-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NDqr64noMynqPvqxssT8C5o+Vuja2dffpip0R8ufmgrt6dsRfMt2Efqa/+avshAG BVlyIHUP4HAqCZQfCJtSuQ== 0000950169-98-001167.txt : 19981118 0000950169-98-001167.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950169-98-001167 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIORELIANCE CORP CENTRAL INDEX KEY: 0001036629 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 521541583 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22879 FILM NUMBER: 98752118 BUSINESS ADDRESS: STREET 1: C/O MICROBIOLOGICAL ASSOCIATES INC STREET 2: 9900 BLACKWELL RD CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3017381000 MAIL ADDRESS: STREET 1: C/O MICROBIOLOGICAL ASSOCIATES INC STREET 2: 9900 BLACKWELL RD CITY: ROCKVILLE STATE: MD ZIP: 20850 10-Q 1 BIORELIANCE CORPORATION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission File Number 0-22879 BIORELIANCE CORPORATION (Exact name of the registrant as specified in its charter) Delaware 52-1541583 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14920 Broschart Road Rockville, Maryland 20850 (Address of principal executive offices) (Zip code) Registrants telephone number, including area code: (301) 738-1000 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 ____ ____ As of October 31, 1998, 7,818,466 shares of registrants Common Stock, par value $.01 per share, were outstanding. BIORELIANCE CORPORATION TABLE OF CONTENTS Page Number PART I FINANCIAL INFORMATION Item 1 - Financial Statements: Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998.............................................. 3 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1997 and 1998................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1998............................... 5 Notes to Consolidated Financial Statements...................... 6 Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations............................. 11 PART II OTHER INFORMATION............................................. 18 SIGNATURES.............................................................. 19 EXHIBIT INDEX........................................................... 20 2 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements BIORELIANCE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
September 30, December 31, 1998 1997 (Unaudited) --------------- --------------- Assets Current assets: Cash and cash equivalents................................................ $ 6,227 $ 11,049 Marketable securities.................................................... 27,554 17,877 Accounts receivable, net................................................. 15,923 21,757 Other current assets..................................................... 1,827 1,814 ------------ ----------- Total current assets................................. 51,531 52,497 Property and equipment, net..................................................... 15,601 24,206 Intangible assets, net.......................................................... 256 159 Deposits and other assets....................................................... 286 313 Deferred income taxes........................................................... 977 1,019 ------------ ----------- Total assets......................................... $ 68,651 $ 78,194 ============ =========== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt........................................ $ 1,574 $ 1,543 Accounts payable......................................................... 1,811 1,528 Accrued employee compensation and benefits............................... 2,829 2,674 Other accrued liabilities................................................ 2,302 1,524 Customer advances........................................................ 3,635 3,367 Deferred income taxes.................................................... 1,271 2,337 ------------ ----------- Total current liabilities............................ 13,422 12,973 Long-term debt.................................................................. 5,434 11,292 ------------ ----------- Total liabilities.................................... 18,856 24,265 ------------ ----------- Commitments and contingencies (Note 8) Stockholders' equity: Convertible preferred stock, $.01 par value: 6,900,000 shares authorized; no shares issued and outstanding.......................... --- --- Common stock, $.01 par value: 15,000,000 shares authorized; 7,685,208 and 7,817,073 shares issued and outstanding.................. 77 78 Additional paid-in capital............................................... 52,457 52,577 Retained earnings/(accumulated deficit).................................. (2,145) 1,306 Equity adjustment from foreign currency translation...................... (594) (32) ------------ ----------- Total stockholders' equity........................... 49,795 53,929 ------------ ----------- Total liabilities and stockholders' equity........... $ 68,651 $ 78,194 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 BIORELIANCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1997 1998 1997 1998 ---------- ---------- ---------- ---------- Revenue.............................................. $ 11,696 $ 12,977 $ 36,060 $ 37,625 ---------- ---------- ---------- ---------- Expenses: Cost of sales............................. 7,294 8,085 22,321 21,842 Selling, general and administrative....... 2,374 2,927 7,703 9,631 Research and development.................. 347 312 973 1,045 ---------- ---------- ---------- ---------- 10,015 11,324 30,997 32,518 ---------- ---------- ---------- ---------- Income from operations............................... 1,681 1,653 5,063 5,107 ---------- ---------- ---------- ---------- Other income (expense): Interest income........................... 312 436 432 1,356 Interest expense.......................... (175) (149) (623) (381) Other income (expense).................... (6) (138) 5 (409) ---------- ---------- ---------- ---------- 131 149 (186) 566 ---------- ---------- ---------- ---------- Income before income taxes........................... 1,812 1,802 4,877 5,673 Provision for income taxes........................... 761 675 2,048 2,222 ---------- ---------- ---------- ---------- Net income........................................... $ 1,051 $ 1,127 $ 2,829 $ 3,451 ========== ========== ========== ========== Net income per share: Basic..................................... $ 0.20 $ 0.14 $ 1.33 $ 0.44 ========== ========== ========== ========== Diluted................................... $ 0.14 $ 0.14 $ 0.44 $ 0.42 ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 4 BIORELIANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------ 1997 1998 ----------- ---------- Cash flows from operating activities: Net income..................................................................... $ 2,829 $ 3,451 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation............................................................... 