Albany Molecular Research
ALBANY MOLECULAR RESEARCH INC (Form: 10-Q, Received: 05/10/2011 13:39:26)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2011

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to
 
Commission file number:  0-25323
 
ALBANY MOLECULAR RESEARCH, INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
14-1742717
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
21 Corporate Circle
PO Box 15098
Albany, New York  12212-5098
(Address of principal executive offices)
 
(518) 512-2000
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
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    o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes    ¨                        No    ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer x
Non-accelerated filer o
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes    o                        No    x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at April 30, 2011
 
Common Stock, $.01 par value
 
30,311,976, excluding treasury shares of 5,411,372
 
 


 
 

 

ALBANY MOLECULAR RESEARCH, INC.
INDEX
 
Part I.
 
Financial Information
 
3
             
   
Item 1.
 
Condensed Consolidated Financial Statements (Unaudited)
 
3
             
       
Condensed Consolidated Statements of Operations
 
3
       
Condensed Consolidated Balance Sheets
 
4
       
Condensed Consolidated Statements of Cash Flows
 
5
       
Notes to Condensed Consolidated Financial Statements
 
6
             
   
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
17
             
   
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
24
             
   
Item 4.
 
Controls and Procedures
 
24
             
Part II.
 
Other Information
 
25
             
   
Item 1.
 
Legal Proceedings
 
25
             
   
Item 1A.
 
Risk Factors
 
25
             
   
Item 6.
 
Exhibits
 
26
             
Signatures
     
27
             
Exhibit Index
       
 
 
2

 

PART I — FINANCIAL INFORMATION
 
Item 1. 
Condensed Consolidated Financial Statements (Unaudited)
 
Albany Molecular Research, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
   
Three Months Ended
 
(Dollars in thousands, except for per share data)
 
March 31, 2011
   
March 31, 2010
 
             
Contract revenue
  $ 42,931     $ 38,892  
Recurring royalties
    14,016       10,439  
Total revenue
    56,947       49,331  
                 
Cost of contract revenue
    41,542       34,761  
Technology incentive award
    1,402       1,043  
Research and development
    2,604       2,763  
Selling, general and administrative
    11,461       10,639  
Restructuring charges
    951        
Arbitration charge
    127        
Total operating expenses
    58,087       49,206  
                 
(Loss) income from operations
    (1,140 )     125  
                 
Interest (expense) income, net
    (3 )     43  
Other income (loss), net
    52       (88 )
                 
(Loss) income before income tax expense
    (1,091 )     80  
                 
Income tax expense
    376       14  
                 
Net (loss) income
  $ (1,467 )   $ 66  
                 
Basic (loss) earnings per share
  $ (0.05 )   $ 0.00  
                 
Diluted (loss) earnings per share
  $ (0.05 )   $ 0.00  
 
See notes to unaudited condensed consolidated financial statements.

 
3

 

Albany Molecular Research, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(Dollars and shares in thousands, except for per share data)
 
March 31,
2011
   
December 31,
2010
 
Assets
           
Current assets:
           
Cash and cash equivalents - unrestricted
  $ 9,512     $ 25,747  
Restricted cash
    5,742        
Marketable securities
    13,788       15,734  
Accounts receivable, net
    33,302       32,766  
Royalty income receivable
    13,213       7,416  
Income taxes receivable
    9,711       7,638  
Inventory
    27,995       27,102  
Prepaid expenses and other current assets
    10,604       10,110  
Deferred income taxes
    3,967       7,533  
Total current assets
    127,834       134,046  
                 
Property and equipment, net
    162,936       163,212  
                 
Goodwill
    17,958       16,698  
Intangible assets and patents, net
    3,851       3,942  
Equity investment in unconsolidated affiliates
    956       956  
Deferred income taxes
    2,207       596  
Other assets
    4,349       5,656  
Total assets
  $ 320,091     $ 325,106  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable and accrued expenses
  $ 27,593     $ 28,397  
Arbitration reserve
    5,107       9,798  
Deferred revenue and licensing fees
    13,135       14,083  
Accrued pension benefits
    959       884  
Current installments of long-term debt
    4,541       1,475  
Total current liabilities
    51,335       54,637  
                 
Long-term liabilities:
               
Long-term debt, excluding current installments
    8,691       11,737  
Accrued long-term restructuring
    1,292       1,413  
Deferred licensing fees
    5,357       5,714  
Deferred rent
    1,223       1,263  
Pension and postretirement benefits
    6,262       6,408  
Environmental liabilities
    191       191  
Total liabilities
    74,351       81,363  
                 
Commitments and contingencies
               
                 
Stockholders’ equity:
               
Common stock, $0.01 par value, 100,000 shares authorized, 35,714 shares issued as of March 31 2011, and 35,667 shares issued as of December 31, 2010
    357       357  
Additional paid-in capital
    204,613       203,964  
Retained earnings
    109,783       111,250  
Accumulated other comprehensive loss, net
    (2,125 )     (4,940 )
      312,628       310,631  
Less, treasury shares at cost, 5,411 shares as of March 31, 2011 and December 31, 2010
    (66,888 )     (66,888 )
Total stockholders’ equity
    245,740       243,743  
Total liabilities and stockholders’ equity
  $ 320,091     $ 325,106  
 
See notes to unaudited condensed consolidated financial statements.

 
4

 

Albany Molecular Research, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
   
Three Months Ended
 
(Dollars in thousands)
 
March 31, 2011
   
March 31, 2010
 
             
Operating activities
           
Net (loss) income
  $ (1,467 )   $ 66  
Adjustments to reconcile net (loss) income to net cash used in operating activities:
               
Depreciation and amortization
    4,397       4,149  
Deferred income tax benefit (loss)
    1,918       (162 )
Loss on disposal of property, plant and equipment
    3        
Stock-based compensation expense
    353       549  
Provision for (recoveries of) bad debt
    21       (66 )
Write down for obsolete inventories
    3        
Changes in assets and liabilities, net of effects of acquisition:
               
Accounts receivable
    (557 )     (4,453 )
Royalty income receivable
    (5,797 )     (2,699 )
Inventory, prepaid expenses and other assets
    (102 )     (348 )
Accounts payable and accrued expenses
    (5,615 )     (1,333 )
Income tax payable
    (2,073 )     (565 )
Deferred revenue and licensing fees
    (1,305 )     (1,346 )
Pension and postretirement benefits
    40       65  
Other long-term liabilities
    (40 )     (39 )
Net cash used in operating activities
    (10,221 )     (6,182 )
                 
Investing activities
               
Purchases of investment securities
    (820 )     (1,577 )
Proceeds from sales and maturities of investment securities
    2,716       1,995  
Purchase of business, net of cash acquired
          (18,462 )
Purchase of property, plant and equipment
    (2,784 )     (1,898 )
Payments for patent applications and other costs
    (27 )     (129 )
Net cash used in investing activities
    (915 )     (20,071 )
                 
Financing activities
               
Principal payments on long-term debt
    20        
Change in restricted cash
    (5,742 )      
Proceeds from sale of common stock
    294       254  
Net cash (used in) provided by financing activities
    (5,428 )     254  
                 
Effect of exchange rate changes on cash flows
    329       249  
                 
Decrease in cash and cash equivalents
    (16,235 )     (25,750 )
                 
Cash and cash equivalents at beginning of period
    25,747       80,953  
                 
Cash and cash equivalents at end of period
  $ 9,512     $ 55,203  
 
See notes to unaudited condensed consolidated financial statements.

 
5

 

(All amounts in thousands, except per share amounts, unless otherwise noted)
 
Note 1 — Summary of Operations and Significant Accounting Policies
 
Nature of Business and Operations
 
Albany Molecular Research, Inc. (the “Company”) provides scientific services, technologies and products focused on improving the quality of life. The Company’s core business consists of a fee-for-service contract services platform encompassing drug discovery, development and manufacturing and a separate, stand-alone research and development division consisting of proprietary technology investments, internal drug discovery and niche generic active pharmaceutical ingredient product development.  With locations in the U.S., Europe, and Asia, the Company provides customers with a range of services and cost models.
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In accordance with Rule 10-01, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete consolidated financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair statement of the results for the interim period have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated during consolidation. Assets and liabilities of non-U.S. operations are translated at period-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the period. Unrealized gains or losses resulting from translating non-U.S. currency financial statements are recorded in accumulated other comprehensive (loss) income in the accompanying unaudited condensed consolidated balance sheets.
 
Use of Management Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  The most significant estimates included in the accompanying consolidated financial statements include assumptions regarding the collectibility of receivables, the valuation of inventory, the fair value of goodwill, intangible assets, and long-lived assets, and the estimated fair values of net assets acquired in business combinations. Other significant estimates include assumptions utilized in determining the amount and realizabilty of deferred tax assets, assumptions utilized in determining actuarial obligations in conjunction with the Company’s pension and postretirement health plans, the estimation of restructuring charges, assumptions utilized in determining stock-based compensation, and assumptions associated with legal contingencies. Actual results can vary from these estimates.
 
Contract Revenue Recognition
 
The Company’s contract revenue consists primarily of fees earned under contracts with third-party customers and reimbursed expenses under such contracts. The Company also seeks to include provisions in certain contracts that contain a combination of up-front licensing fees, milestone and royalty payments should the Company’s proprietary technology and expertise lead to the discovery of new products that become commercial. Reimbursed expenses consist of chemicals and other project specific costs. Generally, the Company’s contracts may be terminated by the customer upon 30 days’ to one year’s prior notice, depending on the terms and/or size of the contract. The Company analyzes its agreements to determine whether the elements can be separated and accounted for individually or as a single unit of accounting in accordance with the FASB’s Accounting Standards Codification (“ASC”) 605-25, “Revenue Arrangements with Multiple Deliverables,” and Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition”. Allocation of revenue to individual elements that qualify for separate accounting is based on the estimated selling price or fair value of the respective elements.

 
6

 

The Company generates contract revenue on the following basis:
 
Full-time Equivalent (“FTE”). An FTE agreement establishes the number of Company employees contracted for a project or a series of projects, the duration of the contract period, the price per FTE, plus an allowance for chemicals and other project specific costs, which may or may not be incorporated in the FTE rate. FTE contracts can run in one month increments, but typically have terms of six months or longer. FTE contracts typically provide for annual adjustments in billing rates for the scientists assigned to the contract.
 
These contracts involve the Company’s scientists providing services on a “best efforts” basis on a project that may involve a research component with a timeframe or outcome that has some level of unpredictability. There are no fixed deliverables that must be met for payment as part of these services. As such, the Company recognizes revenue under FTE contracts on a monthly basis as services are performed according to the terms of the contract.
 
Time and Materials .   Under a time and materials contract the Company charges customers an hourly rate plus reimbursement for chemicals and other project specific costs. The Company recognizes revenue for time and material contracts based on the number of hours devoted to the project multiplied by the customer’s billing rate plus other project specific costs incurred.
 
Fixed-Fee . Under a fixed-fee contract the Company charges a fixed agreed upon amount for a deliverable. Fixed-fee contracts have fixed deliverables upon completion of the project. Typically, the Company recognizes revenue for fixed-fee contracts after projects are completed, delivery is made and title transfers to the customer, and collection is reasonably assured. In certain instances, the Company’s customers request that the Company retain materials produced upon completion of the project due to the fact that the customer does not have a qualified facility to store those materials or for other reasons.  In these instances, the revenue recognition process is considered complete when project documents (batch records, Certificates of Analysis, etc.) have been delivered to the customer and payment has been collected.
 
