dr. Joseph H. Highland, Dr. Geoffrey K. Hogan,
Mr. Steven A. Fleckman and Mr. Frank E. Loy as directors. The results of the
election were as follows:
ABSTENTION OR
NOMINEE FOR AGAINST BROKER NON-VOTE
------- --- ------- ---------------
Dr. Joseph H. Highland 22,692,531 199,796 0
Dr. Geoffrey K. Hogan 21,074,008 1,818,319 0
Mr. Steven A. Fleckman 22,688,915 203,412 0
Mr. Frank E. Loy 22,689,967 202,360 0
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The common stock of the Company, par value $.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 1994 and 1993, as
reported by the National Association of Securities Dealers, Inc.:
1994 1993
-------------------------- --------------------
High Low High Low
---- ---- ---- ----
First Quarter .............. $6.63 $4.88 $9.75 $7.25
Second Quarter ............. 7.38 5.31 7.50 4.88
Third Quarter .............. 6.50 5.25 6.25 5.38
Fourth Quarter ............. 6.13 4.63 6.00 4.25
As of March 15, 1995, there were approximately 5,600 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 loan agreement governing the Company's term loan and revolving
line of credit currently prohibits the payment of cash
-18-
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, 1990 through December 31, 1994 have been derived
from the audited consolidated financial statements of the Company, which have
been audited by Arthur Andersen LLP, 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 LSR, pursuant to which transaction Pharmaco LSR
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 years
ended December 31, 1990 and December 31, 1991 have been restated to reflect such
transaction, using Pharmaco's financial statements for its fiscal years ended
March 31, 1990, and December 31, 1990 and 1991, respectively. The financial
statements of Pharmaco for the fiscal year ended March 31, 1990 and for the nine
months ended December 31, 1990 have been audited by Grant Thornton, independent
public accountants. The financial statements of Pharmaco for the three months
ended March 31, 1990 and the year ended December 31, 1991 have been audited by
Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent public
accountants.
The Company's consolidated financial data has been restated to show
its ETC and Paragon divisions as discontinued operations. See Note 3 of Notes to
Consolidated Financial Statements.
Net revenues and direct costs are stated separately for the Company's
Life Sciences Group (Pharmaco LSR) and the continuing operations of the
Company's Environmental Sciences Group (APBI Environmental Sciences Group).
-19-
Year Ended December 31,
-----------------------
1994 1993 (1) 1992 (2) (3) 1991 (2) 1990 (4)
---- -------- ------------ -------- --------
(In thousands, except per-share data)
Consolidated Statement of
Operations Data:
Net revenues (5):
Pharmaco LSR $ 129,099 $ 115,154 $ 115,828 $ 101,536 $ 87,256
Environmental sciences 45,763 40,190 43,179 43,555 32,835
------- ------- ------- ------- ------
174,862 155,344 159,007 145,091 120,091
Direct costs:
Pharmaco LSR 92,692 88,295 74,782 68,034 51,896
Environmental sciences 30,095 27,047 27,079 28,789 22,802
------- ------- ------- ------- ------
122,787 115,342 101,861 96,823 74,698
Selling, general and
administrative expenses 44,642 46,783 32,801 27,012 27,767
Provision for business
restructuring - 9,365 7,623 - -
------- ------- ------- ------- ------
Operating income (loss) 7,433 (16,146) 16,722 21,256 17,626
Merger costs - - 4,296 - 3,212
Income (loss) before
cumulative effect of a
change in accounting
principles and
discontinued operations
(1) (3) (4) 2,865 (13,873) 7,035 13,448 7,352
Discontinued operations (12,873) (12,133) (521) 1,349 163
Cumulative effect of a
change in accounting
principles - - - - 1,593
Net income (loss) $(10,008) $(26,006) $ 6,514 $14,797 $9,108
Weighted average number
of common shares
outstanding 28,129 28,254 29,999 28,908 26,520
Earnings per share:
Before cumulative effect
of a change in
accounting principles
and discontinued
operations $ 0.10 $(0.49) $ 0.23 $ 0.47 $ 0.28
Cumulative effect of a
change in accounting
principles - - - - .06
Discontinued operations (0.46) (0.43) (0.01) 0.04 -
------- ------- ------- ------- ------
Net income (loss) $ (0.36) $ (0.92) $ 0.22 $ 0.51 $ 0.34
====== ====== ====== ====== ======
-20-
Year Ended December 31,
-------------------------------------------------------------
1994 1993 (1) 1992 1991 1990
---- -------- ---- ---- ----
(In thousands, except per-share data)
Consolidated Balance
Sheet Data:
Total assets $181,680 $181,240 $190,840 $167,762 $130,910
Working capital 23,683 (2,843) 36,595 29,856 10,409
Short-term borrowings - 16,929 7,332 5,020 7,851
Current maturities of
long-term debt 2,406 4,204 436 1,727 1,476
Long-term debt 42,884 14,268 13,678 10,204 11,048
Redeemable preferred
stock (6) - - - 11,183 11,183
Total stockholders'
equity 68,708 76,590 111,920 84,942 48,735
- ------------------------
(1) The loss before cumulative effect of a change in accounting principles
and discontinued operations for 1993 was affected by (i) a charge
against operating income of $9,365,000 in connection with
restructuring 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) The acquisition of certain assets of NatEx in June 1992 and the
acquisition of ETC in September 1991 were accounted for as purchase
transactions.
(3) Income before cumulative effect of a change in accounting principles
and discontinued operations 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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(4) Income before cumulative effect of a change in accounting principles
and discontinued operations for the year ended December 31, 1990 was
affected by (i) the incurrence of $3,212,000 of merger costs in
connection with the acquisition of ENVIRON and (ii) 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 ENVIRON
were not deductible for tax purposes.
(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.
-21-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
During 1994, the Company reported income from continuing operations of
$2,865,000, or $0.10 per share, compared to a loss from continuing operations of
$13,873,000, or $0.49 per share in 1993.
At the end of 1993, the Company adopted a plan to divest its
environmental analytical laboratory division, ETC. During 1994, as it became
apparent that the environmental testing market was experiencing further
consolidation and that the ETC divestiture would take longer than originally
anticipated, the Company consolidated its environmental analytical laboratory
division with two other companies. As part of the consolidation, which occurred
in August 1994, APBI Environmental Sciences Group, Inc., PACE, Inc. and
Coast-to-Coast Analytical Services, Inc. each contributed substantially all of
the assets used in their respective environmental laboratory businesses to PACE
Incorporated, a newly formed entity, to form the second largest firm of its kind
in the United States. Due to the additional time required to divest of this
investment and after further assessment of this investment's fair value during
1994, the Company recorded $12,083,000 in additional charges to reduce this
investment to its estimated net realizable value. The Company does not believe
that any further charges will be taken with respect to this investment that
would have a material effect on the future results of operations. During the
second quarter of 1994, the Company sold its agrochemical research and
development division, Paragon Global Services. (The Company's consolidated
financial data has been restated to reflect its former ETC division, now part of
PACE Incorporated, and Paragon Global Services as discontinued operations -- See
Note 3 of Notes to Consolidated Financial Statements). 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.
