Albany Molecular Research
ALBANY MOLECULAR RESEARCH INC (Form: 10-Q, Received: 11/09/2012 12:25:01)

 

 

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 September 30, 2012
     
o   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    x   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 October 31, 2012  
Common Stock, $.01 par value   30,924,480 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 Statements of Comprehensive Loss   4
        Condensed Consolidated Balance Sheets   5
        Condensed Consolidated Statements of Cash Flows   6
        Notes to Condensed Consolidated Financial Statements   7
             
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
             
    Item 3.   Quantitative and Qualitative Disclosures About Market Risk   25
             
    Item 4.   Controls and Procedures   25
             
Part II.   Other Information   26
             
    Item 1.   Legal Proceedings   26
             
    Item 1A.   Risk Factors   26
             
    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     Nine Months Ended  
(Dollars in thousands, except for per share data)   September 30, 
2012
    September 30, 
2011
    September 30, 
2012
    September 30, 
2011
 
                         
Contract revenue   $ 45,627     $ 43,771     $ 130,727     $ 130,199  
Recurring royalties     9,393       6,458       27,907       27,854  
Milestone revenue     750             840       3,000  
Total revenue     55,770       50,229       159,474       161,053  
                                 
Cost of contract revenue     43,660       45,388       119,581       128,116  
Technology incentive award     621       646       2,473       2,839  
Research and development     196       1,608       800       6,122  
Selling, general and administrative     10,774       10,504       30,461       31,702  
Restructuring charges     1,616             3,743       951  
Impairment charges                 3,967        
Arbitration charge                       127  
Total operating expenses     56,867       58,146       161,025       169,857  
                                 
Loss from operations     (1,097 )     (7,917 )     (1,551 )     (8,804 )
                                 
Interest expense, net     (109 )     (205 )     (364 )     (327 )
Other (expense) income, net     (445 )     547       (1,101 )     133  
                                 
Loss before income taxes     (1,651 )     (7,575 )     (3,016 )     (8,998 )
                                 
Income tax expense (benefit)     492       (1,723 )     2,677       (1,111 )
                                 
Net loss   $ (2,143 )   $ (5,852 )   $ (5,693 )   $ (7,887 )
                                 
Basic loss per share   $ (0.07 )   $ (0.19 )   $ (0.19 )   $ (0.26 )
                                 
Diluted loss per share   $ (0.07 )   $ (0.19 )   $ (0.19 )   $ (0.26 )

 

See notes to unaudited condensed consolidated financial statements.

 

3
 

 

Albany Molecular Research, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

    Three Months Ended 
September 30,
    Nine Months Ended 
September 30,
 
    2012     2011     2012     2011  
Net loss   $ (2,143 )   $ (5,852 )   $ (5,693 )   $ (7,887 )
Unrealized loss on marketable securities, net of taxes           (4 )     (1 )     (23 )
Foreign currency translation gain (loss)     1,010       (5,517 )     1,732       (2,097 )
Net actuarial gain of pension and postretirement benefits     124       96       373       242  
Total comprehensive loss   $ (1,009 )   $ (11,277 )   $ (3,589 )   $ (9,765 )

 

See notes to unaudited condensed consolidated financial statements.

 

4
 

 

Albany Molecular Research, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

(Dollars and shares in thousands, except for per share data)   September 30,
2012
    December 31,
2011
 
Assets                
Current assets:                
Cash and cash equivalents ─ unrestricted   $ 15,673     $ 19,984  
Accounts receivable, net     35,180       30,437  
Royalty income receivable     9,260       6,819  
Income taxes receivable           3,407  
Inventory     33,156       26,004  
Prepaid expenses and other current assets     10,885       10,130  
Deferred income taxes     3,233       3,779  
Total current assets     107,387       100,560  
                 
Property and equipment, net     141,495       149,796  
                 
Restricted cash     5,000        
Intangible assets and patents, net     3,119       2,976  
Equity investment in unconsolidated affiliates     956       956  
Deferred income taxes     5,117       7,373  
Other assets     1,393       1,406  
Total assets   $ 264,467     $ 263,067  
                 
Liabilities and Stockholders’ Equity                
Current liabilities:                
Accounts payable and accrued expenses   $ 26,001     $ 23,175  
Arbitration reserve     3,058       4,082  
Income taxes payable     1,004        
Deferred revenue and licensing fees     7,205       6,464  
Accrued pension benefits     284       1,416  
Current installments of long-term debt     597       2,839  
Total current liabilities     38,149       37,976  
                 
Long-term liabilities:                
Long-term debt, excluding current installments     7,407       3,003  
Deferred licensing fees     3,214       4,286  
Deferred income taxes     888       733  
Pension and postretirement benefits     8,909       9,047  
Other long-term liabilities     1,339       1,588  
Total liabilities     59,906       56,633  
                 
Commitments and contingencies                
                 
Stockholders’ equity:                
Common stock, $0.01 par value, 50,000 shares authorized, 36,336 shares issued as of  September 30, 2012, and 36,016 shares issued as of December 31, 2011     363       360  
Additional paid-in capital     207,787       206,074  
Retained earnings     73,261       78,954  
Accumulated other comprehensive loss, net     (9,962 )     (12,066 )
      271,449       273,322  
Less, treasury shares at cost, 5,411 shares as of September 30, 2012 and December 31, 2011     (66,888 )     (66,888 )
Total stockholders’ equity     204,561       206,434  
Total liabilities and stockholders’ equity   $ 264,467     $ 263,067  

 

See notes to unaudited condensed consolidated financial statements.

 

5
 

 

Albany Molecular Research, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

    Nine Months Ended  
(Dollars in thousands)   September 30, 2012     September 30, 2011  
             
Operating activities                
Net loss   $ (5,693 )   $ (7,887 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and amortization     13,058       13,444  
Deferred income taxes     2,425       3,767  
Impairment and loss on disposal of property, plant and equipment     4,123       83  
Stock-based compensation expense     1,435       1,222  
Provision for bad debt     148       123  
Changes in assets and liabilities:                
Accounts receivable     (4,891 )     (1,427 )
Royalty income receivable     (2,441 )     960  
Inventory     (7,152 )     1,967  
Prepaid expenses and other assets     (1,525 )     (504 )
Accounts payable and accrued expenses     1,472       (7,845 )
Income taxes payable     4,411       (4,194 )
Deferred revenue and licensing fees     (331 )     (8,397 )
Pension and postretirement benefits     (695 )     (334 )
Other long-term liabilities     81       (119 )
Net cash provided by (used in) operating activities     4,425       (9,141 )
                 
Investing activities                
Proceeds from sales and maturities of investment securities     213       14,448  
Purchase of property, plant and equipment     (7,125 )     (7,892 )
Payments for patent applications and other costs     (448 )     (311 )
Proceeds from disposal of property, plant and equipment     447        
Purchases of investment securities           (1,354 )
Net cash (used in) provided by investing activities     (6,913 )     4,891  
                 
Financing activities                
Change in restricted cash     (5,000 )      
Borrowings on long-term debt     5,000        
Principal payments on long-term debt     (2,838 )     (3,969 )
Proceeds from sale of common stock     531       524  
Net cash used in financing activities     (2,307 )     (3,445 )
                 
Effect of exchange rate changes on cash flows     484       (554 )
                 
Decrease in cash and cash equivalents     (4,311 )     (8,249 )
                 
Cash and cash equivalents at beginning of period     19,984       25,747  
                 
Cash and cash equivalents at end of period   $ 15,673     $ 17,498  

 

See notes to unaudited condensed consolidated financial statements.

 

6
 

 

(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. With locations in the U.S., Europe, and Asia, the Company provides customers with a range of services and cost models. The Company’s core business consists of a fee-for-service contract services platform encompassing drug discovery, development and manufacturing. The Company also owns a portfolio of proprietary technologies which have resulted from its internal programs, including drug discovery and niche generic products and manufacturing process efficiencies, some of which are licensed to third parties, and some of which benefit the Company’s operations.

 

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 and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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, 2011.

 

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, net 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 collectability of receivables, the valuation of inventory, the fair value of intangible assets and long-lived assets, and the amount and realizability of deferred tax assets. Other significant estimates include 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 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 fair value of the respective elements.

 

7
 

 

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 collection is reasonably assured.

 

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

 

The Company receives a portion of its recurring royalties under a license agreement with Sanofi based on the worldwide net sales of fexofenadine HCl, marketed as Allegra in the Americas and Telfast elsewhere, as well as on sales of Sanofi’s authorized or licensed generics. The Company records royalty revenue in the period in which the net sales of Allegra/Telfast occur, because it can reasonably estimate such royalties. Royalty payments from Sanofi are due within 45 days after each calendar quarter and are determined based on net sales of Allegra/Telfast and Teva Pharmaceuticals’ sales of generic D-12 in that quarter.

 

The Company receives additional royalties in conjunction with a development and supply agreement at the Company’s Rensselaer, NY manufacturing facility. These royalties, which the Company began receiving in the third quarter of 2012, are earned on net sales of a generic product sold by a long standing customer, who recently received FDA approval for this generic product. The Company records royalty revenue in the period in which the net sales of this product occur. Royalty payments are due within 60 days after each calendar quarter and are determined based on sales of the qualifying product in that quarter.

 

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.

 

8
 

 

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 to the extent that the carrying amount of the asset group exceeds its fair value and will reduce only the carrying amount of the long-lived assets.

 

Note 2 — Earnings Per Share

 

Both basic and diluted weighted average shares outstanding were 30,414 and 30,273 for the three and nine months ended September 30, 2012 and 30,025 and 29,934 for the three and nine months ended September 30, 2011.

 

The Company has excluded all outstanding stock options and non-vested restricted shares from the calculation of diluted earnings per share for the three and nine months ended September 30, 2012 and 2011 because the net loss causes these outstanding stock options and non-vested restricted shares to be anti-dilutive. The weighted average number of anti-dilutive options and restricted shares outstanding (before the effects of the treasury stock method) was 2,983 and 1,710 for the three months ended September 30, 2012 and 2011, respectively, and 3,142 and 1,722 for the nine months ended September 30, 2012 and 2011, respectively.

 

Note 3 — Inventory

 

Inventory consisted of the following at September 30, 2012 and December 31, 2011:

 

    September 30,
2012
    December 31,
2011
 
Raw materials   $ 9,749     $ 6,030  
Work in process     5,453       3,050  
Finished goods     17,954       16,924  
Total   $ 33,156     $ 26,004  

 

Note 4 –Debt and restricted cash

 

Debt

In April 2012, the Company entered into a $20,000 credit facility consisting of a 4-year, $5,000 term loan and a $15,000 revolving line of credit. The Company used a portion of the initial proceeds to repay all amounts due under its prior credit agreement. As of September 30, 2012, the Company had no amounts outstanding and $8,876 of outstanding letters of credit secured under this line of credit.

 

Borrowings under this agreement will bear interest at a fluctuating rate equal to (i) in the case of the term loan, the sum of (a) an interest rate equal to daily three month LIBOR, plus (b) 3.25%; and (ii) in the case of advances under the revolving line of credit, the sum of (a) an interest rate equal to daily three month LIBOR, plus (b) 2.75%. As of September 30, 2012, the interest rate on the outstanding term loan was 3.75%.