Up-Front License Fees, Milestone, and Royalty Revenue . The Company recognizes revenue from up-front non-refundable licensing fees on a straight-line basis over the period of the underlying project. The Company will recognize revenue arising from a substantive milestone payment upon the successful achievement of the event, and the resolution of any uncertainties or contingencies regarding potential collection of the related payment, or if appropriate over the remaining term of the agreement.
 
Recurring Royalties Revenue Recognition.   Recurring royalties consist of royalties under a license agreement with sanofi-aventis based on the worldwide sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere, as well as on sales of sanofi-aventis’ authorized generics. The Company records royalty revenue in the period in which the sales of Allegra/Telfast occur, because we can reasonably estimate such royalties. Royalty payments from sanofi-aventis are due within 45 days after each calendar quarter and are determined based on sales of Allegra/Telfast in that quarter, with the exception of Allegra D-12 which had a fixed royalty amount through July 2010.  Thereafter, the royalty rate has reverted to the rate in effect prior to the signing of the sub-license amendment and the Company will also receive a royalty on Teva Pharmaceuticals’ sales of the generic D-12.
 
Long-Lived Assets:
 
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include, among others, the following:
 
 
·
a significant change in the extent or manner in which a long-lived asset is being used;
 
 
·
a significant change in the business climate that could affect the value of a long-lived asset; and
 
 
·
a significant decrease in the market value of assets.
 
If the Company determines that the carrying value of long-lived assets may not be recoverable, based upon the existence of one or more of the above indicators of impairment, the Company compares the carrying value of the asset group to the undiscounted cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted cash flows an impairment charge is recorded. An impairment charge is recognized to the extent that the carrying amount of the asset group exceeds their fair value and will reduce only the carrying amounts of the long-lived assets.

 
7

 

Goodwill:
 
The Company performs an annual   assessment of the carrying value of goodwill for potential impairment (or on an interim basis if certain triggering events occur). A determination of impairment is made based upon the fair value of the related reporting unit.  If goodwill is determined to be impaired, the Company would be required to record a charge to its results of operations. Factors the Company considers important which could result in an impairment include the following:
 
 
·
significant underperformance relative to historical or projected future operating results;
 
 
·
significant negative industry or economic trends; and
 
 
·
market capitalization relative to net book value
 
See Note 6 for further information on the Company’s goodwill balances.
 
Note 2 — Business Combination
 
In conjunction with the acquisitions of AMRI UK in February 2010 and AMRI Burlington in June 2010, the Company has recorded the fair value of the assets and liabilities of these entities at the time of acquisition and has allocated the respective purchase price accordingly.  The Company has finalized the purchase price allocation for these acquisitions subject to the final resolution of certain limited contingencies.  The Company resolved the contingencies related to the AMRI UK acquisition in the first quarter of 2011.  During the quarter ended March 31, 2011, the Company recognized net gains related to purchase accounting adjustments of $292 in other income (loss) net in the statement of operations.
 
Note 3 — Earnings Per Share
 
The shares used in the computation of the Company’s basic and diluted earnings per share are as follows:
 
   
Three Months Ended
March 31,
 
   
2011
   
2010
 
Weighted average common shares outstanding – basic
    29,835       31,168  
Dilutive effect of restricted stock
          167  
Weighted average common shares outstanding - diluted
    29,835       31,335  

The Company has excluded certain outstanding stock options and non-vested restricted shares from the calculation of diluted earnings per share for the three months ended March 31, 2011 because the net loss causes these outstanding stock options and non-vested restricted shares to be anti-dilutive.  The stock options and non-vested restricted shares have also been excluded from the calculation of diluted earnings per share for the three months ended March 31, 2010 because the exercise price was greater than the average market price of the Company’s common shares during that period, and as such, these options and shares would be anti-dilutive. The weighted average number of anti-dilutive options and restricted shares outstanding (before the effects of the treasury stock method) was 1,615 and 1,906 for the three months ended March 31, 2011 and 2010, respectively.
 
Note 4 — Inventory
 
Inventory consisted of the following at March 31, 2011 and December 31, 2010:
 
   
March 31,
2011
   
December 31,
2010
 
Raw materials
  $ 4,680     $ 4,575  
Work in process
    3,135       4,382  
Finished goods
    20,180       18,145  
Total
  $ 27,995     $ 27,102  
 
Note 5 — Restructuring
 
In May 2010, the Company initiated a restructuring of its AMRI U.S. locations.  As part of its strategy to increase global competitiveness and continue to be diligent in managing costs, the Company implemented cost reduction activities at its operations in the U.S.  These cost reduction activities included a reduction in the U.S. workforce, as well as the suspension of operations at one of its research laboratory facilities in Rensselaer, New York.  Employees and equipment from this facility were consolidated into other nearby Company operations.  The Company recorded a restructuring charge of $3,223 in 2010.

 
8

 

This charge includes lease termination charges of $2,182, (net of estimated sublease income), termination benefits and personnel realignment costs of $833 and facility and other costs of $208.

Additionally, in March 2011, the Company reduced its workforce to right-size its U.S. operations, primarily focused on discovery chemistry services due to the shift in demand for these types of services to the Company’s lower cost operations in Asia.  In connection with this reduction, the Company recorded a restructuring charge of $951 for termination benefits. These restructuring activities were recorded within the Company’s Discovery, Drug Development and Small Scale Manufacturing (“DDS”) operating segment.
 
The following table displays the restructuring activity and liability balances for  the three months ended March 31, 2011:
 
   
Balance at
January 1,
2011
   
Charges/
(reversals)
   
Paid Amounts
   
Foreign
Currency
Translation
Adjustments
   
Balance at
March 31, 2011
 
Termination benefits and personnel realignment
  $ 141     $ 951     $ (33 )     15     $ 1,074  
Lease termination charges
    1,932             (121 )           1,811  
Other
    120                   14       134  
Total
  $ 2,193     $ 951     $ (154 )     29     $ 3,019  

Termination benefits and personnel realignment costs relate to severance packages, outplacement services, and career counseling for employees affected by the restructuring.  Lease termination charges relate to costs associated with exiting the facility, net of estimated sublease income.
 
Restructuring charges are included under the caption “Restructuring charges” in the consolidated statement of operations for the quarters ended March 31, 2011 and 2010 and the restructuring liabilities are included in “Accounts payable and accrued expenses” and “Accrued long-term restructuring” on the consolidated balance sheet at March 31, 2011 and December 31, 2010.
 
Anticipated cash outflow related to the restructurings for the remainder of 2011 is approximately $1,727.
 
Note 6 — Goodwill and Intangible Assets
 
The carrying amounts of goodwill, all of which is associated with the Company’s DDS operating segment, at March 31, 2011 and December 31, 2010 were $17,958 and $16,698, respectively.  The increase in goodwill within the DDS segment from December 31, 2010 to March 31, 2011 is due to the impact of foreign currency translation.
 
The components of intangible assets are as follows:
 
   
Cost
   
Accumulated
Amortization
   
Net
 
Amortization
Period
March 31, 2011
                   
Patents and Licensing Rights
  $ 4,871     $ (1,705 )   $ 3,166  
2-16 years
Customer Relationships
    815       (130 )     685  
5 years
    $ 5,686     $ (1,835 )   $ 3,851    
                           
December 31, 2010
                         
Patents and Licensing Rights
  $ 4,786     $ (1,571 )   $ 3,215  
2-16 years
Customer Relationships
    815       (88 )     727  
5 years
Total
  $ 5,601     $ (1,659 )   $ 3,942    
 
Amortization expense related to intangible assets was $119 and $74 for the three months ended March 31, 2011 and 2010, respectively.
 
 
9

 
 
The following chart represents estimated future annual amortization expense related to intangible assets:
 
Year  ending December 31,
     
2011 (remaining)
  $ 511  
2012
    460  
2013
    437  
2014
    436  
2015
    305  
Thereafter
    1,702  
Total
  $ 3,851  
 
Note 7 - Defined Benefit and Postretirement Welfare Plans
 
AMRI Rensselaer previously provided retirement benefits under two non-contributory defined benefit plans and a non-contributory, unfunded post-retirement welfare plan. Future benefits under the defined benefit plans and for salaried participants in the post-retirement welfare plan have been frozen.
 
Components of Net Periodic Benefit Cost
 
   
Pension
Benefits
   
Postretirement
Benefits
 
   
Three Months
Ended March 31,
   
Three Months
Ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Service cost
  $     $     $ 21     $ 17  
Interest cost
    290       308       17       16  
Expected return on plan assets
    (329 )     (338 )            
Recognized net loss
    111       59       1       2  
Net periodic benefit cost
  $ 72     $ 29     $ 39     $ 35  
Recognized in Accumulated Other Comprehensive Loss (“AOCL”), pre-tax
                               
Net actuarial loss
    111       59       1       2  
Total recognized in AOCL, pre-tax
  $ 111     $ 59     $ 1     $ 2  
 
Employer Contributions
 
The Company currently anticipates making $884 of contributions during 2011.
 
Note 8 — Share-Based Compensation
 
During the three months ended March 31, 2011 and 2010, the Company recognized total share based compensation cost of $353 and $549, respectively.
 
The Company grants share-based compensation, including restricted shares, under its 2008 Stock Option and Incentive Plan, as well as its 1998 Employee Stock Purchase Plan.

Restricted Stock
 
A summary of unvested restricted stock activity as of March 31, 2011 and changes during the three months then ended is presented below:
 
   
Number of
Shares
   
Weighted
Average Grant Date
Fair Value Per
Share
 
Outstanding, December 31, 2010
    483     $ 9.61  
Granted
    15     $ 5.24  
Vested
    (83 )   $ 10.83  
Forfeited
    (35 )   $ 9.94  
Outstanding, March 31, 2011
    380     $ 9.14  
 
The weighted average fair value of restricted shares per share granted during the three months ended March 31, 2011 and 2010 was $5.24 and $8.90, respectively.  As of March 31, 2011, there was $2,473 of total unrecognized compensation cost related to non-vested restricted shares. That cost is expected to be recognized over a weighted-average period of 2.2 years.

 
10

 

Stock Options
 
The fair value of each stock option award is estimated at the date of grant using the Black-Scholes valuation model based on the following assumptions:
 
   
For the Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
Expected life in years
    5       5  
Risk free interest rate
    2.12 %     2.42 %
Volatility
    56 %     46 %
Dividend yield
           
 
A summary of stock option activity under the Company’s Stock Option and Incentive Plans as of March 31, 2011 and changes during the three month period then ended is presented below:
 
   
Number of
Shares
   
Weighted
Exercise
Price Per Share
   
Weighted Average
Remaining
Contractual Term
(Years)
   
Aggregate
Intrinsic
Value
 
Outstanding, December 31, 2010
    1,557     $ 17.43              
Granted
    95       5.05              
Exercised
                       
Forfeited
    (29 )     26.67              
Expired
    (122 )     43.29              
Outstanding, March 31, 2011
    1,501     $ 14.17       4.4     $  
Options exercisable, March 31, 2011
    1,159     $ 16.06       3.2     $  
 
The weighted average fair value of stock options granted for the three months ended March 31, 2011 and 2010 was $2.50 and $3.82, respectively.   As of March 31, 2011, there was $771 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 2.1 years.
 
Employee Stock Purchase Plan
 
During the three months ended March 31, 2011 and 2010, 67 and 34 shares, respectively, were issued under the Company’s 1998 Employee Stock Purchase Plan.
 
During the three months ended March 31, 2011 and 2010, cash received from stock option exercises and employee stock purchases was $0 and $254, respectively.  The actual tax benefit realized for the tax deductions from stock option exercises and plan purchases was $0 for the three months ended March 31, 2011 and 2010.
 