In this connection, the Company continues to evaluate various
strategic alternatives with respect to ENVIRON. Any long-term strategy adopted
by the Company, including the retention of ENVIRON as one of the Company's core
businesses, will take into consideration, in part, the role of ENVIRON senior
management. The existing employment contracts with the four original ENVIRON
founders who continue to be active within ENVIRON come up for renewal in
September 1995. Accordingly, any strategic plan adopted by the Company would
need to address the renewal of such employment contracts, as well as the
negotiation of employment arrangements with certain other ENVIRON principals and
the possibly higher costs attendant on such negotiation.
In the past, the net revenues of Pharmaco LSR were analyzed as two
operating businesses. The clinical services division included the clinical
development services in North America and Europe, biostatistical services, the
analytical chemistry laboratory, and the Phase I clinic. The toxicological
testing services division included the toxicology laboratories in the United
States and the United Kingdom. The Company changed the way it manages Pharmaco
-22-
LSR during 1994. The clinical development services business in North America and
Europe and the biostatistical services business are managed as one operating
group. These businesses are people-intensive and emphasize data gathering and
monitoring from large-scale clinical trials. The toxicology laboratories, the
Phase I clinic and the analytical chemistry laboratory are managed as the second
operating group. These businesses provide services required by the Company's
clients as the initial steps in the selection of compounds for product
development on the basis of safety and tolerability. Further, the toxicology,
Phase I clinic and analytical laboratory businesses are capital-intensive with
relatively high fixed costs. The Company's analysis of the change in net
revenues of Pharmaco LSR will include a breakdown of the businesses within the
two operating groups to describe more accurately the growth and organization
within the life sciences business.
During 1994, the Company undertook a plan to strengthen the corporate
and divisional accounting and financial planning procedures and systems. The
Company purchased a new general ledger system and created a centralized
accounting group to improve the Company's financial systems and controls.
Accordingly, many duplicative functions in the areas of finance and accounting
have been eliminated. In 1994, the Company also invested in improvements and
enhancements to information technology. This investment, in the form of computer
and systems personnel, hardware and software, is expected to allow the Company
to better manage data flow and collection to improve the overall speed and
quality of service to our clients.
Revenue Recognition
The Company records revenues from contracts that extend beyond more
than one accounting period on a percentage-of-completion basis. Revenues from
biological safety studies and from Phase I and II clinical studies are generally
recognized on a percentage-of-completion basis, based on the completion of
milestone measurements. Revenues from Phase III and IV clinical studies are
recognized based on time spent on studies with this work typically billed at
predetermined billing rates. The Company is reimbursed for investigator fees and
out-of-pocket costs incurred during the performance of the study.
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.
Contract administration is being strengthened within Pharmaco LSR in order to
better address these risks.
Revenues from ENVIRON contracts are recorded based on hours billed to
clients, which reflect the number of professional staff hours incurred that are
chargeable to clients. The Company recognizes revenues from computer program
licenses upon shipment of the product,
-23-
net of provisions for returns and allowances. Revenues from software support
agreements are recognized pro rata over the term of the agreement, which is
generally one year.
All of the Company's continuing businesses routinely subcontract with
other organizations in the course of providing services. Pharmaco LSR 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 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 United Kingdom subsidiaries
and, since 1990, in the case of Pharmaco LSR'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."
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:
-24-
Percentage of Net Revenues From Continuing Operations
-----------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------------------
1994 1993(1) 1992(2)
----------------- --------------------- -------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
Net revenues (3):
Pharmaco LSR $129,099 73.8% $115,154 74.1% $115,828 72.8%
Environmental sciences 45,763 26.2 40,190 25.9 43,179 27.2
------- ---- ------- ---- ------- ----
174,862 100.0 155,344 100.0 159,007 100.0
Direct costs:
Pharmaco LSR 92,692 88,295 74,782
Environmental sciences 30,095 27,047 27,079
------- ------- -------
122,787 70.2 115,342 74.3 101,861 64.1
Selling, general and
administrative expenses 44,642 25.5 46,783 30.1 32,801 20.6
Provision for business
restructuring - - 9,365 6.0 7,623 4.8
------- ------- -------
Operating income (loss) 7,433 4.3 (16,146) (10.4) 16,722 10.5
Merger costs - - - - 4,296 (2.7)
Net income (loss) from
continuing operations 2,865 1.7 (13,873) (8.9) 7,035 4.4
Discontinued operations (12,873) (7.4) (12,133) (7.8) (521) (0.3)
------- ---- ------- ---- ------- ----
Net income (loss) $(10,008) (5.7) $(26,006) (16.7) $ 6,514 4.1
-25-
Percentage of Increase (Decrease)
---------------------------------
Year Ended December 31,
--------------------------------------------------------
1994 vs. 1993 1993 (1) vs. 1992
------------- -----------------
Net revenues (3):
Pharmaco LSR 12.1% (0.6)%
Environmental sciences 13.9 (6.9)
Total 12.6 (2.3)
Direct costs:
Pharmaco LSR 5.0 18.1
Environmental sciences 11.3 (0.1)
Total 6.5 13.2
Selling, general and
administrative expenses (4.6) 42.6
Operating income(4) N/A N/A
Net income(4) N/A N/A
- ---------------------------
(1) The 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) Net income 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 and (iv) 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.
(3) Net of subcontractor costs.
(4) N/A - Change not meaningful.
Year Ended December 31, 1994 Versus Year Ended December 31, 1993
- ----------------------------------------------------------------
Net revenues from continuing operations increased $19,518,000 (12.6%)
in 1994 from 1993. Of such increase, $13,945,000 was attributable to the
Company's life sciences business, and $5,573,000 was attributable to the
Company's continuing environmental sciences business.
-26-
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 $3,593,000 (12.8%) to $31,594,000 compared to
1993, as the average size, function and geographic scope of the clinical trials
performed continue to grow. Similarly, net revenues from European clinical
development services increased $770,000 (8.6%) to $9,675,000 in 1994. The
biostatistical services division of Pharmaco LSR, 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 $1,795,000 (32.1%) to $7,388,000 as
compared to 1993, due to more aggressive marketing efforts by Pharmaco LSR. Net
revenues from Pharmaco LSR's clinical and laboratory business (Phase I and
analytical laboratory studies) increased $4,803,000 (16.2%) to $34,455,000 in
1994, as a result of an increase in the volume of projects. Net revenue from
Pharmaco LSR's United Kingdom toxicology business increased $1,140,000 (3.9%) to
$30,161,000 in 1994 compared to 1993, while the U.S. toxicology business
reported an increase in net revenues of $1,844,000 (13.2%) to $15,826,000 in
1994. The increase in the United Kingdom net revenues include an increase of
$635,000 as a result of an increase in value of the pound sterling as compared
to the U.S. dollar.