 

The credit facility contains financial covenants, including certain net cash flow requirements for 2012, a minimum fixed charge coverage ratio commencing in 2013 and extending for the remaining term of the agreement, maximum quarterly year-to-date capital expenditures, minimum monthly domestic unrestricted cash and maximum average monthly cash reserves held at international locations. As of September 30, 2012, the Company was in compliance with its current financial covenants.

 

The Company maintains variable interest rate industrial development authority (“IDA”) bonds due in increasing annual installments through 2021. Interest payments are due monthly with a current interest rate of 0.29% at September 30, 2012. The amount outstanding as of September 30, 2012 was $2,990.

 

9
 

 

The following table summarizes long-term debt:

 

    September 30,
2012
    December 31,
2011
 
Term loan   $ 5,000     $ 2,550  
Industrial development authority bonds     2,990       3,275  
Miscellaneous loan     14       17  
      8,004       5,842  
Less current portion     (597 )     (2,839 )
Total long-term debt   $ 7,407     $ 3,003  

 

The aggregate maturities of long-term debt at September 30, 2012 are as follows:

 

2012 (remainder)   $ 1  
2013     775  
2014     1,024  
2015     1,029  
2016     1,034  
Thereafter     4,141  
Total   $ 8,004  

 

Restricted cash

 

Upon entering into the credit agreement in April 2012, the Company is required to maintain a $5,000 restricted cash balance to partially collateralize the revolving line of credit.

 

Note 5 — Restructuring and Impairment

 

In March 2012, the Company approved a restructuring plan that ceased all operations at its Budapest, Hungary facility effective March 30, 2012. The goal of the restructuring plan is to advance the Company’s continued strategy of increasing global competitiveness and remaining diligent in managing costs by improving efficiency and customer service and by realigning resources to meet shifting customer demand and market preferences. In connection with this closure, the Company recorded a restructuring charge in its DDS operating segment of $1,927 in the first half of 2012 and $1,503 in the third quarter of 2012.  These amounts included $1,330 for termination benefits and $2,100 for estimated costs associated with terminating the Budapest lease, preparing the facility for closure and other administrative costs.  The Company exited the facility in the third quarter of 2012 and is in the process of resolving the termination of the lease. 

 

In conjunction with the decision to cease operations at the Company’s Budapest, Hungary facility as discussed above, in the first quarter of 2012 the Company also recorded property and equipment impairment charges of $3,967 in the DDS segment. These charges are included under the caption “Impairment charges” on the consolidated statement of operations for the nine months ended September 30, 2012.

 

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 DDS operating segment.

 

In December 2011, the Company initiated a restructuring plan at one of its U.S. locations which included actions to further reduce the Company's workforce, right size capacity, and reduce operating costs. These actions were implemented to better align the business to current and expected market conditions and are expected to improve the Company's overall cost competitiveness and increase cash flow generation. The workforce reduction primarily affected certain positions associated with the Company’s elimination of internal R&D activities.  As a result of the workforce reduction, the Company will be terminating the lease of one of its U.S. facilities which will result in a reduction in annual operating expenses related to this facility.  As a result of this restructuring, the Company recorded restructuring charges in the DDS operating segment of $313 in the first nine months of 2012 and $320 in the fourth quarter of 2011.

 

10
 

 

The following table displays the restructuring activity and liability balances for the nine months ended September 30, 2012:

 

    Balance at
December 31, 2011
    Charges/
(reversals)
    Paid Amounts     Foreign
Currency
Translation
Adjustments
    Balance at
September 30, 2012
 
Termination benefits and personnel realignment   $ 456       942       (1,048 )     5       355  
Lease termination and relocation charges     1,128       2,295       (1,804 )     9       1,628  
Other     354       506       (774 )     9       95  
Total   $ 1,938       3,743       (3,626 )     23     $ 2,078  

 

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 a facility, net of estimated sublease income.

 

Restructuring charges are included under the caption “Restructuring charges” in the consolidated statements of operations for the three and nine months ended September 30, 2012 and 2011 and the restructuring liabilities are included in “Accounts payable and accrued expenses” and “other long-term liabilities” on the consolidated balance sheets at September 30, 2012 and December 31, 2011.

 

Anticipated cash outflow related to the restructurings for the remainder of 2012 is approximately $427.

 

Note 6 —Intangible Assets

 

The components of intangible assets are as follows:

 

    Cost     Accumulated
Amortization
    Net     Amortization
Period
 
September 30, 2012                                
Patents and Licensing Rights   $ 4,233     $ (1,556 )   $ 2,677       2-16 years  
Customer Relationships     815       (373 )     442       5 years  
Total   $ 5,048     $ (1,929 )   $ 3,119          
                                 
December 31, 2011                                
Patents and Licensing Rights   $ 3,756     $ (1,343 )   $ 2,413       2-16 years  
Customer Relationships     815       (252 )     563       5 years  
Total   $ 4,571     $ (1,595 )   $ 2,976          

 

Amortization expense related to intangible assets was $82 and $131 for the three months ended September 30, 2012 and 2011, respectively, and $307 and $385 for the nine months ended September 30, 2012 and 2011, respectively.

 

The following chart represents estimated future annual amortization expense related to intangible assets:

 

Year  ending December 31,        
2012 (remaining)     $ 300  
2013       413  
2014       366  
2015       250  
2016       215  
Thereafter       1,575  
Total     $ 3,119  

 

Note 7 — Share-Based Compensation

 

During the three and nine months ended September 30, 2012, the Company recognized total share based compensation cost of $369 and $1,435, respectively, as compared to total share based compensation cost for the three and nine months ended September 30, 2011 of $477 and $1,222, 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.

 

11
 

 

Restricted Stock

 

A summary of unvested restricted stock activity as of September 30, 2012 and changes during the nine months then ended is presented below:

 

      Number of
Shares
    Weighted
Average Grant Date
Fair Value Per Share
 
Outstanding, January 1, 2012       561     $ 7.14  
Granted       140     $ 3.12  
Vested       (123 )   $ 8.63  
Forfeited       (64 )   $ 6.02  
Outstanding, September 30, 2012       514     $ 5.83  

 

The weighted average fair value of restricted shares per share granted during the nine months ended September 30, 2012 and 2011 was $3.12 and $5.22, respectively. As of September 30, 2012, there was $2,035 of total unrecognized compensation cost related to unvested restricted shares. That cost is expected to be recognized over a weighted-average period of 2.3 years.

 

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 Nine Months Ended  
    September 30, 2012     September 30, 2011  
Expected life in years     5       5  
Risk free interest rate     0.85 %     1.92 %
Volatility     57 %     56 %
Dividend yield            

 

A summary of stock option activity under the Company’s Stock Option and Incentive Plans as of September 30, 2012 and changes during the nine month period then ended is presented below:

 

      Number of
Shares
    Weighted Average
Exercise
Price Per Share
    Weighted Average
Remaining
Contractual Term
(Years)
    Aggregate
Intrinsic
Value
 
Outstanding, January 1, 2012       2,762     $ 7.58                  
Granted       430       3.00                  
Exercised                              
Forfeited       (483 )     6.31                  
Expired       (127 )     24.93                  
Outstanding, September 30, 2012       2,582     $ 6.20       7.1     $ 1,333  
Options exercisable, September 30, 2012       917     $ 11.70       3.5     $  

 

The weighted average fair value of stock options granted for the nine months ended September 30, 2012 and 2011 was $1.46 and $2.54, respectively. As of September 30, 2012, there was $1,992 of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 2.3 years.

 

Employee Stock Purchase Plan

 

During the nine months ended September 30, 2012 and 2011, 182 and 137 shares, respectively, were issued under the Company’s 1998 Employee Stock Purchase Plan.

 

During the nine months ended September 30, 2012 and 2011, cash received from stock option exercises and employee stock purchases was $531 and $524, respectively. The actual tax benefit realized for the tax deductions from share based compensation was $0 for both the nine months ended September 30, 2012 and 2011.

 

Note 8 — Operating Segment Data

 

The Company has organized its sales, marketing and production activities into the DDS and 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.

 

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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.

 

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 September 30, 2012                                  
DDS     $ 16,293     $ 6,817     $ 4,673     $ 2,206  
LSM       29,334       3,326       5,004       1,952  
Corporate                   (10,774 )      
Total     $ 45,627     $ 10,143     $ (1,097 )   $ 4,158  
                                   
For the three months ended September 30, 2011                                  
DDS     $ 18,049     $ 6,458     $ 3,934     $ 2,705  
LSM       25,722             (1,347 )     1,912  
Corporate                   (10,504 )      
Total     $ 43,771     $ 6,458     $ (7,917 )   $ 4,617  
                                   
For the nine months ended September 30, 2012                                  
DDS     $ 52,410     $ 25,331     $ 15,682     $ 7,247  
LSM       78,317       3,416       13,228       5,811  
Corporate                   (30,461 )      
Total     $ 130,727     $ 28,747     $ (1,551 )   $ 13,058  
                                   
For the nine months ended September 30, 2011                                  
DDS     $ 57,193     $ 30,854     $ 22,594     $ 7,745  
LSM       73,006             304       5,699  
Corporate                   (31,702 )      
Total     $ 130,199     $ 30,854     $ (8,804 )   $ 13,444  

 

The following table summarizes other information by segment as of and for the nine month period ended September 30, 2012:

 

    DDS     LSM     Total  
Total assets   $ 134,126     $ 130,341     $ 264,467  
Investments in unconsolidated affiliates     956             956  
Capital expenditures     2,405       4,720       7,125  

 

The following table summarizes other information by segment as of and for the year ended December 31, 2011:

 

    DDS     LSM     Total  
Total assets   $ 146,017     $ 117,050     $ 263,067  
Investments in unconsolidated affiliates     956             956  
Capital expenditures     6,578       4,198       10,776  

 

Note 9 — Financial Information by Customer Concentration and Geographic Area

 

Total contract revenue from DDS’s three largest customers represented approximately 9%, 8% and 7% of DDS’s total contract revenue for the three months ended September 30, 2012, and 11%, 10% and 9% of DDS’s total contract revenue for the three months ended September 30, 2011. Total contract revenue from DDS’s three largest customers represented approximately 10%, 7% and 6% of DDS’s total contract revenue for the nine months ended September 30, 2012 and 11%, 8% and 4% for the nine months ended September 30, 2011.

 

13
 

 

Total contract revenue from LSM’s three largest customers represented approximately 29%, 15% and 11% of LSM’s total contract revenue for the three months ended September 30, 2012, and 31%, 20% and 8% of LSM’s total contract revenue for the three months ended September 30, 2011. Total contract revenue from LSM’s three largest customers represented approximately 27%, 15% and 13% of LSM’s total contract revenue for the nine months ended September 30, 2012, and 29%, 18% and 13% of LSM’s total contract revenue for the nine months ended September 30, 2011.