Note 9 — Operating Segment Data
 
The Company has organized its sales, marketing and production activities into the DDS and Large Scale Manufacturing (“LSM”) segments based on the criteria set forth in ASC 280, “Disclosures about Segments of an Enterprise and Related Information”. The Company’s management relies on an internal management accounting system to report results of the segments. The system includes revenue and cost information by segment. The Company’s management makes financial decisions and allocates resources based on the information it receives from this internal system.
 
DDS includes activities such as drug lead discovery, optimization, drug development and small scale commercial manufacturing. LSM includes pilot to commercial scale manufacturing of active pharmaceutical ingredients and intermediates and high potency and controlled substance manufacturing.  Corporate activities include business development and administrative functions, as well as research and development costs that have not been allocated to the operating segments.
 
 
11

 
 
The following table contains earnings data by operating segment, reconciled to totals included in the unaudited condensed consolidated financial statements:
 
   
Contract
Revenue
   
Milestone &
Recurring
Royalty
Revenue
   
Income
(Loss)
from
Operations
   
Depreciation
and
Amortization
 
For the three months ended March 31, 2011
                       
DDS
  $ 21,115     $ 14,016     $ 10,699     $ 2,464  
LSM
    21,816             (378 )     1,933  
Corporate
                (11,461 )      
Total
  $ 42,931     $ 14,016     $ (1,140 )   $ 4,397  
                                 
For the three months ended March 31, 2010
                               
DDS
  $ 21,040     $ 10,439     $ 9,826     $ 2,382  
LSM
    17,852             938       1,767  
Corporate
                (10,639 )      
Total
  $ 38,892     $ 10,439     $ 125     $ 4,149  
 
The following table summarizes other information by segment as of and for the three month period ended March 31, 2011:
 
   
DDS
   
LSM
   
Total
 
Total assets
  $ 194,732     $ 125,359     $ 320,091  
Goodwill included in total assets
    17,958             17,958  
Investments in unconsolidated affiliates
    956             956  
Capital expenditures
    1,716       1,068       2,784  
 
The following table summarizes other information by segment as of and for the year ended December 31, 2010:
 
   
DDS
   
LSM
   
Total
 
Total assets
  $ 193,386     $ 131,720     $ 325,106  
Goodwill included in total assets
    16,698             16,698  
Investments in unconsolidated affiliates
    956             956  
Capital expenditures
    6,516       5,112       11,628  
 
Note 10 — Financial Information by Customer Concentration and Geographic Area
 
Total contract revenue from DDS’s three largest customers represented approximately 12%, 9% and 7% of DDS’s total contract revenue for the three months ended March 31, 2011, and 22%, 9% and 6% of DDS’s total contract revenue for the three months ended March 31, 2010.  Total contract revenue from LSM’s largest customer, GE Healthcare (“GE”), represented 37% and 41% of LSM’s total contract revenue for the three months ended March 31, 2011 and 2010, respectively.  GE accounted for approximately 19% of the Company’s total contract revenue for the three months ended March 31, 2011 and 2010.  The DDS segment’s largest customer, a large pharmaceutical company, represented approximately 6% and 12% of the Company’s total contract revenue for the three months ended March 31, 2011 and 2010, respectively.
 
The Company’s total contract revenue for the three months ended March 31, 2011 and 2010 was recognized from customers in the following geographic regions:
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
             
United States
    63 %     51 %
Europe
    25       37  
Asia
    10       11  
Other
    2       1  
                 
Total
    100 %     100 %

 
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Long-lived assets by geographic region are as follows:
 
   
March 31, 
2011
   
December 31,
2010
 
United States
  $ 134,008     $ 135,542  
Europe
    12,741       11,738  
Asia
    20,038       19,874  
Total long-lived assets
  $ 166,787     $ 167,154  
 
Note 11 — Comprehensive Income (loss)
 
The following table presents the components of the Company’s comprehensive income (loss) for the three months ended March 31, 2011 and 2010:
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
Net (loss) income
  $ (1,467 )   $ 66  
                 
Other comprehensive loss:
               
Change in unrealized (loss) gain on investment securities, net of taxes
    1       (23 )
Foreign currency translation gain (loss)
    2,742       (627 )
Net actuarial loss related to pension and postretirement benefits
    72       61  
Total comprehensive income (loss)
  $ 1,348     $ (523 )
 
Note 12 — Legal Proceedings
 
The Company, from time to time, may be involved in various claims and legal proceedings arising in the ordinary course of business. Except as noted below, the Company is not currently a party to any such claims or proceedings which, if decided adversely to the Company, would either individually or in the aggregate have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
 
Allegra
 
The Company, along with Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business of sanofi-aventis S.A., has been involved in legal proceedings with several companies seeking to market or which are currently marketing generic versions of Allegra and Allegra-D. In accordance with the Company’s agreements with sanofi-aventis, sanofi-aventis bears the external legal fees and expenses for these legal proceedings, but in general, the Company must consent to any settlement or other arrangement with any third party. Under those same agreements, the Company will receive royalties from sanofi-aventis on U.S. Patent No. 5,578,610 until its expiration in 2013 and royalties on U.S. Patent No. 5,750,703 until its expiration in 2015, unless those patents are earlier determined to be invalid.  Similarly, the Company is entitled to receive royalties from sanofi-aventis on certain foreign patents through 2015, unless those patents are earlier determined to be invalid.
 
United States Litigations
 
Beginning in 2001, Barr Laboratories, Inc., Impax Laboratories, Inc., Mylan Pharmaceuticals, Inc., Teva Pharmaceuticals USA, Dr. Reddy’s Laboratories, Ltd./Dr. Reddy’s Laboratories, Inc., Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc., Sandoz Inc., Sun Pharma Global, Inc., Wockhardt, and Actavis Mid Atlantic LLC, and Aurolife Pharma LLC and Aurobindo Pharma Ltd. filed Abbreviated New Drug Applications (“ANDAs”) with the Food and Drug Administration (“FDA”) to produce and market generic versions of Allegra products.

In response to the filings described above, beginning in 2001, Aventis Pharmaceuticals (now sanofi-aventis) filed patent infringement lawsuits against each of the above referenced companies.  Each of the lawsuits was filed in the U.S. District Court in New Jersey and alleges infringement of one or more patents owned by Aventis Pharmaceuticals. In addition, beginning on November 14, 2006, sanofi-aventis filed two patent infringement suits against Teva Pharmaceuticals USA, Barr Laboratories, Inc. and Barr Pharmaceuticals, Inc. in the Eastern District of Texas based on patents owned by Aventis.  Those lawsuits were transferred to the U.S. District Court in New Jersey.

 
13

 

Further, beginning on March 5, 2004, the Company, along with Aventis Pharmaceuticals, filed suit in the U.S. District Court in New Jersey against a number of defendants asserting infringement of U.S. Patent Nos. 5,581,011 and 5,750,703, which are exclusively licensed to Aventis Pharmaceuticals and relate to Allegra and Allegra-D products.  On September 9, 2009, the Company filed patent infringement lawsuits in the U.S. District Court in New Jersey against Dr. Reddy’s Laboratories, Ltd, Dr. Reddy’s Laboratories, Inc., and Sandoz, Inc. asserting infringement of U.S. Patent No. 7,390,906, seeking damages.  That patent is licensed to sanofi-aventis U.S. LLC and sanofi-aventis U.S. LLC  joined that lawsuit as a co-plaintiff with the Company.

On November 18, 2008, the Company, Aventis Pharmaceuticals, sanofi-aventis, Teva Pharmaceuticals, and Barr Laboratories reached a settlement regarding the above-described patent infringement litigations relating to Teva Pharmaceuticals and Barr Laboratories (the “Teva Settlement”).  As part of the Teva Settlement, the Company entered into an amendment to its licensing agreement with sanofi-aventis to allow sanofi-aventis to sublicense patents related to ALLEGRA ® and ALLEGRA ® D-12 to Teva Pharmaceuticals and Barr Laboratories in the United States.  Subsequently, Teva Pharmaceuticals acquired Barr Laboratories.  The Company received an upfront sublicense fee from sanofi-aventis of $10 million, and sanofi-aventis will pay royalties to the Company on the sale of products in the United States containing fexofenadine hydrochloride (the generic name for the active ingredient in ALLEGRA ® ) and products containing fexofenadine hydrochloride and pseudoephedrine hydrochloride (generic ALLEGRA ® D-12) by Teva Pharmaceuticals through 2015, along with additional consideration.   The Company received quarterly royalties through July 2010 for the branded Allegra D-12 equal to the royalties paid for the quarter ended June 30, 2009.  Thereafter, the royalty rate has reverted to the rate in effect prior to the signing of the sub-license amendment and the Company will also receive a royalty on Teva’s sales of the generic Allegra D-12.  The Company and Aventis Pharmaceuticals have also dismissed their claims against Ranbaxy Laboratories Ltd./Ranbaxy Pharmaceuticals Inc. and Sandoz, Inc. without prejudice. The action against Impax Laboratories, Inc. is currently under a stay while the parties discuss settlement of this case.

On March 19, 2010, the Company and sanofi-aventis filed a motion for a preliminary injunction in the U.S. District Court in New Jersey seeking to enjoin Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. from commercial distribution of a Allegra D-24 product based in that product infringing U.S. Patent No. 7,390,906.   On June 14, 2010, the Company and sanofi-aventis were granted a preliminary injunction restraining Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc. from commercial distribution of a D-24 product.  On January 13, 2011, the same court issued a decision interpreting the scope of the claims of U.S. Patent No. 7,390,906.  Based on the court’s January 13, 2011 interpretation of the scope of a claim term in U.S. Patent No. 7,390,906, the Company does not presently have evidence sufficient to obtain a favorable outcome on its infringement claim against Dr. Reddy’s Laboratories, Ltd. and Dr. Reddy’s Laboratories, Inc.   As a result, the Company, along with sanofi-aventis, Dr. Reddy’s Laboratories, Ltd., and Dr. Reddy’s Laboratories, Inc., agreed to the court’s entry of an order on January 28, 2011, finding that there was no infringement of U.S. Patent No. 7,390,906 based on the Court’s January 13, 2011 claim interpretation. The court’s January 28, 2011 order also dissolved the preliminary injunction that was entered on June 14, 2010.  The Company and sanofi-aventis U.S. LLC have proceeded directly to the U.S. Court of Appeals for the Federal Circuit to appeal the January 13, 2011 decision.

The January 13, 2011, decision also included an interpretation of the scope of the claims of U.S. Patent No. 5,750,703, and based on that interpretation, the Company does not presently have evidence sufficient to obtain a favorable outcome on its infringement claim against Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc., Mylan Pharmaceuticals, Inc., Amino Chemicals Ltd., Dipharma S.P.A., and Dipharma Francis Sr.l  As a result, the Company, along with sanofi-aventis, Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc., Mylan Pharmaceuticals, Inc., Amino Chemicals Ltd., Dipharma S.P.A., and Dipharma Francis Sr.l  agreed to the court’s entry of an order on March 28, 2011, finding that there was no infringement of U.S. Patent No. 5,750,703 based on the Court’s January 13, 2011 claim interpretation. The Company and sanofi-aventis U.S. LLC have proceeded directly to the U.S. Court of Appeals for the Federal Circuit to appeal the January 13, 2011 decision.