The $5,573,000 increase in net revenues in the 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 $44,892,000 in
1994 as compared to 1993 due primarily to increased demand for professional
services. Net revenues generated by the environmental sciences group also
include licensing fees received for environmental laboratory software developed
by the Company.
Direct costs increased in 1994 by $7,445,000 (6.5%) over 1993. Of such
increase, $4,397,000 was attributable to the Company's life sciences group and
$3,048,000 was attributable to the Company's environmental sciences group. The
increase in the direct costs of Pharmaco LSR relates to the overall increase in
business experienced by all operating divisions. As a percentage of net revenue,
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 $2,141,000
(4.6%) to $44,642,000 in 1994 compared to $46,783,000 in 1993. As a percentage
of net revenue, selling, general and administrative expenses decreased to 25.5%
in 1994 compared to 30.1% in 1993. The decrease was attributable to additional
accounts receivable reserves of approximately $5,857,000 recorded in 1993.
Minimal charges were recorded in 1994. This decrease was partially offset by
increased marketing expenses of $1,408,000 incurred by Pharmaco LSR and by
increased corporate general and administrative expenses of $1,040,000. 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 $752,000 in expenses related to a new financing
facility, which was negotiated in 1994 and other professional fees.
-27-
The Company incurred restructuring charges of $9,365,000 in 1993. No
comparable charges were incurred in 1994. The 1993 charges primarily related to
the reengineering of the Company's two 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 $23,579,000 to
$7,433,000 in 1994 from a loss of $16,146,000 in 1993 as a result of the
previously mentioned factors.
Interest expense, net of interest income, increased to $2,682,000 in
1994 from $1,567,000 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
$12,873,000 in 1994. Of that amount, $12,083,000 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 $505,000 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 $285,000 in net losses generated
by the operations of Paragon prior to its sale.
The Company recorded a provision of $1,873,000 for income taxes from
continuing operations in 1994 compared to a benefit of $3,446,000 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.
Year Ended December 31, 1993 Versus Year Ended December 31, 1992
- ----------------------------------------------------------------
Net revenues from continuing operations decreased $3,663,000 (2.3%) in
1993 from 1992. Of such decrease, $674,000 was attributable to the Company's
life sciences business, and $2,989,000 was attributable to the Company's
continuing environmental sciences business.
The decrease in net revenues of the life sciences business was
primarily due to a decline in the net revenues generated by the Company's
pre-clinical facilities, which was offset in part by an increase in net revenues
generated by clinical services. Net revenues from Pharmaco LSR's United Kingdom
toxicology facilities decreased $7,366,000 compared to 1992, of which $5,114,000
resulted from a decrease in the average value of the pound sterling. Net
revenues from the pre-clinical facilities in the United States decreased
$10,036,000 compared to 1992.
The decrease in net revenues generated by the Company's pre-clinical
facilities was offset in part by a 29.9% increase in net revenues from clinical
services. Net revenues generated by clinical research studies in the United
States increased 34.5% to $51,502,000 in 1993 compared to 1992. Net revenues
generated by the clinical analytical chemistry division of the Company's life
sciences business increased 31.9% to $11,744,000 in 1993. Net revenues from
European clinical services increased 8.1% to $8,905,000 in 1993. The Company
continues to
-28-
experience increased for its clinical research multi-center studies and intends
to focus on expanding its business in that area.
The decrease in net revenues in the environmental sciences business
resulted from lower demand for those services, particularly in the first quarter
of the year. ENVIRON's net revenues for 1993 were approximately 6.6% below 1992
levels. The Company believes that the lower demand for its environmental
sciences services is attributable to diminished enforcement of environmental
regulations by the Environmental Protection Agency during the first year of the
Clinton Administration, as well as, a lack of growth in certain business
segments of the U.S. economy.
Direct costs increased in 1993 by $13,481,000 (13.2%) over 1992.
Direct costs for Pharmaco LSR increased $13,513,000, which were offset slightly
by a $32,000 decrease in the direct costs incurred by the environmental sciences
business. The increase in the direct costs of Pharmaco LSR relates to an overall
increase in the clinical studies and analytical chemistry services provided by
the life sciences group, which grew substantially in 1993. The direct costs of
the clinical services division of Pharmaco LSR increased as a percentage of net
revenues, in part, as a result of an increase in the percentage of contracts
that are fixed-price contracts, which increases direct costs because
subcontractor costs on fixed-price contracts are included in direct costs. The
decrease in the direct costs of the environmental sciences business was
primarily due to a decrease in client reimbursable expenses, which were
partially offset by an increase in incentive compensation costs.
The percentage of direct costs to net revenues from continuing
operations for the environmental sciences business increased to 67.3% in 1993
from 62.7% in 1992. The percentage of direct costs to net revenues for the life
sciences business increased to 76.7% from 64.6%, primarily as a result of the
sharp decrease in net revenues generated by the toxicology business, which has
relatively high fixed costs, and as a result of the Company's inability to
reduce costs, particularly fixed costs, in its toxicology division as quickly as
revenues declined. In 1993 the Company accrued a $6,640,000 restructuring charge
related to the reengineering of its two toxicology laboratories in the United
States and the United Kingdom, including staff reductions of 118 personnel in
1993 and an additional 75 reductions planned in 1994. The Company believes that
the reengineering of the toxicology laboratories will improve efficiency and
reduce operating costs.
Selling, general and administrative expenses increased $13,982,000
(30.1% of net revenues from continuing operations) in 1993 compared to 1992.
$5,857,000 of the increase was attributable to a charge for additional reserves
for accounts receivable. Corporate expenses increased $1,906,000 in 1993 over
1992, primarily due to increased professional services fees and higher personnel
expenses. Selling costs increased $906,000 in 1993, reflecting the investment
made by the Company in additional marketing personnel during the year. The
remaining increase was primarily due to increased costs of centralizing
administrative group controls, principally in the clinical division of the
business.
-29-
The Company incurred total restructuring charges of $9,365,000 in
1993, including the $6,640,000 related to the reengineering of its two
toxicological laboratories in the United States and the United Kingdom. The
remaining $2,725,000 of the charge primarily relates to consulting fees in
connection with the design and implementation of reorganized reporting lines and
responsibilities.
Operating income from continuing operations decreased $32,868,000 in
1993 compared to 1992. Of this decrease, $15,222,000 relates to charges incurred
in 1993, consisting of the $9,365,000 restructuring charge and $5,857,000 of
increased reserves for accounts receivable as a result of the Company-wide
review of contracts in 1993. The Company-wide contracts review followed the 1992
consolidation of the accounting function of the Company's domestic life sciences
group to Austin, Texas and was prompted by a significant increase in accounts
receivable within the Company's East Millstone toxicology operations,
particularly within the first quarter of 1993. Excluding these charges, the
Company would have reported an operating loss of $924,000 for 1993. The
toxicology division of Pharmaco LSR accounted for approximately 74.2% of the
decrease, and approximately 12.8% of the decrease was attributable to the
Company's continuing environmental sciences businesses.