 

GE Healthcare (“GE”) is the Company and LSM’s largest customer. GE accounted for approximately 16% of the Company’s total contract revenue for both the nine months ended September 30, 2012 and 2011. Another customer of LSM which is a large pharmaceutical company represented 10% and 11% of total contract revenue for the nine months ended September 30, 2012 and 2011, respectively.

 

The Company’s total contract revenue for the three and nine months ended September 30, 2012 and 2011 was recognized from customers in the following geographic regions:

 

    Three Months Ended  
September 30,
    Nine Months Ended 
September 30,
 
    2012     2011     2012     2011  
                         
United States     55 %     54 %     57 %     57 %
Europe     25       25       22       23  
Asia     17       20       17       18  
Other     3       1       4       2  
                                 
Total     100 %     100 %     100 %     100 %

 

Long-lived assets by geographic region are as follows:

 

    September 30,
2012
    December  31,
2011
 
United States   $ 118,472     $ 123,245  
Asia     19,231       19,015  
Europe     6,911       10,512  
Total long-lived assets   $ 144,614     $ 152,772  

 

Note 10 — 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, 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, Sanofi 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 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 on certain foreign patents through 2015, unless those patents are earlier determined to be invalid. The Company is also entitled to receive certain royalties from Sanofi in certain foreign countries through mid 2015, unless certain 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 AurolifePharma LLC and AurobindoPharma Ltd. filed Abbreviated New Drug Applications (“ANDAs”) with the Food and Drug Administration (“FDA”) to produce and market generic versions of Allegra products.

 

14
 

 

In response to the filings described above, beginning in 2001, Aventis Pharmaceuticals (now Sanofi) 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 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.

 

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. That patent is licensed to Sanofi U.S. LLC and Sanofi U.S. LLC joined that lawsuit as a co-plaintiff with the Company.

 

On November 18, 2008, the Company, Aventis Pharmaceuticals, Sanofi, 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 to allow Sanofi 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 of $10 million, and Sanofi 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. 

 

On March 19, 2010, the Company and Sanofi 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 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, 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 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., Amino Chemicals Ltd., Dipharma S.P.A., and Dipharma Francis Sr.l As a result, the Company, along with Sanofi, Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, 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 U.S. LLC have proceeded directly to the U.S. Court of Appeals for the Federal Circuit to appeal the January 13, 2011 decision.

 

In June 2011, the Company, Sanofi and Impax Laboratories, Inc. reached a settlement agreement for the above patent infringement litigation relating to Impax (“Impax Settlement”). In conjunction with the Impax Settlement, the Company and Sanofi agreed to amend their license agreement to allow Sanofi to sublicense patents related to ALLEGRA ® and ALLEGRA ® D-12 to Impax Laboratories, Inc. in the United States.  Additionally, the Company, Sanofi, Mylan Pharmaceuticals, Inc., and Alphapharm reached a settlement agreement of the above patent infringement litigation relating to Mylan and the below noted litigation in Australia against Mylan affiliate Alphapharm (“Mylan Settlement”). In conjunction with the Mylan Settlement, the Company and Sanofi agreed to amend their license agreement to allow Sanofi to sublicense patents related to ALLEGRA ® and ALLEGRA ® D-12 to Mylan Pharmaceuticals, Inc. in the United States.  

 

15
 

 

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. The action against Alphapharm was settled as part of the Mylan Settlement, with Alphapharm receiving a sublicense to sell its products in Australia and New Zealand. The Company has also settled its suit against Arrow Pharmaceuticals Pty Ltd, Chemists’ Own Pty Ltd, and Sigma Pharmaceuticals Limited, with those parties receiving a sublicense to sell their products in Australia and New Zealand. The Company is receiving royalties directly from Arrow with respect to their sales of royalty bearing products in Australia. The Company continues to receive royalties on sales of the Allegra products in Australia.

   

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 has engaged in an at-risk launch of a generic fexofenadine single-entity product.

 

Note 11 – 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 Company did not use any level 3 inputs in measuring the fair value of any of its financial instruments in the nine months ended September 30, 2012.

 

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

 

Cash and cash equivalents, restricted cash, 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.

 

Debt:  The carrying value of long-term debt was approximately equal to fair value at September 30, 2012 and December 31, 2011 due to the resetting dates of the variable interest rates.

 

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, long-lived asset impairment, competition and tax rates. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. 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, 2011, as filed with the Securities and Exchange Commission on March 15, 2012, 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 are a global contract research and manufacturing organization that provides customers fully integrated drug discovery, development, and manufacturing services. We supply a broad range of services and technologies that support the discovery and development of pharmaceutical products and the manufacturing of active pharmaceutical ingredients (“API”) and drug product for existing and experimental new drugs. With locations in the United States, Europe, and Asia, we maintain geographic proximity and flexible cost models. We have also historically leveraged our drug-discovery expertise to execute on several internal drug discovery programs, which have progressed to the development candidate stage and in some cases into Phase I clinical development. We have successfully partnered certain programs and are actively seeking to out-license our remaining programs to strategic partners for further development.

 

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.  Our service offerings range from early stage discovery through manufacturing and formulation across U.S., Europe and Asia. We believe that the ability to partner with a single provider is of significant benefit to our customers as we are able to provide them 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. Compounds discovered and/or developed in our contract 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, we offer our customers a fully integrated manufacturing process for sterile injectable drugs. This includes the development and manufacture of the API, the design of the criteria to formulate the API into an injectable drug product, and the manufacture of the final drug product. We continue to make investments to build and recover our formulation business, as we believe this type of business has significant potential in the drug product world driven by the growth in biologically based compounds which are formulated/manufactured on an aseptic basis.

 

In addition to providing our customers our hybrid services model for outsourcing, we now offer the option of insourcing. With our world class expertise in managing high performing groups of scientists, this option allows us to embed our scientists into the customer’s facility allowing the customer to cost effectively leverage their unused laboratory space.

 

17
 

 

As our customers continue to seek innovative new strategies for R&D efficiency and productivity, we are aggressively realigning our business and resources to address their needs. To that end, we have launched AMRI SMARTSOURCING™, a cross functional approach that maximizes the strengths of both insourcing and outsourcing, by leveraging AMRI’s people, know-how, facilities, expertise and global project management to provide exactly what is needed across the discovery or development process. We have also streamlined our sales and marketing organization to optimize cross-selling opportunities and enhanced our commitment to quality with the appointment of key personnel at our Burlington aseptic services facility, both underscoring our dedication to client service. Our improved organizational structure, combined with more focused marketing efforts, should enable us to continue to drive long term growth and profitability.

 

In 2011, we made a decision to cease activities related to our internal proprietary compound discovery R&D programs. Although we halted our proprietary R&D activities, we continue to believe there are additional opportunities to partner our proprietary compounds or programs to create value, as we have seen a renewed commitment by pharmaceutical companies for innovation both internally and through licensing. Our goal is to partner these compounds or programs in return for a combination of up-front license fees, milestone payments and recurring royalty payments if any compound based on our intellectual property is successfully developed into new drugs and reach the market.

 

In March 2012, we approved a restructuring plan that ceased all operations at our Budapest, Hungary facility effective March 30, 2012. The goal of the restructuring plan is to advance our continued strategy of increasing global competitiveness and remaining diligent in managing costs by improving efficiency and customer service and by realigning resources to meet shifting customer demand and market preferences.

 

Our total revenue for the quarter ended September 30, 2012 was $55.8 million, as compared to $50.2 million for the quarter ended September 30, 2011.

 

Contract services revenue for the third quarter of 2012 was $45.6 million, compared to $43.8 million for the same quarter in 2011. Recurring royalty revenues increased in the third quarter of 2012 as compared to the same quarter in 2011 due to the receipt of a new recurring royalty stream beginning in the quarter, offset in part by a decrease in Allegra royalties.

 

Consolidated gross margin was 4.3% for the quarter ended September 30, 2012 as compared to (3.7%) for the quarter ended September 30, 2011.

 

During the nine months ended September 30, 2012, cash provided by operations was $4.4 million compared to cash used in operations of $9.1 million for the same period of 2011. This change from the nine months ended September 30, 2011 resulted primarily from the receipt of an income tax refund in the third quarter of 2012 as well as a payment of $4.8 million in the first quarter of 2011 associated with the Company’s arbitration settlement with a supplier. During the nine months ended September 30, 2012, we spent $7.1 million in capital expenditures, primarily related to domestic modernization of our lab and production equipment. As of September 30, 2012, we had $15.7 million in unrestricted cash and cash equivalents and $8.0 million in bank and other related debt.

 

Results of Operations – Three and Nine Months ended September 30, 2012 Compared to Three and Nine Months Ended September 30, 2011

 

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 
September 30,
    Nine Months Ended 
September 30,
 
(in thousands)   2012     2011     2012     2011  
                         
DDS   $ 16,293     $ 18,049     $ 52,410     $ 57,193  
LSM     29,334       25,722       78,317       73,006  
Total   $ 45,627     $ 43,771     $ 130,727     $ 130,199  

 

The decrease in DDS contract revenue for the three and nine months ended September 30, 2012 from the same periods in 2011 is primarily due to lower contract revenue for our development and small-scale manufacturing services of $1.7 million and $3.4 million, respectively, as a result of lower demand for our U.S. chemistry development services. Additionally, contract revenue for our discovery services in the nine months ended September 30, 2012 decreased $1.3 million from the same period in 2011 resulting from lower demand for our U.S. biology services, along with decreased revenues due to the closure of our Hungarian operations. These decreases were offset in part by higher demand for our U.S. chemistry discovery services.

 

18
 

 

We currently expect DDS contract revenue for full year 2012 to decrease slightly from amounts recognized in 2011 driven by the decrease in revenue resulting from the closure of our Hungarian operations along with lower demand for our U.S. development services partially offset by increased revenue from our U.S. chemistry discovery services.

 

LSM contract revenue increased for the three and nine months ended September 30, 2012 from the same periods in 2011. These increases were primarily due to an increase in commercial manufacturing services at our Rensselaer, NY facility, as well as continued improvement in clinical manufacturing services revenue at our Burlington, MA facility.

 

We currently expect LSM contract revenue for full year 2012 to significantly increase from amounts recognized in 2011 driven by robust U.S. commercial API demand, an increase in our Phase III portfolio, and improved revenues from our Burlington, MA and UK facilities.

 

Recurring royalty revenue

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 9,393     $ 6,458     $ 27,907     $ 27,854  

 

A portion of our recurring royalties are based on the worldwide sales of Allegra®/Telfast, as well as on sales of Sanofi over-the-counter (“OTC”) product and authorized generics. Additionally, beginning in the third quarter of 2012 we earned recurring royalty revenue in conjunction with a development and supply agreement at the Company’s Rensselaer, NY manufacturing facility.

 

Recurring royalties increased during the quarter ended September 30, 2012 from the same period in 2011 due to the receipt of a new recurring royalty stream from one of our Rensselaer facility’s long-standing customer’s product launch of $3.3 million, offset in part by a decrease in Allegra royalties of $0.4 million.

 

Recurring royalties remained flat for the nine months ended September 30, 2012 from the same period in 2011. Increases in recurring royalties due to the above mentioned new royalty stream were offset primarily by a decrease in royalties recognized from the sales of prescription Allegra® in Japan in the first quarter of 2012 as a result of a less severe allergy season.