International Litigations

In 2007, the Company filed  patent infringement lawsuits in Australia against Alphapharm Pty Ltd., Arrow Pharmaceuticals Pty Ltd, Chemists’ Own Pty Ltd, and Sigma Pharmaceuticals Limited based on Australian Patent No. 699,799.  These matters were heard in a consolidated trial in November and December 2010.  On February 17, 2011, the Court ruled that the defendants are not liable for infringement because the asserted claims of the Australian Patent No. 699,799 are invalid for lack of novelty and false suggestion.  An appeal has been filed with regard to the ruling in the case against Arrow.  Such an appeal is not yet due in the action against Alphapharm .   Notwithstanding the court’s ruling of non-infringement, the Company continues to receive royalties on sales of the Allegra products in Australia, based on its rights under other patents.

 
14

 

At Risk Launches

Under applicable federal law, marketing of an FDA-approved generic version of Allegra may not commence until the earlier of a decision favorable to the generic challenger in the patent litigation or 30 months after the date the patent infringement lawsuit was filed. In general, the first generic filer is entitled to a 180-day marketing exclusivity period upon FDA approval.  The launch of a generic product is considered an “at-risk” launch if the launch occurs while there is still on-going litigation.  Of the remaining defendants in the pending United States litigation, Dr. Reddy’s Laboratories and Mylan Pharmaceuticals, have engaged in at-risk launches of generic fexofenadine single-entity products.

Note 13 – Fair Value
 
The Company uses a framework for measuring fair value in generally accepted accounting principles and making disclosures about fair value measurements.  A three-tiered fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value.

These tiers include:
Level 1 – defined as quoted prices in active markets for identical instruments;
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table presents the fair value of marketable securities by type and their determined level based on the three-tiered fair value hierarchy as of March 31, 2011:

   
Fair Value Measurements as of March 31, 2011
 
Marketable Securities
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Obligations of states and political subdivisions
  $ 11,688     $     $ 11,688     $  
Auction rate securities
    2,100             2,100        
Total
  $ 13,788     $     $ 13,788     $  

The Company’s marketable securities are fixed maturity securities and are valued using pricing for similar securities, recently executed transactions, cash flow models with yield curves, broker/dealer quotes and other pricing models utilizing observable inputs. The valuation for the Company’s fixed maturity securities is classified as Level 2.

The Company determines its fair value of financial instruments using the following methods and assumptions:

Cash and cash equivalents, receivables, and accounts payable: The carrying amounts reported in the consolidated balance sheets approximate their fair value because of the short maturities of these instruments.
 
Investment securities: Investment securities’ fair values are based on quoted market prices of comparable instruments.  When necessary, the Company utilizes matrix pricing from a third party pricing vendor to determine fair value pricing.  Matrix prices are based on quoted prices for securities with similar coupons, ratings, and maturities, rather than on specific bids and offers for the designated security.
 
Long-term debt: The carrying value of long-term debt was approximately equal to fair value at March 31, 2011 and December 31, 2010 due to the resetting dates of the variable interest rates.

 
15

 
 
Note 14 – Long-term Debt & Restricted Cash

Long-Term Debt:

We currently have a revolving line of credit in the amount of $45,000 which has a maturity date in June 2013.  The line of credit bears interest at a variable rate based on our Company’s leverage ratio.  As of March 31, 2011, the balance outstanding on the line of credit was $9,662, bearing interest at a rate of 1.5%.  The credit facility contains certain financial covenants, including a maximum leverage ratio, a minimum required operating cash flow coverage ratio, a minimum earnings before interest, taxes, depreciation and amortization and a minimum current ratio.  Other covenants include limits on asset disposals and the payment of dividends.  As of December 31, 2010, the Company was not in compliance with the current financial covenant requirements, however, the Company received a waiver from our lenders through May 16, 2011 while the agreement is renegotiated.  The Company intends to amend its existing credit facility to provide for a revolving line of credit that will mature in May 2012. The Company intends to repay $2,662 of the balance outstanding on the line of credit and to refinance the remaining $7,000 under the current line of credit into a term loan with quarterly repayments of $400 and the balance due and payable in May 2012.  Additionally, in connection with such waivers, the Company provided security to the bank group in the form of a security interest in substantially all of the Company’s United States assets.

The Company maintains variable interest rate industrial development authority bonds due in increasing annual installments through 2021. Interest payments are due monthly with a current interest rate of 0.50% at March 31, 2011.
 
The following table summarizes long-term debt:
 
   
March 31,
2011
 
December 31,
2010
Revolving line of credit
  $
9,662
    $
9,662
 
Industrial development authority bonds
   
3,550
     
3,550
 
Miscellaneous loan
   
20
     
 
     
13,232
     
13,212
 
Less current portion
   
(4,541
)
   
(1,475
)
Total long-term debt
  $
8,691
    $
11,737
 
 
The aggregate maturities of long-term debt at December 31, 2010 are as follows:
 
2011
  $ 4,141  
2012
    6,089  
2013
    299  
2014
    309  
2015
    314  
Thereafter
    2,080  
Total
  $ 13,232  

Restricted Cash:

On March 2, 2011, the Company and one of its suppliers entered into a Settlement and Supply agreement (“Agreement”) which served to settle the arbitral award and other legal proceedings related to an arbitral award that was pending.  The Agreement required the Company to pay $4,817 to our supplier and provide a cash collateralized letter of credit to secure the remainder of the arbitral award plus accrued interest. The letter of credit will reduce quarterly based on certain volume purchase milestones.  The Agreement also re-establishes the supply relationship between AMRI and our supplier through 2018.

The cash collateral pledged to support the letter of credit has been categorized as restricted cash on the Company’s statement of financial position at March 31, 2011.  The Company expects that the full amount of the cash collateral will be released upon the completion of the renegotiation of the credit agreement with its lender during the second quarter of 2011.

 
16

 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking Statements
 
The following discussion of our results of operations and financial condition should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the Notes thereto included within this report. This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by forward-looking words such as “may,” “could,” “should,” “would,” “will,” “intend,” “expect,” “anticipate,” “believe,” and “continue” or similar words and include, but are not limited to, statements concerning pension and postretirement benefit costs, the Company’s relationship with its largest customers, the Company’s collaboration with Bristol-Myers Squibb (“BMS”), future acquisitions, earnings, contract revenues, costs and margins, royalty revenues, patent protection and the ongoing Allegra® patent infringement litigation, Allegra® royalty revenue, government regulation, retention and recruitment of employees, customer spending and business trends, foreign operations, including increasing options and solutions for customers, business growth and the expansion of the Company’s global market, clinical supply manufacturing, management’s strategic plans, drug discovery, product commercialization, license arrangements, research and development projects and expenses, revenue and expense expectations for future periods, goodwill and long-lived asset impairment, competition and tax rates. The Company’s actual results may differ materially from such forward-looking statements as a result of numerous factors, some of which the Company may not be able to predict and may not be within the Company’s control. Factors that could cause such differences include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 16, 2011, as updated by Part II Item 1A, “Risk Factors,” in subsequent Forms 10-Q.  All forward-looking statements are made as of the date of this report, and we do not undertake to update any such forward-looking statements in the future, except as required by law. References to “AMRI”, the “Company,” “we,” “us,” and “our,” refer to Albany Molecular Research, Inc. and its subsidiaries, taken as a whole.
 
Strategy and Overview
 
We provide contract services to many of the world’s leading pharmaceutical and biotechnology companies. We derive our contract revenue from research and development expenditures and commercial manufacturing demands of the pharmaceutical and biotechnology industry.  We continue to execute our long-term strategy to develop and grow an integrated global platform from which we can provide these services.  We have research and/or manufacturing facilities in the United States, Hungary, Singapore, India and the United Kingdom.  Most recently, in February 2010, we acquired Excelsyn Ltd. (“AMRI UK”), which we believe is a well recognized leader in providing chemical development and manufacturing services to the pharmaceutical industry in Europe.  In June 2010, we acquired Hyaluron, Inc. (“AMRI Burlington”), a formulation company whose capabilities include cGMP manufacturing and sterile filling of parenteral drugs.  AMRI Burlington provides high value-added contract manufacturing services in sterile syringe and vial filling using specialized technologies.  AMRI Burlington provides these services for both small molecule drug products and biologicals, from clinical phase to commercial scale.
 
We have organized our activities into two distinct segments: Large Scale Manufacturing (“LSM”) and Discovery, Drug Development and Small Scale Manufacturing (“DDS”).  Our LSM activities include pilot to commercial scale production of active pharmaceutical ingredients and intermediates, sterile syringe and vial filling, and high potency and controlled substance manufacturing and our remaining activities, including drug lead discovery, optimization, drug development, and small scale commercial manufacturing represent our DDS business segment. 

We continue to integrate our research and manufacturing facilities worldwide, increasing our access to key global markets and enabling us to provide our customers with a flexible combination of high quality services and competitive cost structures to meet their individual outsourcing needs.  We seek comprehensive research and/or supply agreements with our customers, incorporating several of our service offerings and spanning across the entire pharmaceutical research and development process.  Our research facilities provide discovery, chemical development, analytical, and small-scale current Good Manufacturing Practices (“cGMP”) manufacturing services.  Compounds discovered and/or developed in our research facilities can then be more easily transitioned to production at our large-scale manufacturing facilities for use in clinical trials and, ultimately, commercial sales if the product meets regulatory approval.  Additionally, the acquisition of AMRI Burlington provides our Company with entry into a new and strategically important product offering.  We offer customers a fully integrated manufacturing process for sterile injectable drugs including the development and manufacture of the active pharmaceutical ingredient (“API”), the design of the criteria to formulate the API into an injectable drug product, and the manufacture of the final drug product.

 
17

 

We believe that the ability to partner with a single provider of pharmaceutical research and development services from discovery through commercial production is of significant benefit to our customers.  Through our comprehensive service offerings, we are able to provide customers with a more efficient transition of experimental compounds through the research and development process, ultimately reducing the time and cost involved in bringing these compounds from concept to market.
 
Our global platform has increased our market penetration and was developed in order to allow us to maintain and grow margins.  In addition to our globalization, we continue to implement process efficiencies, including our continued efforts of process improvement and cost savings measures, along with efforts to strengthen our sourcing.  We believe these factors will lead to improved margins.
 
We conduct proprietary research and development to discover new therapeutically active lead compounds with commercial potential. We anticipate that we would then license these compounds and underlying technology to third parties in return for up-front and service fees and milestone payments, as well as recurring royalty payments if these compounds are developed into new commercial drugs.
 
Our total revenue for the three months ended March 31, 2011 was $56.9 million, as compared to $49.3 million for the three months ended March 31, 2010.
 
Contract services revenue for the first quarter of 2011 was $42.9 million, compared to $38.9 million for the three months ended March 31, 2010.  Recurring royalty revenues, which are based on the worldwide sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere, as well as on sales of sanofi-aventis’ over-the-counter product, authorized generics and estimates of sales of Teva’s authorized generics, increased $3.6 million in the first quarter of 2011 from the first quarter of 2010.  Consolidated gross margin was 3.2% for the three months ended March 31, 2011 as compared to 10.6% for the three months ended March 31, 2010.
 
During the three months ended March 31, 2011, cash used by operations was $10.2 million.  The decrease of $4.0 million in cash flow from operations from the three months ended March 31, 2010 resulted primarily from a payment of $4.8 million associated with the Company’s settlement of the 2010 arbitration matter with a supplier.  We spent $2.8 million in capital expenditures, primarily related to modernization of our lab and production equipment.  As of March 31, 2011, we had $29.0 million in cash, cash equivalents and investments and $13.2 million in bank and other related debt.