Net income from continuing operations decreased to a loss of
$13,873,000 in 1993, compared to profit of $7,035,000 in 1992. As noted above,
net income was adversely affected by several charges, and by weak demand for the
services offered by the Company's toxicology division of Pharmaco LSR.
Net interest increased by $1,959,000 in 1993 compared to 1992, as a
result of an increase in total debt outstanding. In 1992, the Company incurred
merger costs of $4,296,000 relating to the acquisition of Pharmaco. No
comparable costs were incurred in 1993.
The Company recorded a net loss from discontinued operations of
$12,133,000 in 1993 relating to its plan to divest ETC, its former analytical
laboratory division and Paragon which was sold in 1994. Of this amount,
$6,346,000 represents the estimated loss upon disposal of ETC, and $5,787,000
represents the loss from operations of ETC and Paragon, net of tax benefit,
incurred in 1993.
The Company recorded a benefit of $3,446,000 for income taxes from
continuing operations in 1993 compared to a provision of $6,165,000 in 1992, as
a result of the loss from continuing operations reported in 1993 and the fact
that certain merger costs incurred in 1992 were not deductible for tax purposes.
The effective tax rate for 1993 decreased to 21.8% compared to 47.6% in 1992.
Excluding the merger costs incurred in 1992, the effective tax rate for that
year would have been 36.6%.
Liquidity and Capital Resources
During 1994, the Company expended $14,495,000 for capital additions
and leasehold improvements. Expenditures included $6,181,000 for expansion and
improvement of offices and laboratory testing facilities and $8,314,000 for new
laboratory, office, and computer equipment.
-30-
The expenditure level represents a decrease from the two prior years as several
building expansion and renovation programs were completed. In 1995 capital
expenditures are expected to relate primarily to upgrades to scientific and
computer equipment.
During the second quarter, the Company completed a refinancing of its
principal credit facility. The new three-year facility consists of a term loan
of $25,000,000 and a secured revolving line of credit of $20,000,000.
Approximately 84% or $21,111,000 of the term loan accrues interest at a fixed
rate of 9.25% per annum and the remainder bears interest at the prime rate plus
1.5%. Repayment of principal is scheduled to begin on September 1, 1995 at
$892,900 per quarter. The secured revolving line of credit accrues interest at
the prime rate plus 1.5%. Based on the Company's ability to meet certain
covenant performance levels, the rate may be reduced after March 31, 1995. The
proceeds from the loan were used to repay in full the Company's then existing
bank facility and a portion of its other long-term debt and working capital
debt. The unused portion will be used to provide working capital and for general
corporate purposes. The Company expects to repay its outstanding indebtedness
through cash generated from its internal operations, the refinancing of its
outstanding indebtedness or some combination thereof.
From December 31, 1993 to December 31, 1994, the Company experienced a
$13,958,000 increase in accounts receivable and a $3,529,000 increase in
advanced billings (excluding the effects of exchange) principally as a result of
the overall increase in net revenue and the timing of certain payments from two
of the Company's largest clients (approximately $3,700,000 in the aggregate)
which were expected to be received in December 1994 but were actually paid and
received in early January 1995. Cash and cash equivalents decreased $2,605,000
over the same period. As of December 31, 1994, the Company had cash on hand of
$7,944,000 and $7,983,000 of additional borrowing capacity on its existing lines
of credit.
The Company believes that cash flow generated by its own operating
activities, together with its current borrowing capacity, is adequate to finance
its worldwide operations and anticipated normal growth of its business. Further
growth of the Company's business may be funded through additional borrowings, or
through issuance of shares of Common Stock of the Company.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments In Debt and Equity Securities" ("SFAS 115"), issued in May
1993, changes the accounting treatment of certain investment securities. The
Statement requires the classification of such investments into three categories:
held to maturity, available for sale, and trading. The Statement is effective
for fiscal years beginning after December 15, 1993. The Company implemented SFAS
115 in the first quarter of 1994. The Company's equity investment in EnSys has
been classified as "available for sale" and is carried at its fair value (i.e.,
market value) of $2,918,000. Changes in the fair value of the investment have
been charged directly to stockholders' equity. See Note 6 of Notes to
Consolidated Financial Statements.
-31-
Effects of Inflation
Management does not believe that inflation has had a significant
impact on the Company's results of operations, because the Company has been able
to offset increases in costs attributable to inflation and maintain operating
margins through increases in fees.
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:
Pound Sterling U.S. Dollar per
Year per U.S. Dollar Pound Sterling
----- --------------- ---------------
1992 ......... 0.564 1.773
1993 ......... 0.665 1.503
1994 ......... 0.651 1.536
---------------------------
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.
--------------
-32-
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:
Percentage
of Total Net Revenues
Year in Pounds Sterling
---- --------------------
1992 ..................... 24.6%
1993 ..................... 19.8
1994 ..................... 18.9
However, because the Company is currently expanding its foreign operations, a
higher percentage of the Company's total net revenues may be denominated in
foreign currencies in the future. In 1994, approximately 4% of the Company's
total net revenues were generated by the clinical development services
businesses primarily in Belgium, France and Germany.
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.
-33-
PART III
Item 10. Directors and Executive Officers of the Company.
The following table sets forth, with respect to each current director
and executive officer of the Company, the name, age and all positions and
offices with the Company currently held by each such person:
Name Age Director Since Position
- ---- --- -------------- --------
Kenneth H. Harper (1)(2) 63 1986 President, Chief Executive Officer and Chairman of the
Board of Directors of the Company
Stephen L. Waechter (2) 44 1993 Senior Vice President, Chief Financial Officer,
Treasurer and Director of the Company
Swep T. Davis (5) 50 1992 Director
Charles L. Defesche (5) 46 1993 Chairman of the Company's Pharmaco LSR
International Inc. subsidiary and Director of the
Company
Jamie G. Donelan 40 -- Controller
Steven A. Fleckman (1)(3)(4) 45 1993 Director
Frederick Frank (1)(3)(5) 62 1988 Director
Marvin L. Hendrix 52 -- Assistant Treasurer and Assistant Secretary
Joseph H. Highland (4) 50 1990 Chief Executive Officer of the ENVIRON division of
the Company's APBI Environmental Sciences Group,
Inc. subsidiary and Director of the Company
Frank E. Loy (1) (3) (4) 66 1991 Director
Thomas J. Russell, Jr. (1) 63 1986 Director
(2) (3)
John H. Timoney (2) 61 1986 Senior Vice President of the Company, Secretary of the
Company's APBI Investor Relations, Inc. subsidiary,
and Director of the Company
Grover C. Wrenn (5) 52 1990 Director
(1) Member of the Nominating Committee
(2) Term as a director expires in 1996.