 

We currently expect full year 2012 recurring royalties to approximate amounts recognized in 2011 reflecting the reduced revenues from Allegra, offset by the new royalty stream described above.

 

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.

 

Milestone revenue

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 750     $ -     $ 840     $ 3,000  

 

Milestone revenue for the three months ended September 30, 2012 was recognized in conjunction with the Company’s license and research agreement with BMS for advancing a fourth compound into preclinical development. Additionally, milestone revenue for the nine months ended September 30, 2012 includes $0.1 million recognized in the first half of 2012 in conjunction with a development and supply agreement at the Company’s Rensselaer, NY manufacturing facility.

 

Milestone revenue of $3.0 million received during the nine months ended September 30, 2011 was recognized in conjunction with the Company’s license and research agreement with BMS for initiating a Phase II clinical trial of an AMRI compound licensed exclusively to BMS.

 

19
 

 

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:

 

Segment   Three Months Ended 
September 30,
    Nine Months Ended 
September 30,
 
(in thousands)   2012     2011     2012     2011  
                         
DDS   $ 16,090     $ 18,427     $ 51,238     $ 56,089  
LSM     27,570       26,961       68,343       72,027  
Total   $ 43,660     $ 45,388     $ 119,581     $ 128,116  
                                 
DDS Gross Margin     1.3 %     (2.1 )%     2.2 %     1.9 %
LSM Gross Margin     6.0 %     (4.8 ))%     12.7 %     1.3 %
Total Gross Margin     4.3 %     (3.7 )%     8.5 %     1.6 %

 

DDS contract revenue gross margin percentage increased for the three and nine months ended September 30, 2012 compared to the same period in 2011. These increases are primarily due to cost savings initiatives taken in our U.S chemistry operations in 2011, as well as the impact of the closure of our Hungarian operations in 2012, offset in part by lower demand for our U.S. biology and development services in relation to our fixed costs.

 

As a result of the continued impact of the current trends in demand and the closure of our Hungarian operations, we currently expect DDS contract margins for the full year of 2012 to improve over amounts recognized in 2011.

 

LSM’s contract revenue gross margin percentages improved for the three and nine months ended September 30, 2012 compared to the same period in 2011 primarily due to an increase in sales of higher margin products for our U.S. manufacturing services, as well as an increase in capacity utilization at our large-scale manufacturing facilities worldwide.

 

We currently expect LSM contract margins for 2012 to significantly improve from amounts recognized in 2011 driven by improved capacity utilization, along with shift in revenues to higher margin commercial products.

 

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. The incentive awards were as follows:

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 621     $ 646     $ 2,473     $ 2,839  

 

Technology incentive award expense for the three and nine months ended September 30, 2012 decreased from expense recognized for the same period in 2011 due to the decrease in Allegra recurring royalty revenue as discussed above.

 

We expect technology incentive award expense to generally fluctuate directionally and proportionately with fluctuations in Allegra royalties in future periods.

 

20
 

 

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.

 

During the fourth quarter of 2011, the Company’s Board of Directors made a decision to cease activities related to its internal discovery research and development programs, excluding its generic program. Although we ceased our proprietary R&D activities, we continue to believe there are additional opportunities to partner our proprietary compounds 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 activities continue 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 September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 196     $ 1,608     $ 800     $ 6,122  

 

R&D expense for the three and nine months ended September 30, 2012 decreased from the same periods in 2011 as a result of our strategic decision during the fourth quarter of 2011 to cease R&D operations related to our internal discovery research and development programs, excluding our generics program. R&D expenditures incurred in the first nine months of 2012 related primarily to developing new niche generic products and improving process efficiencies in our manufacturing plants.

 

We currently expect full year 2012 R&D expense to reduce to approximately $1.0 million, with costs primarily related to developing new niche generic products and improving process efficiencies in our manufacturing plants.

 

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 September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 10,774     $ 10,504     $ 30,461     $ 31,702  

 

SG&A expenses increased for the three months ended September 30, 2012 when compared to the same period in 2011 due to $1.0 million of executive transition costs, offset in part by cost savings actions implemented in the U.S. along with the closure of our Hungarian operations.

 

The decrease in SG&A expenses for the nine months ended September 30, 2012 from the comparable prior year period is primarily attributable to the cost savings actions and closure of our Hungarian operations discussed above, offset in part by the executive transition costs. Additionally, in the first half of 2011 we incurred charges attributable to AMRI Burlington’s efforts to remediate certain issues identified during an inspection by the FDA in 2010.

 

We currently expect SG&A expenses for 2012 to be relatively consistent with 2011 due to the closure of our Hungarian operations, as well as other cost saving actions implemented in the U.S. in 2011, offset in part by executive transition costs.

 

Restructuring

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 1,616     $ -     $ 3,743     $ 951  

 

21
 

 

In March 2012, we approved a restructuring plan that ceased all operations at our Budapest, Hungary facility effective March 30, 2012. The goal of the restructuring plan is to advance our continued strategy of increasing global competitiveness and remaining diligent in managing costs by improving efficiency and customer service and by realigning resources to meet shifting customer demand and market preferences. In connection with this closure, we recorded a restructuring charge of $3.3 million in our DDS operating segment in the first nine months of 2012.  This amount included $1.3 million for termination benefits and $2.1 million for preparing the facility for closure, estimated costs associated with terminating the Budapest facility lease and other administrative costs.  We exited the facility in the third quarter of 2012 and are in the process of resolving the termination of the lease.  

 

In December 2011, we initiated a restructuring plan at one of our U.S. locations which included actions to further reduce our workforce, right size capacity, and reduce operating costs. These actions were implemented to better align the business to current and expected market conditions and are expected to improve our overall cost competitiveness and increase cash flow generation. The workforce reduction primarily affected certain positions associated with our elimination of internal R&D activities.  As a result of the workforce reduction, we will be terminating the lease of one of our U.S. facilities which will result in a reduction in annual operating expenses related to this facility.  As a result of this restructuring, we recorded a restructuring charge in the DDS operating segment of $0.3 million in the fourth quarter of 2011 and $0.4 million in the first nine months of 2012.

 

Anticipated cash outflow related to the restructurings for the remainder of 2012 is approximately $0.4 million.

 

Property and Equipment Impairment

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$     $     $ 3,967     $  

 

In the first quarter of 2012, we recorded property and equipment impairment charges of $4.0 million in our DDS segment associated with the Company’s decision to cease operations at our Budapest, Hungary facility, as discussed above.

 

Interest expense, net

 

    Three Months Ended 
September 30,
    Nine Months Ended
September 30,
 
(in thousands)   2012     2011     2012     2011  
                         
Interest expense   $ (111 )   $ (205 )   $ (373 )   $ (470 )
Interest income     2             9       143  
Interest expense, net   $ (109 )   $ (205 )   $ (364 )   $ (327 )

 

Net interest expense decreased for the three months ended September 30, 2012 from the same period in 2011 due to decreased rates on lower balances of our interest bearing liabilities.

 

Net interest expense increased for the nine months ended September 30, 2012 from the same period in 2011 due to decreased balances of interest bearing assets, offset in part by decreased rates on lower balances of our interest bearing liabilities.

 

Other income (expense), net

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ (445 )   $ 547     $ (1,101 )   $ 133  

 

Other expense for the three months ended September 30, 2012 was primarily due to changes in rates associated with foreign currency transactions.

 

22
 

 

Other expense for the nine months ended September 30, 2012 was primarily related to deferred financing amortization expense related to our prior credit agreement that was amended in June 2011 with a one year term, as well as changes in rates associated with foreign currency transactions.

 

Other income for the three months ended September 30, 2011 was primarily related to changes in rates associated with foreign currency transactions. Other income for the nine months ended September 30, 2011 includes income from purchase accounting adjustments in the first quarter of $0.3 million related to the 2010 AMRI UK and AMRI Burlington acquisitions.

 

Income tax expense (benefit)

 

Three Months Ended September 30,     Nine Months Ended September 30,  
2012     2011     2012     2011  
(in thousands)  
                     
$ 492     $ (1,723 )   $ 2,677     $ (1,111 )

 

Income tax expense increased for the three and nine months ended September 30, 2012 due primarily to the composition of pre-tax income or losses in relation to the applicable tax rates at our various locations worldwide.

 

23
 

 

Liquidity and Capital Resources

 

We have historically funded our business through operating cash flows and proceeds from borrowings. During the first nine months of 2012, we generated cash of $4.4 million in operating activities primarily related to the receipt of a $4.7 million income tax refund.

 

During the first nine months of 2012, cash used in investing activities was $6.9 million, resulting primarily from the acquisition of property and equipment. During the first nine months of 2012, we used $2.3 million in financing activities, relating primarily to pledging $5.0 million of cash to collateralize our revolving line of credit issued in conjunction with our credit facility executed in April 2012 along with principal payments of long-term debt, partially offset by net proceeds from the term loan issued under this agreement.

 

Working capital was $69.2 million at September 30, 2012 as compared to $62.6 million as of December 31, 2011.

 

In April 2012, we entered into a $20.0 million credit facility consisting of a 4-year, $5.0 million term loan and a $15.0 million revolving line of credit. As of September 30, 2012, the Company had no amounts outstanding and $8.9 million of outstanding letters of credit secured under the new line of credit.

 

Borrowings under this agreement bear interest at a fluctuating rate equal to (i) in the case of the term loan, the sum of (a) an interest rate equal to daily three month LIBOR, plus (b) 3.25%; and (ii) in the case of advances under the revolving line of credit, the sum of (a) an interest rate equal to daily three month LIBOR, plus (b) 2.75%. As of September 30, 2012, the interest rate on the outstanding term loan was 3.75%.

 

The credit facility contains financial covenants, including certain net cash flow requirements for 2012, a minimum fixed charge coverage ratio commencing in 2013 and extending for the remaining term of the agreement, maximum quarterly year-to-date capital expenditures, minimum monthly domestic unrestricted cash and maximum average monthly cash reserves held at international locations. As of September 30, 2012, the Company was in compliance with its current financial covenants.

 

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, 2011. There have been no material changes to our contractual obligations since December 31, 2011, except for long term debt repayments and the April 2012 credit facility as discussed above and in Note 4 to the condensed consolidated financial statements. As of September 30, 2012, 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, 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.

 

24
 

 

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, 2011. There have been no material changes or modifications to the policies since December 31, 2011.

 

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, 2011.

 

Item 4. Controls and Procedures

 

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 upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the Company’s last fiscal quarter, our disclosure controls and procedures were effective in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. 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.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

25
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Please refer to Part 1 – Note 10 to the condensed consolidated financial statements for further details and history on the Company’s material litigation.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part II, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011. These risk factors could materially affect our business, financial condition or future results.