Results of Operations – Three Months ended March 31, 2011 Compared to Three Months Ended March 31, 2010
 
Revenues
 
Total contract revenue
 
Contract revenue consists primarily of fees earned under contracts with our third party customers.  Our contract revenues for each of our Discovery/Development/Small Scale Manufacturing (“ DDS”) and Large-Scale Manufacturing (“LSM”) segments were as follows:
 
   
Three Months Ended March 31,
 
(in thousands)
 
2011
   
2010
 
             
DDS
  $ 21,115     $ 21,040  
LSM
    21,816       17,852  
Total
  $ 42,931     $ 38,892  

DDS contract revenues for the three months ended March 31, 2011 remained flat from the same period in 2010.  Contract revenue from development and small-scale manufacturing services increased $2.0 million, offset in part by a decrease of $1.9 million in contract revenue from discovery services due to higher demand for these services at our international locations, including an increased demand for our in vitro biology services worldwide and a decrease in demand for our U.S. medicinal chemistry services.

We currently expect DDS contract revenue for the full year of 2011 to increase from amounts recognized in 2010 primarily due to an increase in demand for our global development services, as well as an increase in demand for discovery services at our Asia locations, partially offset by a continued decrease from our U.S. discovery services.

LSM revenue for the three months ended March 31, 2011 increased $4.0 million from the same period in 2010 primarily due to an increase of $2.5 million caused by higher demand for clinical manufacturing services along with incremental revenues from the AMRI UK and AMRI Burlington acquisitions taking place in February and June of 2010, respectively.

 
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We expect LSM contract revenue for the full year of 2011 to significantly increase over amounts recognized in 2010.
 
Recurring royalty revenue
 
We earn royalties under our licensing agreement with sanofi-aventis S.A. for the active ingredient in Allegra.  Royalties were as follows:
 
Three Months Ended March 31,
 
2011
   
2010
 
(in thousands)
 
$ 14,016     $ 10,439  

Recurring royalties, which are based on the worldwide sales of Allegra®/Telfast, as well as on sales of sanofi-aventis’ authorized generics, increased $3.6 million for the three months ended March 31, 2011 from the same period in 2010 primarily due to an increase in sales of prescription Allegra® in Japan, as well as the addition of royalties recognized from the strong launch of the over-the-counter product line in the U.S.
 
The recurring royalties we receive on the sales of Allegra®/Telfast have historically provided a material portion of our revenues, earnings and operating cash flows.  We continue to develop our business in an effort to supplement the revenues, earnings and operating cash flows that have historically been provided by Allegra®/Telfast royalties.

Costs and Expenses
 
Cost of contract revenue
 
Cost of contract revenue consists primarily of compensation and associated fringe benefits for employees, as well as chemicals, depreciation and other indirect project related costs. Cost of contract revenue for our DDS and LSM segments were as follows:
 
   
Three Months Ended March 31,
 
Segment
 
2011
   
2010
 
(in thousands)
           
             
DDS
  $ 19,735     $ 17,981  
LSM
    21,807       16,780  
Total
  $ 41,542     $ 34,761  
                 
DDS Gross Margin
    6.4 %     14.6 %
LSM Gross Margin
    0.0 %     6.0 %
Total Gross Margin
    3.2 %     10.6 %
 
DDS had a contract revenue gross margin of 6.4% for the three months ended March 31, 2011 compared to contract revenue gross margin of 14.6% for the same period in 2010.  The decrease in gross margin resulted from lower demand for our U.S. medicinal chemistry services in relation to our fixed costs, partially offset by improved global development margins.
 
We currently expect DDS contract margins for the full year of 2011 to approximate percentages recognized for the full year of 2010 primarily due to cost savings associated with the restructuring that occurred in March 2011.
 
LSM’s contract revenue gross margin decreased to 0% for the three months ended March 31, 2011 compared to 6.0% for the same period in 2010.  This decrease is primarily due to lower revenues at our Burlington facility in relation to its fixed cost base due to the pending resolution of its FDA warning letter, along with unutilized capacity at our AMRI UK facility, partially offset by an increase in margins for our U.S. API manufacturing services.
 
We expect gross margins in the LSM segment for the full year of 2011 to significantly improve over percentages recognized for the full year of 2010.

Technology incentive award
 
We maintain a Technology Development Incentive Plan, the purpose of which is to stimulate and encourage novel innovative technology developments by our employees.  This plan allows eligible participants to share in a percentage of the net revenue earned by us relating to patented technology with respect to which the eligible participant is named as an inventor or made a significant intellectual contribution. To date, the royalties from Allegra® are the main driver of the awards.  Accordingly, as the creator of the technology, the award is currently payable primarily to Dr. Thomas D’Ambra, the Chief Executive Officer and President of the Company.

 
19

 
 
The incentive awards were as follows:
 
Three Months Ended March 31,
 
2011
   
2010
 
(in thousands)
 
$ 1,402     $ 1,043  
 
The increase in technology incentive award expense for the three months ended March 31, 2011 from the same period ended March 31, 2010 is due to the increase in Allegra royalty revenue.  We expect technology incentive award expense to generally fluctuate directionally and proportionately with fluctuations in Allegra royalties in future periods.
 
Research and development
 
Research and development (“R&D”) expense consists of compensation and benefits for scientific personnel for work performed on proprietary technology R&D projects, costs of chemicals, materials, outsourced activities and other out of pocket costs and overhead costs. We utilize our expertise in integrated drug discovery to perform our internal R&D projects. The goal of these programs is to discover new compounds with commercial potential. We would then seek to license these compounds to a third party in return for a combination of up-front license fees, milestone payments and recurring royalty payments if these compounds are successfully developed into new drugs and reach the market. In addition, R&D is performed at our large-scale manufacturing facility related to the potential manufacture of new products, the development of processes for the manufacture of generic products with commercial potential, and the development of alternative manufacturing processes.  Research and development expenses were as follows:
 
Three Months Ended March 31,
 
2011
   
2010
 
(in thousands)
 
         
$ 2,604     $ 2,763  
 
R&D expense decreased $0.2 million for the three months ended March 31, 2011 from the same period in 2010.  This decrease is primarily due to an overall decrease in internal operating costs as we strategically manage our R&D investments and continue to narrow the focus of R&D spending on only the most advanced development programs, partially offset by an increase in clinical trial costs related to our obesity program.
 
We currently expect research and development expenses for the full year of 2011 to decrease from amounts recognized in 2010 as we manage our R&D investments.
 
Projecting completion dates and anticipated revenue from our internal research programs is not practical at this time due to the early stages of the projects and the inherent risks related to the development of new drugs. Our proprietary amine neurotransmitter reuptake inhibitor program, which was our most advanced project at that time, was licensed to BMS in October 2005 in exchange for up-front license fees, contracted research services, and the rights to future milestone and royalty payments.  We also continue to utilize our proprietary technologies to further advance other early to middle-stage internal research programs in the fields of oncology, irritable bowel syndrome, obesity, and CNS, with a view to seeking a licensing partner for these programs at an appropriate research or developmental stage.
 
We budget and monitor our R&D expenses by type or category, rather than by project on a comprehensive or fully allocated basis. In addition, our R&D expenses are not tracked by project as they often benefit multiple projects in our technology platform. Consequently, fully loaded R&D expense summaries by project are not available.

 
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Selling, general and administrative
 
Selling, general and administrative (“SG&A”) expenses consist of compensation and related fringe benefits for selling, marketing, operational and administrative employees, professional service fees, marketing costs and costs related to facilities and information services.  SG&A expenses were as follows:
 
Three Months Ended March 31,
 
2011
   
2010
 
(in thousands)
 
$ 11,461     $ 10,639  

SG&A expenses for the three months ended March 31, 2011 increased $0.8 million from the same quarter of 2010.  This increase is primarily attributable to AMRI Burlington’s remediation charges along with incremental SG&A costs from AMRI Burlington, which was acquired in June 2010.  These increases were offset in part by cost savings from the reorganization of our U.S. locations in May 2010.
 
SG&A expenses for 2011 are expected to remain flat from amounts recognized in 2010 as one time acquisition charges and AMRI Burlington remediation costs are reduced, offset by run rate impact from the 2010 acquisitions as well as some investment in global capabilities on both sales and IT fronts. 
 
Restructuring.
 
In May 2010, we initiated a restructuring of our AMRI U.S. locations.  As part of our strategy to increase global competitiveness and continue to be diligent in managing costs, we implemented cost reduction activities at our operations in the U.S.  These cost reduction activities included a reduction in the U.S. workforce, as well as the suspension of operations at one of our research laboratory facilities in Rensselaer, New York.  Employees and equipment from this facility were consolidated into other nearby Company operations.  We recorded a restructuring charge of $3.2 million in 2010.  This charge includes lease termination charges of $2.2 million (net of estimated sublease income), termination benefits and personnel realignment costs of $0.8 million and facility and other costs of $0.2 million.  This restructuring activity was recorded within our DDS operating segment.

Additionally, in March 2011, we reduced our workforce to right-size our U.S. operations, primarily focused on discovery chemistry services due to the shift in demand for these types of services from our lower cost operations in Asia.  In connection with this reduction, we recorded a restructuring charge of $1.0 million for termination benefits. These restructuring activities were recorded within our DDS operating segment.
 
The following table displays the restructuring activity and liability balances for the three months ended March 31, 2011:
 
   
Balance at
January 1,
2011
   
Charges/
(reversals)
   
Paid Amounts
   
Foreign
Currency
Translation
Adjustments
   
Balance at
March 31, 2011
 
Termination benefits and personnel realignment
  $ 141     $ 951     $ (33 )     15     $ 1,074  
Lease termination charges
    1,932             (121 )           1,811  
Other
    120                   14       134  
Total
  $ 2,193     $ 951     $ (154 )     29     $ 3,019  

Termination benefits and personnel realignment costs relate to severance packages, outplacement services, and career counseling for employees affected by the restructuring.  Lease termination charges relate to costs associated with exiting the facility, net of estimated sublease income.
 
Restructuring charges are included under the caption “Restructuring charges” in the consolidated statement of operations for the quarters ended March 31, 2011 and 2010 and the restructuring liabilities are included in “Accounts payable and accrued expenses” and “Accrued long-term restructuring” on the consolidated balance sheet at March 31, 2011 and December 31, 2010.
 
Anticipated cash outflow related to the restructurings for the remainder of 2011 is approximately $1.7 million.

 
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Interest (expense) income, net
 
   
Three Months Ended March 31,
 
(in thousands)
 
2011
   
2010
 
             
Interest expense
  $ (55 )   $ (36
Interest income
    52       79  
Interest (expense) income, net
  $ (3 )   $ 43  

Net interest expense increased for the three months ended March 31, 2011 from net interest income for the same period in 2010 due to increased interest rates on our interest bearing liabilities, offset in part by a decrease in balances of interest bearing assets.
 
Other income (loss), net
 
Three Months Ended March 31,
 
2011
   
2010
 
(in thousands)
 
$ 52     $ (88 )
 
Other income for the three months ended March 31, 2011 consisted of income from purchase accounting adjustments of $0.3 million related to the 2010 AMRI UK and AMRI Burlington acquisitions, partially offset by expense primarily due to changes in rates associated with foreign currency transactions.
 
Income tax expense
 
Three Months Ended March 31,
 
2011
   
2010
 
(in thousands)
 
$ 376     $ 14  
 
Income tax expense increased for the three months ended March 31, 2011 due primarily to changes in the composition of taxable income in relation to the applicable tax rates at our various international locations, as well as the recognition of certain discrete tax expense items.