(3) Member of the Audit Committee and the Compensation and Stock
Plans Committee.
(4) Term as a director expires in 1997.
(5) Term as a director expires in 1995.
-34-
Biographical Information
Dr. Harper was a co-founder of Pharmaco LSR Ltd. (formerly Life
Science Research Limited), a United Kingdom subsidiary of the Company. Dr.
Harper served as the Managing Director and Chairman of Life Science Research
Limited from the time of its formation in 1972 until the Company became publicly
held in 1987. From 1987 to 1991, Dr. Harper served as President and Chief
Executive Officer of the Company. In 1991, Dr. Harper was appointed Chairman of
the Board of the Company and continued to serve as Chief Executive Officer of
the Company until January 1, 1993. Effective in February of 1995, Dr. Harper was
reappointed to serve as President and Chief Executive Officer of the Company.
Dr. Harper received his Ph.D. in Pathology from the University of London. He is
also a graduate of the Advanced Management Program of the Harvard Business
School.
Mr. Waechter served, from 1989 to 1993, as the Vice President -
Finance for GE Information Services, a division of General Electric Company,
which provides enhanced computer-based communications services to commercial and
industrial customers through a worldwide network. From 1987 to 1989, Mr.
Waechter served as the Manager of Operations Analysis for GE Electric
Distribution and Control, a division of General Electric Company. In September
1993, Mr. Waechter was appointed Chief Financial Officer and Treasurer of the
Company. Mr. Waechter received his Master of Business Administration from Xavier
University in 1974.
Mr. Davis served, from 1987 to 1992, as President and Chief Financial
Officer of Concord Resources Group, a hazardous waste treatment and disposal
company. During 1992, Mr. Davis was an independent consultant to companies in
the environmental industry. He served as the President of APBI Environmental
Sciences Group, Inc., a wholly owned subsidiary of the Company, from November
1992 until January 1995. Mr. Davis received his Master of Business
Administration from the Harvard Business School in 1972.
Dr. Defesche served, from 1987 to 1989, as the Vice President of
Research and Development of Boots Pharmaceuticals, Inc. and, in 1989, was
appointed Executive Vice President of Boots Pharmaceuticals, Inc. In November
1990, Dr. Defesche joined Pharmaco International Inc., a wholly owned subsidiary
of Pharmaco Dynamics Research, Inc., and served as its President and Chief
Executive Officer until March 1992. In addition, Dr. Defesche served as the
Chief Executive Officer of Pharmaco Dynamics Research, Inc. from March 1992
until its reorganization in January 1993 as part of Pharmaco LSR. From January
1993 until February 1995, Dr. Defesche served as the President and Chief
Executive Officer of Pharmaco LSR International Inc., a wholly owned subsidiary
of the Company. Dr. Defesche currently serves as the non-executive Chairman of
Pharmaco LSR International Inc.
Ms. Donelan served from 1990 to 1994 as Controller of ENVIRON
International Corporation and subsequently as group Controller of the Company's
Environmental Sciences Group. In June 1994, she was appointed Controller of the
Company. Ms. Donelan received a Master of Accounting from the George Washington
University in 1982. Before joining the Company she spent eight years with Arthur
Andersen & Co., in their audit practice.
-35-
Mr. Frank has been an investment banker with Lehman Brothers since
1969, and is currently a Senior Managing Director of Lehman Brothers. Mr. Frank
also serves on the Boards of Directors of R.P. Scherer Corporation and
Physicians' Computer Network Inc.
Mr. Fleckman was a partner in the law firm of Arnold & Fleckman from
1988 to 1991. Since 1991, Mr. Fleckman has been a partner in the law firm of
Fleckman & McGlynn (formerly Fleckman & Schless and, prior to that, Fleckman,
Johnson & Passman) and currently is the managing partner of the firm. Mr.
Fleckman received his Juris Doctorate from Harvard Law School in 1975.
Mr. Hendrix, a certified public accountant, served as Controller of
Bio/dynamics, Inc. ("Bio/dynamics") from 1977 until the Company became publicly
held in 1987. In 1987, I.M.S. International, Inc. ("IMS") transferred its
shareholdings in Bio/dynamics and Life Science Research Limited to the Company
and sold its entire interest in the Company to the public. Since that time, Mr.
Hendrix has served as Assistant Treasurer and Assistant Secretary of the Company
and served as Controller of the Company until June 1994.
Dr. Highland co-founded ENVIRON in 1982. He is currently the Chief
Executive Officer of the ENVIRON division of APBI Environmental Sciences Group,
Inc., which was formerly ENVIRON International Corporation, a subsidiary of the
Company, and has served as such since February 1992. Dr. Highland, who holds a
Ph.D. in Biochemistry from the University of Minnesota's School of Medicine,
served as co-director of the Hazardous Waste Research Program at Princeton
University before joining ENVIRON.
Mr. Loy has been the President of the German Marshall Fund of the
United States since 1981 and previously served as a Director of the Bureau of
Refugee Programs of the United States Department of State and as President and
Chief Operating Officer of the Penn Central Corporation and the Pennsylvania
Company.
Dr. Russell founded Bio/dynamics in 1961 and, following the
acquisition of Bio/dynamics by IMS in 1973, served as President of the division
of IMS which included Bio/dynamics and Life Science Research Limited until the
Company became publicly held in 1987. Dr. Russell served as a director of IMS
from 1984 to 1988, and as Chairman of the Board of IMS from 1987 to 1988. Dr.
Russell was Chairman of the Board of the Company from 1986 to 1991. He holds a
doctorate degree in Biochemistry and Physiology from Rutgers University. Dr.
Russell also serves on the Boards of Directors of Saatchi & Saatchi Company,
Uniroyal Technology Corporation and Adidas AG.
Mr. Timoney served as Controller of the division of IMS which included
Bio/dynamics and Life Science Research Limited from 1978 to 1987. From 1987 to
1992, Mr. Timoney served as the Vice President-Finance, Treasurer and Secretary
of the Company. In May 1992, Mr. Timoney was appointed to serve as Senior Vice
President of the Company and the Secretary of APBI Investor Relations, Inc., a
subsidiary of the Company. Mr. Timoney is responsible for the Company's investor
relations and is involved in strategic planning and in merger and acquisition
activity.
-36-
Mr. Wrenn co-founded ENVIRON International Corporation in 1982, which
was acquired by the Company in 1990, and served as its Chief Executive Officer
from the time of its formation until March 1992. Mr. Wrenn became President and
Chief Operating Officer of the Company in 1991 and also served as President of
the Company's Environmental Sciences Group from February 1992 to October 1992.