 

Item 6. Exhibits

 

Exhibit    
Number   Description
     
10.1   Separation Agreement, dated September 10, 2012, between Albany Molecular Research, Inc. and Mark T. Frost. ***
     
10.2   Employment Agreement, dated September 17, 2012, between Albany Molecular Research, Inc. and Michael M. Nolan.***
     
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.*
     
101   XBRL (eXtensible Business Reporting Language).  The following materials from Albany Molecular Research, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) notes to consolidated financial statements.**

 

* This certification is not “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing under the Securities Act or the Securities Exchange Act.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not deemed filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

*** Denotes management contract or compensation plan or arrangement.

 

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: November 9, 2012 By: /s/ Michael M. Nolan  
    Michael M. Nolan
    Vice President, Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer)

 

27

 

Exhibit 10.1

 

SEPARATION AGREEMENT

 

This Separation Agreement (“ Separation Agreement ”) is made between Mark Frost (“ Executive ”) and ALBANY MOLECULAR RESEARCH, INC. (the “ Company ,” together with Executive, the “ Parties ”).

 

WHEREAS , Executive is serving as the Company’s Senior Vice President of Administration and Chief Financial Officer;

 

WHEREAS , the Parties entered into an Amended and Restated Employment Agreement dated April 5, 2012 (the “ Employment Agreement ”);

 

WHEREAS, the Parties also entered into a Confidentiality and Non-Disclosure Agreement dated March 31, 2006 (“ Employee Agreement ”), the terms of which expressly survive the termination of Executive’s employment;

 

WHEREAS, Executive holds options to purchase shares of the Company’s common stock which are both vested and unvested options and are governed by the Company’s Amended 2008 Stock Option and Incentive Plan (the “ Stock Plan ”) and associated stock option agreements and shares of restricted stock which are unvested and are governed by the Stock Plan and associated restricted stock agreements (collectively “ Equity Documents ”);

 

WHEREAS , pursuant the Employment Agreement, the Company has agreed to provide Executive with certain termination benefits (the “ Termination Benefits ”) in the event of a termination without Cause provided that, among other things, the Executive enters into a Separation Agreement which includes a general release of claims in favor of the Company and related persons and entities;

 

WHEREAS , in exchange for, among other things, Executive’s agreement to the terms of this Separation Agreement, the Company shall provide Executive with the Termination Benefits as described below;

 

WHEREAS , the Non-Contingent Payments set forth in Section 1 and the Termination Benefits set forth in Section 2 are the exclusive source of payments, benefits and equity rights to Executive in connection with the termination of Executive’s employment. By entering into this Separation Agreement, which includes the severance pay and benefits set forth in the Employment Agreement, Executive acknowledges and agrees that he is not entitled to any other severance pay, benefits or equity rights including without limitation pursuant to any severance plan, or program or arrangement.

 

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows:

 

 
 

 

1.             Non-Contingent Payments . Executive and the Company acknowledge and agree that (a) Executive shall continue to remain an active, full-time employee of the Company, receiving base salary and benefits (in each case at the same amount and level as in effective immediately prior to the date hereof, provided however, that any benefits available to the Executive may be modified to the extent such benefits are modified for the other members of the executive staff of the Company), through the earlier of September 14, 2012 or the date on which the Company informs the Employee that he no longer must report to work (the “ Termination Date ”), (b) the Employee Agreement and the Equity Documents shall remain in full force and effect in accordance with their terms, and (c) except as specifically revised by, amended by, or as otherwise set forth in, this Separation Agreement, the Employment Agreement shall remain in full force and effect in accordance with its terms. On the Termination Date, the Executive will resign all of his positions with the Company, including any positions as director or officer of any of the Company’s subsidiaries and will sign any documents reflecting such resignations reasonably requested by the Company. The Company shall also pay all accrued but unused vacation through the Termination Date, such payment to be made on the first payroll date following the Termination Date. The Company shall promptly reimburse Executive for any outstanding, reasonable business expenses that Executive has incurred on the Company’s behalf through the Termination Date, provided the Company receives appropriate documentation pursuant to the Company’s business expense reimbursement policy.

 

2.             Termination Benefits . For purposes of the Employment Agreement, Executive’s employment shall be treated as having been terminated without Cause. Accordingly, in exchange for, among other things, his signing, not revoking and complying with the terms of this Separation Agreement, the Company agrees to provide Executive with the following Termination Benefits:

 

(a)          the Company shall continue to pay Executive the base salary that is in effect as of the date hereof for a period commencing on the Termination Date and continuing through December 31, 2013;

 

(b)          upon approval by the Compensation Committee of the Company, the vesting date of the following shares of restricted stock previously issued to the Executive (a total of 18,066 shares of Restricted Stock) shall accelerate to the Termination Date and such awards shall be otherwise governed by the terms of the Equity Documents:

 

(i) 6,667 shares granted February 17, 2012 (not performance based)

 

(ii) 4,999 shares granted June 2, 2011 (not performance based)

 

(iii) 4,000 shares granted March 8, 2010

 

(iv) 1,600 shares granted March 16, 2009

 

(v) 800 shares granted March 17, 2008

 

(c)          the Company shall pay 100% of the costs to provide up to twelve (12) months of outplacement support services at a level appropriate for the Executive’s title and responsibility, which the parties agree to be $15,000 which will be paid in a lump sum to the designated outplacement firm within thirty (30) days of the Termination Date;

 

2
 

 

(d)         the Company shall provide the Executive with health and dental insurance continuation at a level consistent with the level and type the Executive had in place at the Termination Date for a period from the Termination Date through December 31, 2013;

 

(e)         the Company will pay Executive a bonus in a final amount to be determined following the close of the 2012 fiscal year (the “2012 Bonus”) and calculated as the sum of the following: (i) $51,030 plus (ii) an amount up to $178,605 which will be calculated based on the Company’s achievement of the 2012 bonus targets that were established by the Board of Directors and will be finally determined by the Compensation Committee of the Board of Directors following completion of the audit of the fiscal year results. For purposes of this Section 2(e) Executive’s corporate bonus allocation, if any, shall be determined in the same manner as the other Executives at the Company. The 2012 Bonus will be paid no later than the date that the bonuses, if any, for such time period are paid to the other executive officers of the Company or March 15, 2013, whichever is earlier;

 

(f)         any other equity awards pursuant to the Equity Documents which are not accelerated pursuant to Section 2(b) shall cease to vest on the Termination Date and exercise of such equity awards shall be subject to the terms of the Equity Documents.

 

3. General Release .

 

(a)          Executive irrevocably and unconditionally releases and forever discharges the Company, all of its affiliated and related entities, its and their respective predecessors, successors and assigns, its and their respective executive benefit plans and the fiduciaries of such plans, and the current and former officers, directors, stockholders, executives, attorneys, accountants, and agents of each of the foregoing in their official and personal capacities (collectively referred to as the “Releasees”) generally from all claims, demands, debts, damages and liabilities of every name and nature, known or unknown (“Claims”) that, as of the date when Executive signs this Separation Agreement, he has, ever had, now claims to have or ever claimed to have had against any or all of the Releasees. This release includes, without implication of limitation, the complete waiver and release of all Claims of or arising in connection with or for: the Employment Agreement including Claims for breach of express or implied contract; wrongful termination of employment whether in contract or tort; intentional, reckless, or negligent infliction of emotional distress; breach of any express or implied covenant of employment, including the covenant of good faith and fair dealing; interference with contractual or advantageous relations, whether prospective or existing; deceit or misrepresentation; discrimination or retaliation under state, federal, or municipal law, including, without implication of limitation, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., as amended, the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq.; the New York Executive Law; the New York Constitution; the New York Labor Law; the New York Civil Rights Law; defamation or damage to reputation; reinstatement; punitive or emotional distress damages; wages, severance pay, vacation pay, back or front pay or other forms of compensation; and attorney’s fees and costs. Executive understands that this general release of Claims extends to any and all Claims related to Executive’s employment by the Company and the termination of his employment and all claims in his capacity as a Company stockholder. Executive understands that this general release does not release any rights arising under or preserved by this Separation Agreement, or to claims that may arise out of acts or events that occur after the date on which Executive signs this Separation Agreement. Executive represents that he has not assigned to any third party and has not filed with any agency or court any Claim released by this Separation Agreement. The Company represents that it is unaware of any claims, demands, debts, damages and liabilities of any kind that the Company may have against the Executive  as of the date of this Separation Agreement and that Executive’s willingness to enter into this Separation Agreement and provide the release set forth in this Section is in consideration, in part, on that representation.

 

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(b)          Executive also agrees to confirm on the Termination Date, in the form of the confirmation attached to this Separation Agreement, that the general release set forth in Section 3(a) remains in effect and that it also is applicable to any claims which may have arisen during the period from the execution of this Separation Agreement through the Termination Date.

 

4.             Communications Regarding Departure and Nondisparagement Other than to state the fact that the termination of Executive’s employment has occurred and other public filings required by law, neither the Company nor Executive will communicate with any of the Company’s current customers, suppliers or business partners (collectively “Company Contacts”) about his departure from the Company without the express consent of the other party. Executive further agrees not to make any disparaging statements concerning the Company or any of its affiliates or current or former officers, directors, shareholders, employees or agents. The executives and directors of the Company will be instructed not to make any disparaging statements concerning Executive.

 

5.             Return of Property . Executive commits to returning to the Company all Company property, including, without limitation, computer equipment, software, keys and access cards, credit cards, files and any documents (including computerized data and any copies made of any computerized data or software) containing information concerning the Company, its business or its business relationships (in the latter two cases, actual or prospective). Executive further commits to deleting and finally purging any duplicates of files or documents that may contain Company or customer information from any computer or other device that remains Executive’s property after the Termination Date (except to the extent any such information was automatically backed up and is not reasonably accessible).

 

6.             Restrictive Covenants; Injunctive Relief . Executive’s obligations set forth in the Employment Agreement, including but not limited to Sections 7 and 8 thereof, and in Section 5 and Section 6 of this Separation Agreement and those set forth in the Employee Agreement shall be referred to as the “Restrictive Covenants.” Executive agrees that it would be difficult to measure any harm caused to the Company that might result from any breach by Executive of any of the Restrictive Covenants, and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, Executive agrees that if he breaches, or proposes to breach, any portion of the Restrictive Covenants the Company shall be entitled, in addition to all other remedies it may have, to an injunction or other appropriate equitable relief to restrain any such breach, without showing or proving any actual damage to the Company and without the necessity of posting a bond. In the event that the Company prevails in any action to enforce any part of the Restrictive Covenants, then Executive also shall be liable to the Company for attorney’s fees and costs incurred by the Company in enforcing such provision(s).

 

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7.             Advice of Counsel . This Separation Agreement is a legally binding document and Executive’s signature will commit Executive to its terms. Executive acknowledges that he has been advised to discuss all aspects of this Separation Agreement with his attorney, that he has carefully read and fully understands all of the provisions of this Separation Agreement and that Executive is voluntarily entering into this Separation Agreement.

 

8.             Termination of Termination Benefits . Executive acknowledges that his right to the Termination Benefits is conditional on his compliance with the Restrictive Covenants. In the event that Executive fails to comply with any of the Restrictive Covenants, in addition to any other legal or equitable remedies it may have for such breach, the Company shall have the right to terminate the Termination Benefits set forth in Section 2 of this Separation Agreement. Such termination of those payments and benefits in the event of such breach by the Executive shall not affect Executive’s ongoing obligations and shall be in addition to and not in lieu of the Company’s rights to injunctive relief and other legal and equitable remedies that the Company may have.