 
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Liquidity and Capital Resources
 
We have historically funded our business through operating cash flows and proceeds from borrowings. During the first three months of 2011, we used cash of $10.2 million in operating activities. The use of cash from operating activities resulted primarily from a payment of $4.8 million associated with the Company’s settlement of the 2010 arbitration matter with a supplier and   increases in royalties receivable due to timing of cash collections.
 
During the first three months of 2011, we used $0.9 million in investing activities, resulting primarily from the use of $2.8 million for the acquisition of property and equipment, offset in part by net proceeds from the sale or maturities of marketable securities of $1.9 million.  During the first three months of 2011, we used $5.4 million in financing activities, relating primarily to the pledging of $5.7 million as collateral for the letter of credit securing the remainder of an arbitration award that was settled in March 2011.  The Company expects that the full amount of the cash collateral will be released upon the completion of the renegotiation of the credit agreement with its lender during the second quarter of 2011.
 
Working capital was $76.5 million at March 31, 2011 as compared to $79.4 million as of December 31, 2010.
 
We currently have a revolving line of credit in the amount of $45.0 million which has a maturity date in June 2013.  The line of credit bears interest at a variable rate based on our Company’s leverage ratio. As of March 31, 2011, the balance outstanding on the line of credit was $9.7 million, bearing interest at a rate of 1.50%.  The credit facility contains certain financial covenants, including a maximum leverage ratio, a minimum required operating cash flow coverage ratio, a minimum earnings before interest, taxes, depreciation and amortization and a minimum current ratio, as amended.  Other covenants include limits on asset disposals and the payment of dividends.  As of December 31, 2010, we were not in compliance with our financial covenants requirements, however, we received a waiver from our lender through May 16, 2011 while we renegotiate our credit agreement.  We intend to amend our existing credit facility to provide for a revolving line of credit that will mature in May 2012. We intend to repay $2.7 million of the balance outstanding on the line of credit and to refinance the remaining $7.0 million under the current line of credit into a term loan with quarterly repayments of $0.4 million and the balance due and payable in May 2012.  E ffective April 15, 2011, the interest rate on the existing amounts outstanding increased from LIBOR plus 0.75% to LIBOR plus 3.75%.   Additionally, in connection with such waivers, we provided security to the bank group in the form of a security interest in substantially all of our United States assets.
 
The disclosure of payments we have committed to make under our contractual obligations is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” under Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  There have been no material changes to our contractual obligations since December 31, 2010.  As of March 31, 2011, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commission’s Regulation S-K.
 
We continue to pursue the expansion of our operations through internal growth and strategic acquisitions.  We expect that additional expansion activities will be funded from existing cash and cash equivalents, cash flow from operations and/or the issuance of debt or equity securities and borrowings.  Future acquisitions, if any, could be funded with cash on hand, cash from operations, borrowings under our credit facility and/or the issuance of equity or debt securities.  There can be no assurance that attractive acquisition opportunities will be available to us or will be available at prices and upon such other terms that are attractive to us.  We regularly evaluate potential acquisitions of other businesses, products and product lines and may hold discussions regarding such potential acquisitions.  As a general rule, we will publicly announce such acquisitions only after a definitive agreement has been signed.  In addition, in order to meet our long-term liquidity needs or consummate future acquisitions, we may incur additional indebtedness or issue additional equity or debt securities, subject to market and other conditions.  There can be no assurance that such additional financing will be available on terms acceptable to us or at all.  The failure to raise the funds necessary to finance our future cash requirements or consummate future acquisitions could adversely affect our ability to pursue our strategy and could negatively affect our operations in future periods.
 
Critical Accounting Policies and Estimates
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, goodwill, long-lived assets, pension and postretirement benefit plans, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 
23

 

We refer to the policies and estimates set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  There have been no material changes or modifications to the policies since December 31, 2010.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
There have been no material changes with respect to the information on Quantitative and Qualitative Disclosures about Market Risk appearing in Part II, Item 7A to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
 
Item 4. Controls and Procedures
 
a)  Disclosure Controls and Procedures
 
As required by rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the Company’s last fiscal quarter our management conducted an evaluation with the participation of our Chief Executive Officer and Chief Financial Officer regarding the effectiveness of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management was required to apply its judgment in evaluating and implementing possible controls and procedures. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, the Company’s disclosure controls and procedures were not effective as of March 31, 2011 due to material weaknesses in financial reporting with respect to our accounting for income taxes as described in the Company’s Annual Report on Form 10-K for the period ended December 31, 2010.  We intend to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

b) Changes in Internal Control Over Financial Reporting
 
There were no changes, other than those in conjunction with certain remediation efforts described below, in the Company’s internal control over financial reporting during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

c)  Remediation Efforts
 
We have implemented, or plan to implement, certain measures to remediate the material weakness relating to the Company’s income tax accounting identified in the Company’s 2010 Annual Report on Form 10-K.  As of the date of the filing of this Quarterly Report on Form 10-Q, the Company has implemented or is in the process of implementing the following measures:

 
·
engaged external tax experts to support the Company’s financial closing and reporting process;
 
·
improved documentation and instituted more formalized review of tax positions, with senior management and external advisors, to ensure proper evaluation and accounting treatment of complex tax issues; and
 
·
continued to evaluate and, if necessary, supplement the resources provided by our external advisors.

We believe that these remediation actions represent ongoing improvement measures and we plan to enhance our plans in  the remaining quarters of 2011.  Furthermore, while we have taken steps to remediate the material weakness, these steps may not be adequate to fully remediate this weakness, and additional measures may be required.   The effectiveness of our remediation efforts will not be known until we can test those controls in connection with management’s evaluation of internal controls over financial reporting that we will perform as of December 31, 2011.

 
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PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings
 
The Company, along with Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business of sanofi-aventis S.A., has been involved in legal proceedings with several companies seeking to market or which are currently marketing generic versions of Allegra and Allegra-D. In accordance with the Company’s agreements with sanofi-aventis, sanofi-aventis bears the external legal fees and expenses for these legal proceedings, but in general, the Company must consent to any settlement or other arrangement with any third party. Under those same agreements, the Company will receive royalties from sanofi-aventis on U.S. Patent No. 5,578,610 until its expiration in 2013 and royalties on U.S. Patent No. 5,750,703 until its expiration in 2015, unless those patents are earlier determined to be invalid.  Similarly, the Company is entitled to receive royalties from sanofi-aventis on certain foreign patents through 2015, unless those patents are earlier determined to be invalid.
 
Please refer to Part 1 – Note 12 for further details and history on these litigations.
 
Item 1A. Risk Factors
 
If we fail to meet our credit facility’s financial covenants, our business and financial condition could be adversely affected.
 
We currently have a revolving line of credit in the amount of $45 million which has a maturity date of June 2013.  The credit facility contains certain financial covenants, including but not limited to, a maximum leverage ratio, a minimum required operating cash flow coverage ratio, a minimum earnings before interest, taxes, depreciation and amortization and a minimum current ratio.  As of March 31, 2011 our balance outstanding on the line of credit was $9.7 million.  As of December 31, 2010, we were not in compliance with our financial covenant requirements, however, we received a waiver from our lenders through May 16, 2011 while we renegotiate our agreement. We intend to amend our existing credit facility to provide for a revolving line of credit that will mature in May 2012. We intend to repay $2.7 million of the balance outstanding on the line of credit and to refinance the remaining $7.0 million under the current line of credit into a term loan with quarterly repayments of $0.4 million and the balance due and payable in May 2012.  Additionally, in connection with such waivers, we provided security to the bank group in the form of a security interest in substantially all of our United States assets.  I n addition, effective April 15, 2011, the interest rate on the existing amounts outstanding increased from LIBOR plus 0.75% to LIBOR plus 3.75%.
 
There is no assurance that we will be able to renegotiate our credit agreement with our lenders or receive further waivers of covenant noncompliance from the lenders.  If at any point, we fail to meet our credit facility’s financial covenants, the lenders can demand immediate repayment of our outstanding balance and deny future borrowings under the remaining line of credit.  This could have a negative impact on our liquidity, thereby reducing the availability of cash flow for other purposes.

 
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Item 6.   Exhibits
 
Exhibit
   
Number
 
Description
     
10.1
 
Amended and Restated Limited Waiver and Agreement, made as of April 15, 2011, by and among Albany Molecular Research, Inc. AMRI Rensselaer, Inc., AMRI Bothell Research Center, Inc., AMRI Burlington, Inc., certain Lenders as defined therein and Bank of America, N.A. as administrative agent for the Lenders.
     
31.1
 
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
     
31.2
 
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
     
32.1
 
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
  
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 
26

 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ALBANY MOLECULAR RESEARCH, INC.
     
Date: May 10, 2011
By:
/s/ Mark T. Frost
   
Mark T. Frost
   
Senior Vice President, Administration, Chief Financial Officer
and Treasurer
(Duly Authorized Officer and Principal Financial Officer)
 
 
27

 
 
Exhibit 10.1

AMENDED AND RESTATED LIMITED WAIVER AND AGREEMENT

This AMENDED AND RESTATED LIMITED WAIVER ANDAGREEMENT (this “ Agreement ”) to the Credit Agreement referred to below is made as of April 15, 2011, by and among Albany Molecular Research, Inc., a Delaware corporation (the “ Borrower ”), the Guarantors (as defined in the Credit Agreement referred to below), the Lenders (as hereinafter defined) party hereto and Bank of America, N.A., as the administrative agent for the Lenders (as successor by merger to Fleet National Bank, the “ Administrative Agent ”). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement.

WHEREAS , the Borrower, the financial institutions from time to time party thereto (collectively, the “ Lenders ”) and the Administrative Agent are parties to that certain Credit Agreement, dated as of February 12, 2003 (as amended or otherwise modified prior to the date hereof, the “ Credit Agreement ”);

WHEREAS, certain Events of Default under the Credit Agreement may have occurred and may be continuing as a result of the Borrower’s failure to comply with (i)the maximum Leverage Ratio covenant, (ii) the minimum EBITDA covenant and (iii) the minimum Operating Cash Flow Coverage Ratio covenant contained in Section 6.12 of the Credit Agreement for the fiscal year ended December 31, 2010 and the fiscal quarter ended March 31, 2011 (such Events of Default, hereinafter, the “ Specified Defaults ”);

WHEREAS, the Borrower previously requested that the Administrative Agent and the undersigned Lenders grant a limited waiver with respect to the Specified Defaults that occurred as of December 31, 2010;

WHEREAS, the Borrower, the Guarantors, the Lenders and the Administrative Agent entered into that certain Limited Wavier and Agreement, dated as of February 24, 2011 (the “ Existing Limited Waiver ”), pursuant to which the Lenders and the Administrative Agent agreed to grant a limited waiver with respect to such Specified Defaults, subject to the terms and conditions set forth therein;

WHEREAS, the Borrower has requested that the Administrative Agent and the undersigned Lenders agree to amend and restate the Existing Limited Waiver to, among other things, grant a limited waiver with respect to all Specified Defaults and to extend the “Termination Date” under and as defined in the Existing Limited Waiver, as set forth herein; and

WHEREAS, the Administrative Agent and the undersigned Lenders are prepared to amend and restate the Existing Limited Waiver pursuant to this Agreement.

NOW THEREFORE, in consideration of the waivers granted herein, the accommodations made by the Administrative Agent and the Lenders, the promises and mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows.
 