Mr. Wrenn also served as the Chief Executive Officer of the Company from January
1, 1993 until February of 1995. Mr. Wrenn is a director of Ensys Environmental
Products, Inc., and a director of PACE Incorporated. Mr. Wrenn also serves as
Vice Chairman of the Eckerd College Board of Trustees and as a trustee of the
UNC Public Health Foundation. Mr. Wrenn received his Master of Science degree in
Environmental Science and Engineering from the University of North Carolina.
There are no family relationships among any of the directors and
executive officers of the Company.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers, and persons who own more than 10%
of a registered class of the Company's equity securities, to file initial
reports of ownership and reports of changes in ownership of such equity
securities with the Securities and Exchange Commission (the "SEC"). Such persons
are also required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on a review of the copies of such
forms furnished to the Company, or written representations that no Forms 5 were
required, the Company believes that, with respect to the period from January 1,
1994 through December 31, 1994, its directors, executive officers and 10%
beneficial owners complied with all Section 16(a) filing requirements, except
that Mr. Wrenn failed to report in a timely manner the purchase of 666 shares of
Common Stock on May 11, 1994. Such share purchase was subsequently reported on
an Annual Statement of Changes In Beneficial Ownership on Form 5 filed on
February 14, 1995.
-37-
Item 11. Executive Compensation.
Summary of Cash and Certain Other Compensation
The following table sets forth the cash compensation paid by the
Company and its subsidiaries for or with respect to the fiscal years ended
December 31, 1992, 1993 and 1994, to each of the five most highly compensated
executive officers of the Company, including the Chief Executive Officer, during
fiscal year 1994, for all capacities in which they served.
-38-
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------------
Other Securities All Other
Salary Bonus Annual Underlying Compensation
Name and Principal Position Year ($) ($)(1) Compensation($) Options/SARs(#)(2) ($)(3)
--------------------------- ---- -------- -------- --------------- ------------------ ------------
Grover C. Wrenn (4) 1994 $198,625 $ -- $ -- 50,000 $22,645
President and Chief Executive 1993 181,500 -- -- 52,000 19,858
Officer 1992 181,500 -- -- -- 100,729
Swep T. Davis (5) 1994 200,000 100,000 -- 67,000 8,456
President of APBI 1993 200,000 28,125 -- -- 5,842
Environmental Sciences Group 1992 23,288 -- -- 100,000 5,034
Charles L. Defesche (6) 1994 229,828 -- -- 134,010 11,488
President and Chief Executive 1993 225,000 -- -- -- 29,814
Officer of Pharmaco LSR 1992 205,303 278,050 -- 170,076 26,319
International, Inc.
Joseph H. Highland 1994 211,667 150,000 -- 8,000 25,183
Chief Executive Officer of the 1993 200,000 60,889 -- 6,666 18,673
ENVIRON division of APBI 1992 177,513 -- -- -- 20,842
Environmental Sciences Group,
Inc.
Stephen L. Waechter (7) 1994 163,125 25,000 -- 20,000 5,051
Senior Vice President, Chief 1993 48,513 15,000 -- 24,000 1,292
Financial Officer and Treasurer 1992 -- -- -- -- --
- --------------------------
-39-
(1) With the exception of Mr. Waechter's bonus amounts, the annual bonus
amounts with respect to fiscal years 1994 and 1993 were determined
under the Company's Economic Value Added ("EVA") compensation program.
Dr. Defesche did not earn a bonus under the EVA program in 1994 and
1993. Mr. Wrenn did not earn a bonus under the EVA program in 1993 and
his bonus for 1994 has not been determined. Mr. Waechter received a
signing bonus of $15,000 when he joined the Company in September 1993
and was guaranteed a minimum cash bonus of $25,000 for fiscal year
1994, which was slightly higher than the bonus Mr. Waechter would
otherwise have received under the Company's EVA compensation program.
(2) With respect to the options awarded in fiscal year 1994 to Mr. Davis
and Dr. Defesche, (i) the options to acquire 67,000 shares of Common
Stock awarded to Mr. Davis were in substitution for the options to
acquire 100,000 shares of Common Stock awarded to Mr. Davis in fiscal
year 1992 and (ii) the options to acquire 134,010 shares of Common
Stock awarded to Dr. Defesche consisted of options to acquire 104,010
shares of Common Stock awarded to Dr. Defesche in substitution for the
options to acquire 170,076 shares of Common Stock awarded to Dr.
Defesche in fiscal year 1992 and options to acquire 30,000 shares of
Common Stock awarded to Dr. Defesche under the Company's annual
compensation program.
(3) The total amounts shown in the "All Other Compensation" column with
respect to fiscal year 1994 consist of the following: (i) $12,624 in
matching Company contributions to the APBI Environmental Sciences
Group, Inc. Pension Plan, a money purchase pension plan, on behalf of
Mr. Wrenn, $1,803 represents the taxable benefit to Mr. Wrenn of
premiums paid by the Company for group term life insurance on his
behalf, $3,718 represents the taxable benefit to Mr. Wrenn of premiums
paid by the Company for key man life insurance on his behalf, and
$4,500 in matching Company contributions to the APBI U.S. Retirement
401(k) Savings Plan, a defined contribution plan, on behalf of Mr.
Wrenn; (ii) $1,218 represents the taxable benefit to Mr. Davis of
premiums paid by the Company for group term life insurance on his
behalf, $2,738 represents the premiums paid by the Company for keyman
life insurance on his behalf and $4,500 in matching Company
contributions to the APBI U.S. Retirement 401(k) Savings Plan, a
defined contribution plan, on behalf of Mr. Davis; (iii) $522
represents the taxable benefit to Dr. Defesche of premiums paid by the
Company for group term life insurance on his behalf, $8,274 represents
payment for unused vacation benefits and $2,692 in matching Company
contributions to the APBI U.S. Retirement 401(k) Savings Plan, a
defined contribution plan, on behalf of Dr. Defesche; (iv) $2,016
represents the taxable benefit to Dr. Highland of premiums paid by the
Company for group term life insurance on his behalf, $4,500 in
matching Company contributions to the APBI U.S. Retirement 401(k)
Savings Plan, a defined contribution plan, on behalf of Dr. Highland,
$5,064 represents the premiums paid by the Company for keyman life
insurance on his behalf and $13,603 in Company contributions to the
APBI Environmental Sciences Group, Inc. Pension Plan, a money purchase
pension plan, on behalf of Dr. Highland; (v) $551 represents the
taxable benefit to Mr. Waechter of premiums paid by the Company for
group term life insurance on his behalf and $4,500 in matching Company
contributions to the APBI U.S. Retirement 401(k) Savings Plan, a
defined contribution plan, on behalf of Mr. Waechter.
(4) Mr. Wrenn served as the President and Chief Executive Officer of the
Company until February 1995. Mr. Wrenn continues to serve as a
director of the Company.