 

9.             Time for Consideration; Effective Date . Executive acknowledges that he has been provided with the opportunity to consider this Separation Agreement for twenty-one (21) days before signing it. To accept this Separation Agreement, Executive must return a signed original of this Separation Agreement so that it is received by Brian Russell on or before the expiration of this twenty-one (21) day period. If Executive signs this Separation Agreement within less than twenty-one (21) days of the date of its delivery to him, Executive acknowledges by signing this Separation Agreement that such decision was entirely voluntary and that he had the opportunity to consider this Separation Agreement for the entire twenty-one (21) day period. Executive and the Company agree that any changes or modifications to this Separation Agreement shall not restart the twenty-one (21) day period. For a period of seven (7) days from the day of the execution of this Separation Agreement, Executive shall retain the right to revoke this Separation Agreement by written notice that must be received by Brian Russell before the end of such revocation period. This Separation Agreement shall become effective on the business day immediately following the expiration of the revocation period (the “Effective Date”), provided that Executive does not revoke this Separation Agreement during the revocation period.

 

10.           Enforceability . Executive acknowledges that, if any portion or provision of this Separation Agreement or the Restrictive Covenants shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision shall be valid and enforceable to the fullest extent permitted by law.

 

11.           Entire Agreement . This Separation Agreement, the Employee Agreement, the Equity Documents, and the Employment Agreement (except as specifically revised by, amended by, or as otherwise set forth in, this Separation Agreement) constitute the entire agreement between Executive and the Company concerning Executive’s relationship with the Company, and supersedes and replaces any and all prior agreements and understandings between the Parties concerning Executive’s relationship with the Company.

 

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12.           Waiver . No waiver of any provision of this Separation Agreement shall be effective unless made in writing and signed by the waiving party. The failure of either Party to require the performance of any term or obligation of this Separation Agreement, or the waiver by either Party of any breach of this Separation Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

 

13.           Taxes . The Company shall undertake to make deductions, withholdings and tax reports with respect to payments and benefits under this Separation Agreement and in connection with other compensation matters to the extent that it reasonably and in good faith determines that it is required to make such deductions, withholdings and tax reports. Payments under this Separation Agreement shall be in amounts net of any such deductions or withholdings. Nothing in this Separation Agreement shall be construed to require the Company to make any payments to compensate Executive for any adverse tax effect associated with any payments or benefits made to Executive in connection with Executive’s employment with the Company.

 

14.           Governing Law; Disputes; Interpretation . This Separation Agreement shall be construed and regulated in all respects under the laws of the State of New York without regard to conflict of law principles. Any dispute or controversy arising under or in connection with this Separation Agreement shall be settled exclusively by arbitration in Albany, New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered in any court having jurisdiction. In the event of any dispute, this Separation Agreement is intended by the Parties to be construed as a whole, to be interpreted in accordance with its fair meaning, and not to be construed strictly for or against either Party or the “drafter” of all or any portion of this Separation Agreement.

 

15.           Counterparts . This Separation Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be taken to be an original, but all of which together shall constitute one and the same document. Facsimile and pdf signatures shall be deemed to be of equal force and effect as originals.

 

16.           Section 409A .

 

(a)          Anything in this Agreement to the contrary notwithstanding, if at the time of Executive’s separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the Company determines that Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that Executive becomes entitled to under this Agreement on account of Executive’s separation from service would be considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after Executive’s separation from service, or (B) Executive’s death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.

 

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(b)          To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon Executive’s termination of employment, then such payments or benefits shall be payable only upon Executive’s “separation from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

 

(c)          The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

 

(d)          The Company makes no representation or warranty and shall have no liability to Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

IN WITNESS WHEREOF , the Parties, intending to be legally bound, have executed this Separation Agreement on the date(s) indicated below.

 

ALBANY MOLECULAR RESEARCH, INC.
     
By: /s/ Thomas E. D’Ambra  
  Thomas E. D’Ambra  
  President and Chief Executive Officer  
Date: September10, 2012  

  

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I HAVE READ THIS AGREEMENT THOROUGHLY, UNDERSTAND ITS TERMS AND HAVE SIGNED IT KNOWINGLY AND VOLUNTARILY. I UNDERSTAND THAT THIS AGREEMENT IS A LEGAL DOCUMENT.

 

/s/ Mark T. Frost  
MARK T. FROST

 

Date:   September 10, 2012

 

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CONFIRMATION OF RELEASE PROVISION IN SEPARATION AGREEMENT

 

I, Mark Frost, acknowledge and agree:

 

1.         I executed a Separation Agreement dated September 10, 2012 with the advice of counsel.

 

2.         Section 3(a) of the Separation Agreement includes a General Release which released Claims (as defined in the Separation Agreement) against the Releasees (as defined in the Separation Agreement) and was applicable to Claims through the date of execution of the Separation Agreement.

 

3.         As provided in Section 3(b) of the Separation Agreement, I confirm that, from the date of execution of the Separation Agreement through the Termination Date (as defined in the Separation Agreement), Section 3(a) of the Separation Agreement remains in effect and also applies to any and all Claims which may have accrued against the Releasees (other than excepted rights described in Section 3(a) of the Separation Agreement) during that period.

 

  September 14, 2012  
Mark Frost Date  

  

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Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is made this 17 th day of September 2012, by and between Albany Molecular Research, Inc., a Delaware corporation (the “Company”), and Michael M. Nolan (the “Executive”).

 

WHEREAS, the Executive is an officer and key employee of the Company; and

 

WHEREAS, the parties hereto desire to assure that the Executive’s knowledge and familiarity with the business of the Company will continue to be available to the Company after the date hereof.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties agree as follows:

 

1.             Employment . Subject to the provisions of Section 6, the Company hereby employs the Executive and the Executive accepts such employment upon the terms and conditions hereinafter set forth.

 

2.             Term of Employment . The term of the Executive’s employment pursuant to this Agreement shall commence on and as of the date hereof (the “Effective Date”) and shall remain in effect for a period of two (2) years from the Effective Date (the “Term”). The Term shall be renewed automatically for periods of two (2) years (each a “Renewal Term”) commencing at the second anniversary of the Effective Date and on each subsequent anniversary thereafter, unless notice that this Agreement will not be extended is given by either the Executive or the Company not less than one-hundred (180) days prior to the expiration of the Term (as extended by any Renewal Term). The period during which the Executive serves as an employee of the Company in accordance with and subject to the provisions of this Agreement is referred to in this Agreement as the “Term of Employment.”

 

3.             Capacity .

 

(a)         Duties . During the Term of Employment, the Executive shall report directly to the Chairman, President and Chief Executive Officer and (i) shall serve as an executive officer of the Company with the title Vice President, Chief Financial Officer and Treasurer, subject to election by the Board of Directors of the Company, (ii) shall perform such duties and responsibilities as may be reasonably determined by the Board of Directors of the Company consistent with the Executive’s title and position, duties and responsibilities as an executive officer of the Company as of the Effective Date; provided that such duties and responsibilities shall be within the general area of the Executive’s experience and skills, (iii) upon the request of the Board of Directors of the Company, shall serve as an officer and/or director of the Company and any of its subsidiaries or affiliates ( provided that the Company shall indemnify the Executive for liabilities incurred as such in accordance with its current practices to the fullest extent permitted by applicable law); and (iv) shall render all services incident to the foregoing.

 

 
 

 

(b)         Extent of Service . The Executive agrees to diligently serve the interests of the Company and shall devote substantially all of his working time, attention, skill and energies to the advancement of the interests of the Company and its subsidiaries and affiliates and the performance of his duties and responsibilities hereunder; provided that nothing in this Agreement shall be construed as preventing the Executive from (i) investing the Executive’s assets in any entity in a manner not prohibited by Section 7 and in such form or manner as shall not require any material activities on the Executive’s part in connection with the operations or affairs of the entities in which such investments are made, or (ii) engaging in religious, charitable or other community or non-profit activities that do not impair the Executive’s ability to fulfill the Executive’s duties and responsibilities under this Agreement.

 

4.             Compensation .

 

(a)          Salary . During the Term of Employment, the Company shall pay the Executive a salary (the “Base Salary”) at an annual rate as shall be determined from time to time by the Board of Directors of the Company or the Compensation Committee of the Board of Directors consistent with the general policies and practices of the Company and subject to periodic review in accordance with the policies and practices of the Company; provided , however , that in no event shall such rate per annum be less than $370,000.00. Such salary shall be subject to withholding under applicable law and shall be payable in periodic installments in accordance with the Company’s usual practice for its senior executives, as in effect from time to time.

 

(b)          Bonus . Annually, the Company shall review the performance of the Company and of the Executive during the prior year, and the Company may provide the Executive with additional compensation as a bonus in accordance with any bonus plan then in effect from time to time for senior executives of the Company. Any such bonus plan shall have such terms as may be established in the sole discretion of the Board of Directors of the Company or the Compensation Committee of the Board of Directors.

 

5.             Benefits .

 

(a)          Regular Benefits . During the Term of Employment, the Executive shall be entitled to participate in any and all medical, dental, pension and life insurance plans, disability income plans and other employee benefit plans as in effect from time to time for senior executives of the Company. Such participation shall be subject to (i) the terms of the applicable plan documents, (ii) generally applicable policies of the Company and (iii) the discretion of the Board of Directors of the Company or the administrative or other committee provided for in, or contemplated by, such plan. Compliance with this Section 5(a) shall in no way create or be deemed to create any obligation, express or implied, on the part of the Company or any subsidiary or affiliate of the Company with respect to the continuation of any benefit or other plan or arrangement maintained as of or prior to the Effective Date or the creation and maintenance of any particular benefit or other plan or arrangement at any time after the Effective Date.

 

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(b)         Reimbursement of Expenses . The Company shall promptly reimburse the Executive for all reasonable business expenses incurred by the Executive during the Term of Employment in accordance with the Company’s practices for senior executives of the Company, as in effect from time to time.

 

(c)          Vacation . During the Term of Employment, the Executive shall receive at least four (4) weeks paid vacation annually or such greater amount as is in accordance with the Company’s practices for senior executives of the Company, as in effect from time to time.

 

(d)         New Employment Benefits .     AMRI will pay Executive a new hire bonus within 30 days of the date of employment in the amount necessary to provide Executive with a net amount of up to $20,000, pending receipt of confirmation of the amount that must be repaid by Executive to a previous employer. The Company will provide relocation and temporary living assistance for Executive and family in connection with the relocation from Sudbury, Massachusetts to the capital region of New York. The date that Executive relocates his primary residence will be called the “Relocation Date.” The Company will cover reasonable expenses consistent with the AMRI Relocation Policy for Executives, including the brokerage costs related to the sale of Executive’s primary residence in Sudbury, Massachusetts. These expenses will be reimbursed to Executive or directly paid as incurred, subject to confirmation. The Company will provide for temporary living arrangements for a period of 60 days or as may otherwise be extended by the Company. All such reimbursed expenses, including the new hire bonus and including all relocation and temporary living expenses are referred to herein as the “Relocation Expenses”.