 
 

 
 
§1             Ratification of Existing Agreements . The Borrower and each Guarantor agrees that the Obligations, as evidenced by or otherwise arising under the Credit Agreement, the Guaranty and each other instrument and document executed and delivered in connection with the Credit Agreement or the Guaranty (such other instruments and documents, together with the Credit Agreement and the Guaranty, collectively, the “ Loan Documents ”) are, by the Borrower’s and each Guarantors’ execution of this Agreement, ratified and confirmed in all respects. The Borrower and the Guarantors hereby affirm their absolute and unconditional promise to pay to the Administrative Agent and the Lenders the Obligations and all other amounts due under the Credit Agreement and the other Loan Documents. The Borrower and the Guarantors hereby confirm that the Obligations are absolutely and unconditionally guaranteed pursuant to the Guaranty. In addition, by the execution of this Agreement, the Borrower and each Guarantor represents and warrants that no counterclaim, right of set-off or defense of any kind exists or is outstanding as of the date hereof with respect to such Obligations.

§2            Representations and Warranties . Each Obligor represents and warrants to the Lenders and the Administrative Agent that:

(a)             The execution and delivery by such Obligor of this Agreement and the performance of its obligations and agreements under this Agreement, the Credit Agreement and the other Loan Documents are within the corporate authority of each such Person, have been duly authorized by all necessary corporate proceedings on behalf of each such Person, and do not and will not contravene any provision of (x) law, statute, rule or regulation to which such Person is subject, (y) such Person’s Organic Documents or (z) any other agreement or other instrument binding upon such Obligor.

(b)             This Agreement, the Credit Agreement, the Guaranty and the other Loan Documents constitute the legal, valid and binding obligation of each Obligor party thereto, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights generally or by general equitable principles.

(c)             No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any governmental authority or any other Person is necessary or required to make valid and legally binding the execution, delivery or performance by such Obligor of this Agreement.

(d)             The representations and warranties contained in (x) Article III of the Credit Agreement and (y) the other Loan Documents are true and correct at and as of the date made and as of the date hereof, except (i) to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and the other Loan Documents, (ii) to the extent such representations and warranties specifically relate to a Specified Default, and (iii) to the extent that such representations and warranties relate expressly to an earlier date, in which case, such representations and warranties shall be true and correct as of such earlier date.
 
 
-2-

 
 
(e)             Each Obligor has performed and complied in all material respects with all terms and conditions herein, in the Credit Agreement, the Guaranty and the other Loan Documents required to be performed or complied with prior to or at the time hereof, and as of the date hereof, after giving effect to the provisions hereof, there exists no Default or Event of Default.

§3           Limited Waiver . Subject to all of the other terms and conditions set forth herein and in reliance upon the agreements of the Borrower and the Guarantors contained herein, the Administrative Agent and the undersigned Lenders hereby temporarily waive until the Termination Date (as hereinafter defined) each of the Specified Defaults. The temporary waiver granted pursuant to this Section 3 shall terminate and expire on the date (the “ Termination Date ”) that is the earliest to occur of: (i) May 16, 2011, (ii) the failure of the Borrower or any Guarantor to comply with any of the terms of this Agreement and/or any of the Borrower’s or Guarantors’ other undertakings set forth herein, (iii) the occurrence of any Default or Event of Default other than the Specified Defaults, (iv) the occurrence of any Material Adverse Effect, (v) the date that any Obligor, any Affiliate of any Obligor or any other Person claiming by or through any Obligor joins in, assists, cooperates or participates as an adverse party or adverse witness in any suit or other proceeding against the Administrative Agent, any Lender or any Affiliate of any of them relating to the Obligations or any other amounts owing under any Loan Document and (vi) the occurrence of the “Termination Date” under and as defined in that certain Amended and Restated Limited Waiver, dated as of the date hereof, by and among the Borrower, the Guarantors and Bank of America, N.A., as lender. On and after the Termination Date, the waiver set forth above shall automatically, without the requirement of any notice to the Borrower or any Guarantor, terminate and expire and the Administrative Agent and the Lenders shall be free in their sole and absolute discretion to proceed to enforce any or all of their rights and remedies set forth in this Agreement, the Credit Agreement, the other Loan Documents, any other related documents and applicable law, including without limitation, those acceleration, enforcement and other rights and remedies arising by virtue of the occurrence of the Specified Defaults and the Borrower and each Guarantor hereby waives notice thereof.
 
 
-3-

 
 
§4            Creation of Security Interest.

(a)             Grant of Security Interest . Each Obligor hereby grants to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, to secure the payment and performance in full of all of the Obligations (whether no existing or hereafter arising), a continuing security interest in, and pledges to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, all of its right, title and interest in and to the following properties, assets and rights of such Obligor, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof (all of the same being hereinafter called the “ Collateral ”): all personal and fixture property of every kind and nature including all goods (including inventory, equipment and any accessions thereto), instruments (including promissory notes), documents (including, if applicable, electronic documents), accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, cash, money, letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), commercial tort claims, securities and all other investment property, supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, and all general intangibles (including all payment intangibles), except to the extent excluded from such grant and pledge and the definition of Collateral pursuant to Section 4(b) of this Agreement. If any Obligor shall acquire a commercial tort claim, such Obligor shall promptly notify the Administrative Agent in a writing signed by such Obligor of the general details thereof and grant to the Administrative Agent, for the benefit of the Administrative Agent and the Lenders, in such writing a security interest therein and in the proceeds thereof, with such writing to be in form and substance reasonably satisfactory to the Administrative Agent. All terms defined in the Uniform Commercial Code of the Commonwealth of Massachusetts (the “ UCC ”) and used in this Section 4 shall have the same definitions herein as specified therein. However, if a term is defined in Article 9 of the UCC differently than in another Article of the UCC, the term has the meaning specified in Article 9.

(b)             Exclusions From Collateral .

(1)             The grant of the security interest and pledge contained in Section 4(a) shall not extend to, and the term “Collateral” shall not include, (i) any assets of any Obligor securing obligations in respect of the Variable Rate Demand Industrial Development Revenue Bonds (Albany Molecular Research, Inc. Projects), Series 2001 issued pursuant to that certain Indenture of Trust, dated as of April 1, 2001, between Onondaga County Industrial Development Agency and the United States Trust Company of New York, as in effect on the date hereof (the “ Indenture ”), including, without limitation, the “Project Facility” under and as defined in the Indenture and (ii) any directly held investment property, or any general intangibles, now or hereafter held or owned by an Obligor, to the extent, in each case, that (A) a security interest may not be granted by such Obligor in such directly held investment property or general intangibles as a matter of law, or under the terms of the governing document applicable thereto, without the consent of one or more applicable parties thereto and (B) such consent has not been obtained.

(2)             The grant of the security interest contained in Section 4(a) shall extend to, and the term “Collateral” shall include, (x) any and all proceeds of such directly held investment property or general intangibles to the extent that the proceeds are not themselves directly held investment property or general intangibles subject to clause (b)(1) above and (y) upon any such applicable party or parties’ consent with respect to any otherwise excluded directly held investment property or general intangibles being obtained, thereafter such directly held investment property or general intangibles. Notwithstanding anything to the contrary contained herein, the provisions of Section 4(b)(1) shall not apply to (x) directly held investment property or general intangibles to the extent that the restriction on an Obligor granting a security interest therein is not effective under applicable law or (y) payment intangibles.
 
 
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(3)             The grant of the security interest and pledge contained in Section 4(a) shall not extend to, and the term “Collateral” shall not include, (i) any assets of any wholly-owned subsidiary or any Obligor that is organized in or under the laws of any jurisdiction outside the Untied States (a “Wholly-Owned Foreign Subsidiary”) or (ii) more than 65% of the equity interests of any Wholly-Owned Foreign Subsidiary owned by any Obligor.

(c)             Authorization to File Financing Statements . Each Obligor hereby authorizes the Administrative Agent to file financing statements, without notice to such Obligor, with all appropriate jurisdictions to perfect or protect the Administrative Agent’s interest or rights hereunder. Without limiting the foregoing, Each Obligor hereby authorizes the Administrative Agent to file financing statements which describe the collateral as “all assets” and/or “all personal property” of such Obligor or words of similar import.

(d)             Actions as to any and all Collateral .

(i)             Each Obligor agrees, upon the request of the Administrative Agent and at the Administrative Agent ’s option, to take any and all other actions as the Administrative Agent may reasonably request for the attachment, perfection and first priority of, and the ability of the Administrative Agent to enforce, the Administrative Agent ’s security interest in any and all of the Collateral, including (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the Uniform Commercial Code of any relevant jurisdiction, to the extent, if any, that the Obligor’s signature thereon is required therefor, (b) causing the Administrative Agent’s name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Administrative Agent to enforce, the Administrative Agent’s security interest in such Collateral, (c) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Administrative Agent to enforce, the Administrative Agent’s security interest in such Collateral, (d) obtaining governmental and other third party waivers, consents and approvals, in form and substance reasonably satisfactory to the Administrative Agent, including any consent of any licensor, lessor or other person obligated on Collateral, and any party or parties whose consent is required for the security interest of the Administrative Agent to attach under Section 4(a), (e) obtaining waivers from mortgagees and landlords in form and substance reasonably satisfactory to the Administrative Agent and (f) taking all actions under any earlier versions of the UCC or under any other law, as reasonably determined by the Administrative Agent to be applicable in any relevant Uniform Commercial Code or other jurisdiction, including any foreign jurisdiction.
 
 
-5-

 
 
(ii)             Upon the request of the Administrative Agent, the Obligors shall, at the Borrower’s expense:

(A) furnish to the Administrative Agent a description of the real properties of the Obligors in detail reasonably satisfactory to the Administrative Agent,

(B) duly execute and deliver, and cause each Obligor to duly execute and deliver, to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust and other security and pledge agreements, as reasonably requested by and in form and substance reasonably satisfactory to the Administrative Agent, securing payment of all the Obligations of the Obligors under the Loan Documents and constituting Liens on all such properties,

(C) take whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be reasonably requested by the Administrative Agent to vest in the Administrative Agent valid and subsisting Liens on the properties purported to be subject to the deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust and security and pledge agreements delivered pursuant to this Section 4(d)(ii), enforceable against all third parties in accordance with their terms,

(D) deliver to the Administrative Agent a signed copy of a favorable opinion, addressed to the Administrative Agent and the Lenders, of counsel for the Obligors acceptable to the Administrative Agent as to the matters contained in clauses (B) and (C) above, and as to such other matters as the Administrative Agent may reasonably request, and

(E) deliver to the Administrative Agent with respect to each parcel of real property owned or held by the Obligors, title reports, surveys and engineering, soils and other reports, and environmental assessment reports, each in scope, form and substance reasonably satisfactory to the Administrative Agent as may be reasonably requested by the Administrative Agent;

provided that the obligations of the Obligors under this Section 4(d)(ii)  shall not extend or apply to any real property owned by any Wholly- Owned Foreign Subsidiary of any Obligor.
 
 
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(e)            Rights of Secured Party . If after the date hereof an Event of Default shall have occurred and be continuing, the Administrative Agent, without any other notice to or demand upon any Obligor, shall have in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies of a secured party under the UCC or any other relevant jurisdiction and any additional rights and remedies as may be provided to a secured party in any jurisdiction in which Collateral is located, including the right in accordance with applicable law to take possession of the Collateral, and for that purpose the Administrative Agent may, in accordance with applicable law, so far as the Obligors can give authority therefor, peaceably enter upon any premises on which the Collateral may be situated and remove the same therefrom.

§5            Additional Agreements and Covenants.