(5) Mr. Davis joined the Company in November 1992 as President of APBI
Environmental Sciences
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Group, Inc. and continued to serve as such until January 31, 1995. Mr.
Davis continues to serve as a director of APBI.
(6) Dr. Defesche served as the President and Chief Executive Officer of
Pharmaco LSR until February 1995. Mr. Defesche continues to serve as
chairman of Pharmaco LSR and as a director of the Company.
(7) Mr. Waechter joined the Company in September 1993 as the Chief
Financial Officer and Treasurer of the Company. In October 1994, he
also became a Senior Vice President of the Company.
-41-
Stock Option Grants in Fiscal 1994
The following table sets forth certain information concerning the
grant of stock options made under the Company's Stock Incentive Program (1990)
during the fiscal year ended December 31, 1994 to each of the executive officers
of the Company named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR(1)
Grant Date
Individual Grants Value
------------------------------------------------------- ----------
Percent of
Number of Total
Securities Options
Underlying Granted to
Options Employees in Exercise or Grant Date
Name Granted Fiscal Year Base Price Expiration Present Value
(#) (2) ($/Sh) Date ($) (3)
---------- ------------ ----------- ---------- -------------
Grover C. Wrenn 50,000(4) 5.8 $5.875 9/13/04 $203,000
Swep T. Davis 67,000(5) 7.8 7.00 4/13/04 265,990
Charles L. Defesche 104,010(5) 12.1 7.00 4/13/04 412,920
30,000(4) 3.5 5.875 9/13/04 121,800
Joseph H. Highland 8,000(4) 0.9 5.875 9/13/04 32,480
Stephen L. Waechter 20,000(4) 2.3 5.875 9/13/04 81,200
- ------------------------
(1) The Company's stock option plans are administered by the Compensation
and Stock Plans Committee of the Board of Directors. The exercise
price per share of all of the options granted during fiscal year 1994
is equal to or greater than the fair market value per share of the
Company's Common Stock on the date of the grant, and the options are
exercisable over a term of ten years from the date of grant.
(2) The Company granted options to employees to acquire 858,320 shares of
Common Stock during fiscal year 1994. The 1994 option grants include
options to acquire 481,320 shares of Common Stock which were granted
pursuant to the Company's 1994 replacement program, whereby the
Company reduced the exercise price of certain previously issued
options to a price closer to the current fair market values of the
Company's Common Stock. The replacement program resulted in the
cancellation of options to acquire 892,480 shares of Common Stock.
(3) The "Grant Date Present Value" is a hypothetical value determined
under the Black-Scholes Option Pricing Model. It is one of the methods
permitted by the Securities and Exchange Commission for estimating the
present value of options. The Company's stock options are not
transferable, and the actual value of the stock options that an
executive officer
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may realize, if any, will depend on the excess of the market price on
the date of exercise over the exercise price. The Black-Scholes Option
Pricing Model is based on assumptions as to certain variables such as
the volatility of the Company's stock price and prevailing interest
rates, so there is no assurance that any individual will actually
realize the option values presented in this table. The Company has
based its assumption for stock price volatility on the variance of
closing prices for the Company's stock for the five years prior to the
grant date of the option award. In addition, the pricing model assumes
(i) a risk-free rate of return equal to the rate of return for
ten-year U.S. Government obligations on the grant date, (ii) no future
dividend payments and (iii) that all options will be held for full
ten-year terms.
(4) These options were granted on September 13, 1994 and vest ratably over
a three-year period on the anniversary of the date of grant.
(5) The options were granted on April 13, 1994 pursuant to the Company's
1994 option replacement program and vest ratably over a four-year
period on the anniversary of the date of grant.
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Option Exercises and Holdings
No stock options held by any director or officer of the Company were
exercised during the 1994 fiscal year. The following table sets forth
information as of December 31, 1994, regarding the number and value of options
held by each of the executive officers of the Company named in the Summary
Compensation Table. None of the named executive officers held any stock
appreciation rights ("SARs") as of such date.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised in-the-Money
Unexercised Options/SARs at Fiscal Options/SARs at Fiscal Year-End (1)
Year-End (#) ($)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Grover C. Wrenn 54,761 92,667 $ -- $ --
Swep T. Davis -- 67,000 -- --
Charles L. Defesche -- 134,010 -- --
Joseph H. Highland 39,650 20,444 -- --
Stephen L. Waechter 8,000 36,600 -- --
- --------------------------
(1) Based on the closing price per share of the Company's Common Stock of $5.50
on the National Association of Securities Dealers Automated Quotation National
Market System on December 31, 1994.
-44-
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 15, 1995 by (i) each person
who was known by the Company to own beneficially more than five percent (5%) of
the Company's Common Stock then outstanding, (ii) each director of the Company
and each of the executive officers of the Company named in the Summary
Compensation Table, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the directors, executive
officers and stockholders listed below, and the directors and executive officers
as a group, have sole voting power and sole investment power with respect to
the shares beneficially owned by them.
Common Stock of the Company,
par value $.01 per share
----------------------------
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------ -------------------- ----------------
General American Investors Company, Inc. (1) 2,220,513 7.9%
Merrill Lynch & Co., Inc. (2) 2,347,100 8.3
Pioneering Management Corporation (3) 1,540,800 5.5
State of Wisconsin Investment Board (4) 2,800,000 9.9
Richard J. Hawkins (5) 2,278,313 8.1
Kenneth H. Harper (6) 529,220 1.8
Stephen L. Waechter (7) 12,855 *
Swep T. Davis (8) 21,250 *
Charles L. Defesche (9) 26,052 *
Steven A. Fleckman -- --
Frederick Frank -- --
Joseph H. Highland (10) 606,944 2.2
Frank E. Loy 4,500 *
Thomas J. Russell -- --
John H. Timoney (11) 198,223 *
Grover C. Wrenn (12) 903,247 3.2
All directors and executive officers as a group
(13 persons) (13) 2,340,268 8.1
- -------------------------------
* Represents less than 1%.
(1) Based on information contained in a Schedule 13G filed with the
Securities and Exchange Commission on February 10, 1995. Includes 809,032 shares
over which General American Investors Company, Inc. shares voting and investment
power with General American Advisers, Inc. The address of General American
Investors Company, Inc. is 450 Lexington Avenue, New York, New York 10017.
-45-
(2) Based on information contained in a Schedule 13G filed with the
Securities and Exchange Commission on February 9, 1995. Consists of shares over
which Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc. and Princeton
Services, Inc. may be deemed to exercise shared voting and investment authority.
Merrill Lynch & Co., Inc., Merrill Lynch Group, Inc. and Princeton Services,
Inc. disclaim beneficial ownership of such shares. The address of Merrill Lynch
& Co., Inc. and Merrill Lynch Group, Inc. is World Financial Center, North
Tower, 250 Vesey Street, New York, New York 10281. The address of Princeton
Services, Inc. is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(3) Based on information contained in a Schedule 13G filed with the
Securities and Exchange Commission on January 25, 1995. The address of
Pioneering Management Corporation is 60 State Street, Boston, Massachusetts
02114.