 

(e)         Grant of Company Equity . Effective on Executive’s date of hire, the Company will grant to Executive 50,000 shares of restricted stock and non-qualified stock options to purchase 100,000 shares of the Company’s Common Stock, such restricted stock and stock options to be granted pursuant to the Company’s 2008 Stock Option and Incentive Plan. Such restricted stock and stock options will be evidenced by standard agreements to be entered into between Executive and the Company. The restricted stock and stock options granted pursuant to this Section 5(e) will vest 25% per year on each anniversary of the date of grant.

 

6.             Termination of Employment . Notwithstanding the provisions of Section 2, the Executive’s employment under this Agreement shall terminate under the following circumstances set forth in this Section 6.

 

For purposes of this Agreement, “ Date of Termination ” means (i) if the Executive’s employment is terminated by his death as provided in Section 6(c), the date of his death; (ii) if the Executive’s employment is terminated due to his permanent disability as provided in Section 6(c), the date on which notice of termination is given; (iii) if the Executive’s employment is terminated by the Company without Cause under Section 6(e) or Section 6(g), sixty (60) days after the date on which notice of termination is given; and (iv) if the Executive’s employment is terminated under Section 6(f), or for Good Reason under Section 6(g), the date on which the applicable cure period expires. In the event that Executive’s employment terminates at any time from the date hereof to the date that is 24 months following the Relocation Date and such termination is pursuant to Section 6(b) or 6(d); then within 30 days of the Date of Termination Executive shall repay the Relocation Expenses in full to the Company.

 

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(a)           Mutual Consent . The Executive’s employment under this Agreement may be terminated at any time by the mutual consent of the Executive and the Company on such terms as both parties shall mutually agree.

 

(b)           Termination by the Company for Cause . The Executive’s employment under this Agreement may be terminated by the Company for Cause at any time upon written notice to the Executive without further liability on the part of the Company. For purposes of this Agreement, a termination shall be for Cause if:

 

(i)          the Executive shall commit an act of fraud, embezzlement, misappropriation or breach of fiduciary duty against the Company or any of its subsidiaries or affiliates or shall be convicted by a court of competent jurisdiction or shall plead guilty or nolo contendere to any felony or any crime involving moral turpitude;

 

(ii)         the Executive shall commit a material breach of any of the covenants, terms or provisions of Section 7 or 8 hereof which breach has not been cured within fifteen (15) days after delivery to the Executive by the Company of written notice thereof;

 

(iii)        the Executive shall commit a material breach of any of the covenants, terms or provisions hereof (other than pursuant to Section 7 or 8 hereof) which breach has not been remedied within thirty (30) days after delivery to the Executive by the Company of written notice thereof; or

 

(iv)        the Executive shall have disobeyed reasonable written instructions from the Company’s Board of Directors, Compensation Committee or other appropriate governing committee which are consistent with the terms and conditions of this Agreement or shall have deliberately, willfully, substantially and continuously failed to perform the Executive’s duties hereunder, after written notice and under circumstances effectively constituting a voluntary resignation of the Executive’s position with the Company.

 

Upon termination for Cause as provided in this Section 6(b), all obligations of the Company under this Agreement shall thereupon immediately terminate other than any obligations with respect to (A) earned but unpaid Base Salary and (B) the continued rights of the Executive to receive payments due under the Technology Development Incentive Plan. The Company shall have any and all rights and remedies under this Agreement and applicable law.

 

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(c)            Death; Disability . The Executive’s employment under this Agreement may be terminated by the Company upon the earlier of death or permanent disability (as defined below) of the Executive continuing for a period of one hundred eighty (180) days. Upon any such termination of the Executive’s employment, all obligations of the Company under this Agreement shall thereupon immediately terminate other than any obligations with respect to (i) earned but unpaid salary through the Date of Termination, (ii) bonus payments with respect to the calendar year within which such termination occurred on the basis of and to the extent contemplated in any bonus plan then in effect with respect to senior executive officers of the Company, pro-rated on the basis of the number of days of the Executive’s actual employment hereunder during such calendar year through the Date of Termination, and (iii) in the case of permanent disability, continuation at the Company’s expense of health insurance benefits (medical and dental) until the first anniversary of the Date of Termination to the extent permitted under the Company’s group health insurance policy. As used herein, the term “permanent disability” or “permanently disabled” means the inability of the Executive, by reason of injury, illness or other similar cause, after reasonable accommodation by the Company, to perform a major part of his duties and responsibilities in connection with the conduct of the business and affairs of the Company. The Company shall provide written notice to the Executive of the termination of his employment hereunder due to permanent disability. The provisions of the Technology Development Incentive Plan shall apply to matters related to any technical incentive compensation being received at the time of disability or death of the Executive.

 

(d)            Voluntary Termination by the Executive . At any time during the Term of Employment, the Executive may terminate his employment under this Agreement upon sixty (60) days’ prior written notice to the Company. Upon termination by the Executive as provided in this Section 6(d), all obligations of the Company under this Agreement shall thereupon immediately terminate other than any obligations with respect to earned but unpaid Base Salary and any payments of technology incentive compensation under the Technology Development Incentive Plan.

 

(e)            Termination by the Company Without Cause . The Executive’s employment under this Agreement may be terminated by the Company at any time without Cause by the Company upon sixty (60) days’ prior written notice to the Executive. Any termination by the Company of the Executive’s employment under this Agreement which does not constitute a termination for Cause under Section 6(b) and is not a termination on account of death or disability under Section 6(c) shall be deemed a termination without Cause. Upon any such termination of the Executive’s employment, all obligations of the Company under this Agreement shall thereupon immediately terminate other than any obligations with respect to earned but unpaid Base Salary and bonus under Section 4. In addition, subject to the Executive signing a general release of claims in a form and manner satisfactory to the Company and the lapse of any statutory revocation period, the Company shall continue to pay the Executive his Base Salary at the rate then in effect pursuant to Section 4(a) for a period of one (1) year from the Date of Termination and shall pay to the Executive in monthly installments over the one (1) year period, an amount equal to the Executive’s cash bonus, if any, received in respect of the year immediately preceding the year of termination pursuant to Section 4(b) beginning with the first payroll date that begins thirty (30) days after the Date of Termination. For purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), each monthly payment shall be considered a separate payment. The Company shall also pay 100% of the costs to provide up to twelve (12) months of outplacement support services at a level appropriate for the Executive’s title and responsibility and provide the Executive with health and dental insurance continuation at a level consistent with the level and type the Executive had in place at the time of termination for a period of twelve (12) months from the Date of Termination. Following a termination of the Executive without Cause the Executive shall continue to be eligible to receive technology incentive compensation payments due under the provisions of the Technology Development Incentive Plan as such may have been established by the administrator of such plan prior to the date of termination.

 

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(f)             Termination by the Executive upon Company Breach . The Executive shall have the right to terminate his employment hereunder upon written notice to the Company in the event of (i) a material diminution in the nature or scope of the powers, duties or responsibilities of the Executive or (ii) a breach by the Company of any of its material obligations hereunder, in each case after the Executive has given written notice to the Company specifying such default by the Company within sixty (60) days of the occurrence of the default and giving the Company a reasonable time, not less than thirty (30) days, to conform its performance to its obligations hereunder. Upon any such termination of the Executive’s employment, all obligations of the Company under this Agreement shall thereupon immediately terminate other than any obligations with respect to earned but unpaid Base Salary and bonus under Section 4. In addition, subject to the Executive signing a general release of claims in a form and manner satisfactory to the Company and the lapse of any statutory revocation period, the Company shall continue to pay the Executive his Base Salary at the rate then in effect pursuant to Section 4(a) for a period of one (1) year from the Date of Termination and shall pay to the Executive in monthly installments over the one (1) year period, an amount equal to the Executive’s cash bonus, if any, received in respect of the year immediately preceding the year of termination pursuant to Section 4(b) beginning with the first payroll date that begins thirty (30) days after the Date of Termination. For purposes of Section 409A of the Code, each monthly payment shall be considered a separate payment. The Company shall also pay 100% of the costs to provide up to twelve (12) months of outplacement support services at a level appropriate for the Executive’s title and responsibility and provide the Executive with health and dental insurance continuation at a level consistent with the level and type the Executive had in place at the time of termination for a period of twelve (12) months from the Date of Termination. Following a termination by the Executive for Company Breach, the Executive shall continue to be eligible to receive technology incentive compensation payments due under the provisions of the Technology Development Incentive Plan as such may have been established by the administrator of such plan prior to the date of termination

 

(g)            Termination Pursuant to a Change of Control . If there is a Change of Control, as defined below, during the Term of Employment, the provisions of this Section 6(g) shall apply and shall continue to apply throughout the remainder of the Term (as extended by any Renewal Term). Upon a Change of Control, the Executive will become fully vested in any outstanding stock options, Restricted Stock or other stock grants awarded and become fully vested in all Company contributions made to the Executive’s 401(k), Profit Sharing or other retirement account(s). In addition, within thirty (30) days of the Change of Control, the Company shall pay to the Executive a lump sum equal to the Executive’s pro rata target cash bonus for the year in which the Change of Control occurred (as such may be set forth in the Company’s bonus plan for such year and calculated assuming target achievement of corporate and personal goals); such pro rata amount to be determined based on the actual date of the closing of such Change of Control transaction.

 

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If, within two (2) years following a Change of Control, the Executive’s employment is terminated by the Company without Cause (in accordance with Section 5(e) above) or by the Executive for “Good Reason” (as defined in Section 6(g)(ii) below), in lieu of any severance and other benefits payable under Section 6(e) or Section 6(f), subject to the Executive signing a general release of claims in a form and manner satisfactory to the Company and the lapse of any statutory revocation period, the Company shall pay to the Executive (or the Executive’s estate, if applicable) a lump sum amount equal to 1.5 times the sum of (x) the Executive’s Base Salary at the rate then in effect pursuant to Section 4(a), plus (y) an amount equal to the Executive’s cash bonus, if any, received in respect of the year immediately preceding the year of termination pursuant to Section 4(b) within thirty (30) days of the Date of Termination. Notwithstanding the foregoing, to the extent the cash severance payment to the Executive is considered deferred compensation subject to Section 409A of the Code, and if the Change of Control does not constitute a “change in control event” within the meaning of Section 409A of the Code, such cash severance shall be payable in installments over the same period as provided in Section 6(e). The Company shall also pay 100% of the costs to provide up to twelve (12) months of outplacement support services at a level appropriate for the Executive’s title and responsibility and provide the Executive with health and dental insurance continuation at a level consistent with the level and type the Executive had in place at the time of termination for a period of twelve (12) months from the Date of Termination. Following a termination by the Executive or a termination by the Company under this Section 6(g), the Executive shall continue to be eligible to receive technology incentive compensation payments due under the provisions of the Technology Development Incentive Plan as such may have been established by the administrator of such plan prior to the date of termination.

 

(i)          “ Change of Control ” shall mean the occurrence of any one of the following events: (A) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (B) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, or (C) the sale of all of the Stock of the Company to an unrelated person or entity.