(a)            No Credit Extensions . Notwithstanding anything to the contrary contained in the Credit Agreement, without limiting any existing restrictions on Borrowings and any existing restrictions on the issuance, amendment or extension of any Letter of Credit contained in the Credit Agreement, the Borrower hereby agrees that from and after the date hereof the Borrower shall not request, and the Lenders and the Issuer shall have no obligation to honor, any Borrowing or the issuance, amendment or extension of any Letter of Credit.

(b)             Applicable LIBOR Margin . Notwithstanding anything to the contrary contained in the Credit Agreement, the Borrower hereby agrees that from and after the date hereof the Applicable LIBOR Margin shall be 3.75%.

(c)            Alternate Base Rate . Notwithstanding anything to the contrary contained in the Credit Agreement, the term “Alternate Base Rate” shall mean a rate per annum equal to the sum of (i) the greater of (x) the Prime Rate and (y) the Federal Funds Rate plus one half of one percent (.50%) plus (ii) 2.75%.

(d)            Facility Fee . Notwithstanding anything to the contrary contained in the Credit Agreement, the Borrower hereby agrees that from and after the date hereof the facility fee payable by the Borrower pursuant to Section 2.11(a) of the Credit Agreement shall accrue at rate equal to 0.625% per annum.

(e)            Letter of Credit Fee . Notwithstanding anything to the contrary contained in the Credit Agreement, the Borrower hereby agrees that from and after the date hereof the letter of credit fee payable by the Borrower pursuant to Section 2.11(b) of the Credit Agreement shall accrue at rate per annum equal to 3.75% on the Stated Amount of each Letter of Credit.

§6            Specified Letter of Credit; Collateral for DPLC Facility.

(a)           Notwithstanding the restrictions contained in Sections 6.01 and 6.03 of the Credit Agreement to the contrary, the Administrative Agent and the undersigned Lenders hereby agree that (a) the Borrower shall be permitted to incur Indebtedness in respect of a letter of credit issued for the benefit of Borregaard Industries Limited in a principal stated amount not to exceed $5,500,000 (the “ Specified Letter of Credit ”) and (b) such Specified Letter of Credit may be secured by cash collateral in an amount not to exceed 105% of the stated amount thereof.
 
 
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(b)           Notwithstanding the restrictions contained in Section 6.03 of the Credit Agreement to the contrary, the Administrative Agent and the undersigned Lenders hereby agree that the Obligors shall be permitted to grant to Bank of America, N.A. a Lien on all Collateral to secure the obligations of the Obligors under that certain Credit and Reimbursement Agreement, dated as of April 1, 2001 (as amended or otherwise modified from time to time, the “ DPLC Facility ”); provided that any such Lien of Bank of America, N.A. on such Collateral shall be “silent” and junior in priority to the Liens of the Administrative Agent on the Collateral which secure the Obligations. The Lenders hereby agree that the Administrative Agent may enter into intercreditor arrangements with Bank of America, N.A. to reflect the “silent” and junior priority nature of any such Liens granted to Bank of America, N.A.

§7            Conditions Precedent . The Administrative Agent, the undersigned Lenders, the Borrower and the Guarantors agree that this Agreement shall become effective as of the date first set forth above upon receipt of (i) this Agreement duly executed by each of the Borrower, the Guarantors, the Required Lenders and the Administrative Agent, (ii) copies, certified by the secretary or another authorized officer of the Borrower, to be true and complete on and as of the effectiveness of this Agreement, of (A) the records of all corporate action taken by the Borrower to authorize the Borrower’s execution, delivery and performance of this Agreement (including the grant of the security interest in the Collateral pursuant to Section 4(a) hereof) and (B) the Organic Documents of the Borrower, and (iii) copies, certified by the secretary or another authorized officer of each Guarantor, to be true and complete on and as of the effectiveness of this Agreement, of (A) the records of all corporate action taken by such Guarantor to authorize such Guarantor’s execution, delivery and performance of this Agreement (including the grant of the security interest in the Collateral pursuant to Section 4(a) hereof) and (B) the certificate of incorporation or other similar document of such Guarantor.

§8            No Present Claims . In order to induce the Administrative Agent and the Lenders to enter into this Agreement, the Borrower and the Guarantors acknowledge and agree that: (a) neither the Borrower nor any Guarantor has any claim or cause of action against the Administrative Agent or any Lender (or any of their respective directors, officers, employees or agents); (b) neither the Borrower nor any Guarantor has any offset right, counterclaim or defense of any kind against any of its obligations, indebtedness or liabilities to the Administrative Agent or any Lender; and (c) the Administrative Agent and each Lender have heretofore properly performed and satisfied in a timely manner all of their respective obligations to the Borrower and each Guarantor. The Borrower and each Guarantor agree to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect the Administrative Agent’s or any Lender’s rights, interests, contracts, collateral security or remedies. Therefore, the Borrower and each Guarantor unconditionally release, waive -and forever discharge (i) any and all liabilities, obligations, duties, promises or indebtedness of any kind of the Administrative Agent and each Lender to the Borrower or such Guarantor, except the obligations to be performed by the Administrative Agent or any Lender on or after the date hereof as expressly stated in this Agreement, the Credit Agreement and the other Loan Documents, and (ii) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether arising at law or in equity, whether known or unknown, which the Borrower or any Guarantor might otherwise have against the Administrative Agent, any Lender or any of their directors, officers, employees or agents, in either case (i) or (ii), on account of any past or presently existing condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind or which could arise after the date hereof as a result of the execution of (or the satisfaction of any condition precedent to) this Agreement.
 
 
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§9           No Waiver . Except as otherwise expressly provided for in this Agreement, nothing in this Agreement shall extend to or affect in any way any of the rights or obligations of the Borrower or the Guarantors or the Administrative Agents’ or Lenders’ obligations, rights and remedies arising under the Credit Agreement, this Agreement, the other Loan Documents or any other documents relating thereto. Except as expressly provided in Section 3 of this Agreement, neither the Administrative Agent nor any Lender shall be deemed to have waived any or all of its rights or remedies with respect to any Default or Event of Default existing on the date hereof or arising hereafter.

§109       Expenses . As provided in Section 9.03(a) of the Credit Agreement, the Borrower hereby agrees to pay to the Administrative Agent all reasonable out-of-pocket costs and expenses incurred or sustained by the Administrative Agent in connection with this Agreement and the transactions contemplated hereby.

§11          Miscellaneous .

(a)           This Agreement shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts (excluding the laws applicable to conflicts or choice of law). Any and all notices or other communications required hereunder shall be in writing and shall be delivered as required by the Credit Agreement. In the event that any of the terms or provisions herein are in conflict with any of the terms or provisions in the Credit Agreement, this Agreement shall govern.

(b)           All obligations included in this Agreement (including, without limitation, all obligations for the payment of fees, costs and expenses) shall constitute Obligations under the Credit Agreement and be guaranteed pursuant to the Guaranty.

(c)           (i) Any failure by the Borrower or Guarantor to comply with any of the terms and conditions of this Agreement, including any of the undertakings set forth in Sections 5 or 12 hereof, shall constitute an immediate Event of Default and (ii) if (x) any provision of Section 4 hereof, at any time after the execution and delivery of this Agreement and for any reason other than the satisfaction in full of all the Obligations  (other than inchoate indemnity obligations), ceases to be in full force and effect or (y) any Obligor or any other Person contests in any manner the validity or enforceability of any provision Section 4 of this Agreement or any Loan Party purports to revoke, terminate or rescind the grant of the security interests under this Agreement, it shall constitute an immediate Event of Default.
 
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(d)           The agreements and covenants of the Borrower and the Guarantors contained herein shall survive the Termination Date.

(e)           This Agreement may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Agreement it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. Any signature delivered by a party by facsimile transmission or other electronic method of transmission (including without limitation in “pdf” format) shall be deemed to be an original signature hereto.

§12          Covenant . Not later than 30 days following the date of this Agreement, each Guarantor hereby agrees that it shall deliver to the Administrative Agent a certified copy of its ByLaws, which ByLaws shall be in form and substance satisfactory to the Administrative Agent.

§13          Waiver By Sole Shareholder . The Borrower, as sole shareholder of each Guarantor, hereby waives any provision or term of any Organic Document of any Guarantor which may prohibit or otherwise restrict any of the transactions contemplated by this Agreement (including the grant of security interests by the Guarantors pursuant to Section 4 hereof).

§14          Amendment and Restatement of Existing Limited Waiver . The parties hereto hereby confirm, acknowledge and agree that as of the date hereof, the terms, conditions, agreements, covenants, representations and warranties set forth in the Existing Limited Waiver are hereby amended and restated in their entirety, and as so amended and restated, replaced and superseded, by the terms, conditions, agreements, covenants, representations and warranties set forth in this Agreement.
   
 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
 
 
BORROWER
   
 
ALBANY MOLECULAR RESEARCH,
INC.
   
 
By:
/s/ Thomas E. D’Ambra
 
Name:
Thomas E. D’Ambra, Ph.D.
 
Title:
President & CEO
   
 
GUARANTORS
   
 
AMRI RENSSELAER, INC. (f/k/a
 
Organichem Corporation)
   
 
By:
/s/ Thomas E. D’Ambra
 
Name:
Thomas E. D’Ambra, Ph.D.
 
Title:
Director
   
 
AMRI BOTHELL RESEARCH CENTER,
INC.
   
 
By:
/s/ Thomas E. D’Ambra
 
Name:
Thomas E. D’Ambra, Ph.D.
 
Title:
Director
   
 
AMRI BURLINGTON, INC.
   
 
By:
/s/ Thomas E. D’Ambra
 
Name:
Thomas E. D’Ambra, Ph.D.
 
Title:
President
 
 
-11-

 
 
 
BANK OF AMERICA, N.A., as
Administrative Agent, Issuer and a Lender
   
 
By:
/s/ Linda E.C. Alto
  Name:
Linda E.C. Alto
  Title: 
Senior Vice President
  
 
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JP MORGAN CHASE BANK, N.A., as a
Lender
   
 
By:
/s/ Kristin Sands
  Name:
Kristin Sands
  Title:
Underwriter II
  
 
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RBS CITIZENS, NATIONAL
ASSOCIATION, as a Lender
   
 
By:
/s/ R. Scott Haskell
  Name:
R.Scott Haskell
  Title:
Senior Vice President
 
 
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Exhibit 31.1
 
CERTIFICATION
 
I, Thomas E. D’Ambra, Ph.D. certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Albany Molecular Research, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 10, 2011
/s/ Thomas E. D’Ambra
 
Name: Thomas E. D’Ambra, Ph.D.
 
Title: President and Chief Executive Officer
 
Principal Executive Officer

 
 

 

Exhibit 31.2
 
CERTIFICATION
 
I, Mark T. Frost certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Albany Molecular Research, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 10, 2011
/s/ Mark T. Frost
 
Name: Mark T. Frost
 
Title: Senior Vice President, Administration, Chief Financial Officer
and Treasurer
 
Principal Financial Officer
 
 
 

 

Exhibit 32.1
 
CERTIFICATION
 
The undersigned officer of Albany Molecular Research, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
 
Date: May 10, 2011
 
 
/s/ Thomas E. D’Ambra
 
Name: Thomas E. D’Ambra, Ph.D.
 
Title: President and Chief Executive Officer
 
 
 

 

Exhibit 32.2
 
CERTIFICATION
 
The undersigned officer of Albany Molecular Research, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (“Item 601(b)(32)”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
 
Date: May 10, 2011
/s/ Mark T. Frost
 
Name: Mark T. Frost
 
Title: Senior Vice President, Administration, Chief Financial Officer and
Treasurer