(4) Based on information contained in a Schedule 13G filed with the
Securities and Exchange Commission on February 13, 1995. The address of the
State of Wisconsin Investment Board is P.O. Box 7842, Madison, Wisconsin 53707.
(5) Based on information contained in a Schedule 13D filed with the
Securities and Exchange Commission on April 27, 1994. Mr. Hawkins' address is
324 Eanes School Road, Austin, Texas 78746. Includes 1,189,799 shares owned by
Mr. Hawkins' wife, as to which Mr. Hawkins does not disclaim beneficial
ownership.
(6) Includes 529,220 shares which may be acquired within the next 60 days
pursuant to the exercise of options granted under the Company's Stock Incentive
Program (1990).
(7) Includes 4,000 shares owned jointly by Mr. Waechter and his wife and
855 shares owned by the Applied Bioscience International Inc. U.S. Retirement
Savings Plan, a 401(k) Plan, for the account of Mr. Waechter. Includes 8,000
shares which may be acquired within the next 60 days pursuant to the exercise of
options granted under the Company's Stock Incentive Program (1990). Does not
include 36,000 shares subject to options granted under the Company's Stock
Incentive Program (1990) which are not currently exercisable and will not become
exercisable within the next 60 days.
(8) Includes 4,000 shares owned by a partnership of which Mr. Davis is a
general partner and 500 shares held by Mr. Davis' mother, as to which Mr. Davis
does not disclaim beneficial ownership. Includes 16,750 shares which may be
acquired within the next 60 days pursuant to the exercise of options granted
under the Company's Stock Incentive Program (1990). Does not include 50,250
shares subject to options granted under the Company's Stock Incentive Program
(1990) which are not currently exercisable and will not become exercisable
within the next 60 days.
(9) Includes 25 shares which were transferred from the Pharmaco LSR
International Inc. ESOP Program to the Applied Bioscience International Inc.
U.S. Retirement Savings Plan, a 401(k) Plan, 25 shares owned by the Applied
Bioscience International Inc. U.S. Retirement Savings Plan, a 401(k) Plan, for
the account of Dr. Defesche and 26,002 shares which may be acquired within the
next 60 days pursuant to the exercise of options granted under the Company's
Stock Incentive Program (1990). Does not include 108,008 shares subject to
options granted under the Company's Stock Incentive Program (1990) which are not
currently exercisable and will not become exercisable within the next 60 days.
-46-
(10) Includes 97,500 shares held by the Highland-Mills Foundation, of which
Dr. Highland is an officer and trustee, and 39,650 shares which may be acquired
within the next 60 days pursuant to the exercise of options granted under the
Company's Stock Incentive program (1990). Does not include 20,444 shares subject
to options granted under the Company's Stock Incentive program (1990) which are
not currently exercisable and will not become exercisable within the next 60
days.
(11) Includes 23,298 shares owned jointly by Mr. Timoney and his wife, as
to which they share voting and investment power and 174,125 shares which may be
acquired within the next 60 days pursuant to the exercise of options granted
under the Company's Stock Incentive Program (1990). Does not include 45,296
shares issuable pursuant to a supplemental retirement arrangement maintained by
the Company for Mr. Timoney and 14,667 shares subject to options granted under
the Company's Stock Incentive Program (1990) which are not currently exercisable
and will not become exercisable within the next 60 days.
(12) Includes 574,576 shares owned by the Grover C. Wrenn Revocable Trust,
of which Mr. Wrenn is the sole trustee, beneficiary, and settlor; 2,870 shares
owned by the Grover and Suzie Wrenn Foundation, of which Mr. Wrenn is an officer
and director; 48,000 shares owned by the Wrenn Charitable Trust, of which Mr.
Wrenn is a beneficiary; 22,374 shares owned by the Applied Bioscience
International Inc. U.S. Retirement Savings Plan, a 401(k) Plan, for the account
of Mr. Wrenn; 200,000 shares owned by Mr. Wrenn's wife; and 54,761 shares which
may be acquired within the next 60 days pursuant to the exercise of options
granted under the Company's Stock Incentive Program (1990). Does not include
92,667 shares subject to options granted under the Company's Stock Incentive
Program (1990) which are not currently exercisable and will not become
exercisable within the next 60 days.
(13) Includes 884,285 shares which may be acquired within the next 60 days
pursuant to the exercise of options granted under the Company's Stock Incentive
Program (1990). Does not include 336,592 shares subject to options granted under
the Company's Stock Incentive Program (1990) which are not currently exercisable
and will not become exercisable within the next 60 days.
Item 13. Certain Relationships and Related Transactions.
Lehman Brothers, of which Mr. Frank is a Senior Managing Director,
provided general financial advisory services to the Company during 1994. It is
anticipated that Lehman Brothers may provide financial advisory services to the
Company during fiscal year 1995.
Mr. Fleckman is a partner and the managing director of the law firm of
Fleckman & McGlynn, which has rendered legal services to Pharmaco LSR
International Inc. (including its predecessor companies) and its subsidiaries,
during 1994 and 1995. Pharmaco LSR and its subsidiaries paid fees and expenses
of $79,290 to Fleckman & McGlynn during the fiscal year ended December 31, 1994
for legal services. From January 1, 1995 to March 21, 1995, Pharmaco LSR and its
subsidiaries have paid $1,568 in fees and expenses to Fleckman & McGlynn for
legal services. It is anticipated that Fleckman & McGlynn will continue to
render legal services to Pharmaco LSR and its subsidiaries during the remainder
of fiscal year 1995. The total amount paid by Pharmaco LSR and its subsidiaries
to Fleckman & McGlynn exceeded 5% of the firm's gross revenues for fiscal year
1994.
-47-
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
During the fourth quarter of 1994 the Company filed the following Reports
on Form 8-K with the Commission:
None.
(c) Exhibits
Exhibit No.
----------
3. Articles of Incorporation and By-Laws:
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)
-48-
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
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
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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 John H. Timoney, incorporated by reference
to Exhibit 19.7 to the Registrant's Quarterly Report on Form 10-Q for the
period ended March 31, 1992
-50-
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
-51-
10.31 Employment Agreement by and between Pharmaco LSR International
Inc. and Geoffrey K. Hogan dated as of January 6, 1995
10.32 Letter Agreement dated September 3, 1993, between the Registrant
and Stephen L. Waechter
10.33 Letter Agreement dated September 14, 1993, between the
Registrant and Stephen L. Waechter
11. Statement re computation of per-share earnings
21. Subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
-52-
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: July 27, 1995 By: /s/ Stephen L. Waechter
---------------------------
Name: Stephen L. Waechter
Title: Senior Vice President, Chief
Financial Officer and
Treasurer
(Principal Executive Officer)
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