 

(ii)         “ Good Reason ” shall mean the occurrence of any of the following:

 

(A)         a material diminution in the nature or scope of the powers, duties or responsibilities of the Executive;

 

(B)          a breach by the Company of any of its material obligations hereunder; or

 

(C)          the relocation of the offices at which the Executive is principally employed as of the Change of Control to a location more than fifty (50) miles from such offices, which relocation is not approved by the Executive.

 

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(iii)        The Executive shall provide the Company with reasonable notice and an opportunity to cure any of the events listed in Section 6(g)(ii) within sixty (60) days of the occurrence of the event and shall not be entitled to compensation pursuant to this Section 6(g) unless the Company fails to cure within a reasonable period of not less than thirty (30) days.

 

(h)           Additional Limitation . Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Severance Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, the following provisions shall apply:

 

(A)         if the Severance Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the federal, state, and local income and employment taxes payable by the Executive on the amount of the Severance Payments which are in excess of the Threshold Amount, are greater than or equal to the Threshold Amount, the Executive shall be entitled to the full amount of Severance Payments.

 

(B)         if the Threshold Amount is less than (x) the Severance Payments, but greater than (y) the Severance Payments reduced by the sum of (1) the Excise Tax and (2) the total of the federal, state, and local income and employment taxes on the amount of the Severance Payments which are in excess of the Threshold Amount, then the Severance Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Severance Payments shall not exceed the Threshold Amount. In such event, the Severance Payments shall be reduced in the following order: (i) cash payments not subject to Section 409A of the Code; (ii) cash payments subject to Section 409A of the Code; (iii) equity-based payments and acceleration; and (iv) non-cash forms of benefits. To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.

 

For the purposes of this Section 6(h) “Threshold Amount” shall mean three (3) times the Executive’s “base amount” within the meaning of Section 280G(b)(3) of the Code and the regulations promulgated thereunder less one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, and any interest or penalties incurred by the Executive with respect to such excise tax.

 

The determination as to which of the alternative provisions of this Section 6(h) shall apply to the Executive shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by the Company or the Executive. For purposes of determining which of the alternative provisions of this Section 6(g)(iii) above shall apply, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Executive’s residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Company and the Executive.

 

8
 

 

(i)            No Mitigation . Without regard to the reason for the termination of the Executive’s employment hereunder, the Executive shall be under no obligation to mitigate damages with respect to such termination under any circumstances and in the event the Executive is employed or receives income from any other source, there shall be no offset against the amounts due from the Company hereunder.

 

(j)            Section 409A .

 

(i)          Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation from service within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement would be considered deferred compensation subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule. Any such delayed cash payment shall earn interest at an annual rate equal to the prime rate reported by The Wall Street Journal as of the date of separation from service, from such date of separation from service until the payment.

 

(ii)         The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments and benefits provided hereunder without additional cost to either party.

 

(iii)        To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation from service”. The determination of whether and when a separation from service has occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).

 

9
 

 

(iv)        The Company makes no representation or warranty and shall have no liability to the Executive or any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

 

7.           Non-Competition and No Solicitation .

 

(a)           Because the Executive’s services to the Company are special and because the Executive has access to the Company’s confidential information, during the Term of Employment and for a period of twelve (12) months following the termination, the Executive shall not, without the express written consent of the Company, directly or indirectly, engage, participate, invest in, be employed by or assist, whether as owner, part-owner, shareholder, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity, any Person (as hereinafter defined) other than the Company and its affiliates in the Designated Industry (as hereinafter defined); provided, however, that nothing herein shall be construed as preventing the Executive from making passive investments in a Person in the Designated Industry if the securities of such Person are publicly traded and such investment constitutes less than one percent (1%) of the outstanding shares of capital stock or comparable equity interests of such Person.

 

(b)          For purposes of this Agreement, the following terms have the following meanings:

 

Person ” means an individual, a corporation, an association, a partnership, a limited liability company, an estate, a trust and any other entity or organization; and

 

Designated Industry ” means the business of providing chemistry research and development services to pharmaceutical and biotechnology companies involved in drug development and discovery and any and all activities related thereto, including, without limitation, medicinal chemistry, chemical development, biocatalysis, analytical chemistry services and small-scale manufacturing and any other business conducted by the Company during the Executive’s employment with the Company.

 

                (c)          For a period of twelve (12) months following the termination of this Agreement for any reason, the Executive shall not, directly or indirectly, alone or as a member of any partnership or limited liability company or entity, or as an officer, director, shareholder, or employee of any corporation or entity (a) solicit or otherwise encourage any employee or independent contractor of the Company to terminate his/her relationship with the Company, or (b) recruit, hire or solicit for employment or for engagement as an independent contractor, any person who is or was employed by the Company at any time during the Executive’s employment with the Company. This paragraph shall not apply to persons whose employment and/or retention with the Company has been terminated for a period of twelve (12) months or longer.

 

10
 

 

8.            Confidentiality . In the course of performing services hereunder and otherwise, the Executive has had, and it is anticipated that the Executive will from time to time have, access to confidential records, data, customer lists, trade secrets, technology and similar confidential information owned or used in the course of business by the Company and its subsidiaries and affiliates (the “Confidential Information”). The Executive agrees (i) to hold the Confidential Information in strict confidence, (ii) not to disclose the Confidential Information to any Person (other than in the regular business of the Company), and (iii) not to use, directly or indirectly, any of the Confidential Information for any competitive or commercial purpose; provided, however, that the limitations set forth above shall not apply to any Confidential Information which (A) is then generally known to the public, (B) became or becomes generally known to the public through no fault of the Executive, or (C) is disclosed in accordance with an order of a court of competent jurisdiction or applicable law. Upon termination of the Executive’s employment with the Company, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters in the Executive’s possession or control, shall be returned to the Company and remain in its possession. This Section 8 shall survive the termination of this Agreement for any reason.

 

9.            Conflicting Agreements . The Executive hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not breach or be in conflict with any other agreement to which he is a party or is bound, and that he is not now subject to any covenants which would affect the performance of his obligations hereunder. As of the Effective Date, the Executive is not performing any other duties for, and is not a party to any similar agreement with, any Person competing with the Company or any of its affiliates.

 

10.          Severability . In case any of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, any such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had been limited or modified (consistent with its general intent) to the extent necessary to make it valid, legal and enforceable, or if it shall not be possible to so limit or modify such invalid, illegal or unenforceable provision or part of a provision, this Agreement shall be construed as if such invalid, illegal or unenforceable provision or part of a provision had never been contained in this Agreement.

 

11.          Litigation and Regulatory Cooperation . During and after the Executive’s employment, the Executive shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall reimburse the Executive for any reasonable out-of-pocket expenses incurred in connection with the Executive’s performance of obligations pursuant to this Section 11. This Section 11 shall survive the termination of this Agreement for any reason.

 

11
 

 

12.          Arbitration of Disputes . Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Albany, New York, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered in any court having jurisdiction. In the event that the Company terminates the Executive’s employment for cause under Section 6(b) and the Executive contends that cause did not exist, then the Company’s only obligation shall be to submit such claim to arbitration and the only issue before the arbitrator will be whether the Executive was in fact terminated for cause. If the arbitrator determines that the Executive was not terminated for cause by the Company, then the only remedies that the arbitrator may award are (i) payment of amounts which would have been payable if the Executive’s employment had been terminated under Section 6(e), (ii) the costs of arbitration, (iii) the Executive’s attorneys’ fees, and (iv) all rights and benefits granted or in effect with respect to the Executive under the Company’s stock option plans and agreements with the Executive pursuant thereto, with the vesting and exercise of any stock options and the forfeit ability of any stock-based grants held by the Executive to be governed by the terms of such plans and the related agreements between the Executive and the Company. If the arbitrator finds that the Executive’s employment was terminated for cause, the arbitrator will be without authority to award the Executive anything, and the parties will each be responsible for their own attorneys’ fees, and they will divide the costs of arbitration equally. Furthermore, should a dispute occur concerning the Executive’s mental or physical capacity as described in Section 6(c), a doctor selected by the Executive and a doctor selected by the Company shall be entitled to examine the Executive. If the opinion of the Company’s doctor and the Executive’s doctor conflict, the Company’s doctor and the Executive’s doctor shall together agree upon a third doctor, whose opinion shall be binding. This Section 12 shall survive the termination of this Agreement for any reason.

 

13.          Specific Performance . Notwithstanding Section 12 hereof, it is specifically understood and agreed that any breach of the provisions of this Agreement, including, without limitation, Sections 7 and 8 hereof, by the Executive is likely to result in irreparable injury to the Company and its subsidiaries and affiliates, that the remedy at law alone will be inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to seek both temporary and permanent injunctive relief (to the extent permitted by law), without the necessity of proving actual damages. To the extent that any court action is permitted consistent with or to enforce Section 7 or 8 of this Agreement, the parties hereby agree to the sole and exclusive jurisdiction of the Supreme Court of the State of New York (Albany County) and the United States District Court for the Northern District of New York (City of Albany). Accordingly, with respect to any such court action, the Executive (i) submits to the personal jurisdiction of such courts, (ii) consents to service of process, and (iii) waives any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction or service of process.

 

14.          Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) when delivered by hand, (ii) when transmitted by facsimile and receipt is acknowledged, or (iii) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

 

12
 

 

To the Company:

 

Albany Molecular Research, Inc.

21 Corporate Circle

Albany, New York 12203-5154

Facsimile: (518) 867-4375

Attention: Board of Directors

 

To the Executive, at the address on file with the Company

 

or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing.

 

15.          Amendment; Waiver . This Agreement shall not be amended, modified or discharged in whole or in part except by an Agreement in writing signed by both of the parties hereto. The failure of either of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder.

 

16.          Successors and Assigns . This Agreement shall inure to the benefit of successors of the Company by way of merger, consolidation or transfer of all or substantially all of the assets of the Company, and may not be assigned by the Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall be a material breach of this Agreement.

 

17.          Entire Agreement . This Agreement constitutes the entire agreement between the parties concerning the subjects hereof and supersedes all prior understandings and agreements between the parties relating to the subject matter hereof.

 

18.          Governing Law . This Agreement shall be construed and regulated in all respects under the laws of the State of New York.

 

19.          Counterparts . This Agreement may be executed in counterparts, each of which when so executed and delivered shall be taken to be an original, but such counterparts shall together constitute one and the same document.

 

[Remainder of Page Intentionally Left Blank] 

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

  ALBANY MOLECULAR RESEARCH, INC.
   
  By: /s/ Thomas E. D’Ambra
         Thomas E. D’Ambra
   
  EXECUTIVE:
   
  /s/ Michael M. Nolan
       Michael M. Nolan

  

14

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: November 9, 2012 /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, Michael M. Nolan 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: November 9, 2012 /s/ Michael M. Nolan  
  Name: Michael M. Nolan
  Title: Vice President, 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: November 9, 2012  
  /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: November 9, 2012 /s/ Michael M. Nolan  
  Name: Michael M. Nolan
  Title: Vice President, Chief Financial Officer and Treasurer