2,238 2,436 Amortization of intangibles................................................ 95 162 Amortization of bond premiums and discounts................................ --- (115) Loss on disposal of fixed assets........................................... 163 24 Deferred income taxes, net................................................. 1,756 1,024 Changes in current assets and liabilities: Accounts receivable, net............................................... (4,859) (5,858) Other current assets................................................... (319) 118 Accounts payable....................................................... (108) (290) Accrued employee compensation and benefits............................. 645 (158) Other accrued liabilities.............................................. 686 (782) Customer advances...................................................... 1,641 (462) Deposits and other assets.................................................. 367 (63) ----------- ---------- Net cash provided by (used in) operating activities............... 5,134 (513) ----------- ---------- Cash flows from investing activities: Purchases of marketable securities........................................... (23,421) (28,358) Proceeds from the maturities of marketable securities........................ --- 38,150 Purchases of property and equipment.......................................... (2,710) (3,880) ----------- ---------- Net cash provided by (used in) investing activities............... (26,131) 5,912 ----------- ---------- Cash flows from financing activities: Net proceeds from initial public offering .................................. 32,464 --- Proceeds from exercise of stock options..................................... 101 260 Proceeds from debt.......................................................... --- --- Payments on debt............................................................ (581) (675) Repayment of note payable to stockholder.................................... (1,900) --- Payments on capital lease obligations....................................... (667) (493) Repurchase and cancellation of treasury stock............................... --- (139) ----------- ---------- Net cash provided by (used in) financing activities............... 29,417 (1,047) ----------- ---------- Effect of exchange rate changes on cash and cash equivalents..................... (504) 470 ----------- ---------- Net increase in cash and cash equivalents........................................ 7,916 4,822 Cash and cash equivalents, beginning of period................................... 2,965 6,227 ----------- ---------- Cash and cash equivalents, end of period......................................... $ 10,881 $ 11,049 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 5 BIORELIANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Description of the Business BioReliance Corporation (the "Corporation") is a contract research organization providing nonclinical testing and contract manufacturing services for biologics to biotechnology and pharmaceutical companies worldwide. (2) Interim Financial Statements Presentation The accompanying interim financial statements are unaudited and have been prepared by the Corporation pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and therefore these consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and the notes thereto, included in the Corporation's Annual Report on Form 10-K. In the opinion of management, the unaudited consolidated financial statements for the three-month and nine-month periods ended September 30, 1997 and 1998 include all normal and recurring adjustments which are necessary for a fair presentation of the results of the interim period. The results of operations for the three-month and nine-month periods ended September 30, 1997 and 1998 are not necessarily indicative of the results for the entire year ending December 31, 1998. (3) Revenue Recognition Revenue recognized from commercial contracts, which are principally fixed-price or fixed-rate, is recorded using the percentage-of-completion over time or the completed-contract method, depending on the nature and duration of the contract. The percentage-of-completion over time method is used for nonclinical testing services that are completed generally in greater than three days and for manufacturing contracts that do not provide for delivery of product. The completed-contract method is used for nonclinical testing services that are completed generally within three days and for contract manufacturing services that provide for delivery of product. The percentage-of-completion over time is determined using total project costs as a cost input measure over the estimated term of the project. Revenue recognized from government contracts, which are principally cost-plus-fixed-fee, is recognized in an amount equal to reimbursable costs plus a pro-rata portion of the earned fee. Losses, if any, are provided for at the time at which they become known. (4) Foreign Currency Translation The accounts of foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at period-end 6 exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net gains and losses resulting from such translations are included in comprehensive income and are accumulated in a separate component of stockholders equity. (5) Net Income Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This statement replaces the presentation of primary earnings per share (EPS) with a presentation of basic EPS, and requires dual presentation of basic and diluted EPS on the face of the income statement. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Dilutive securities are excluded from the computation in periods in which they have an anti-dilutive effect, and net income available to common stockholders is adjusted accordingly for the effect of cumulative dividends on Convertible Preferred Stock. The Corporation adopted this statement during the fourth quarter of 1997, as required. Accordingly, all prior period EPS data has been restated as required by SFAS 128. In February 1998, the SEC issued Staff Accounting Bulletin 98 ("SAB 98"). SAB 98 rescinded SAB 83, which required common shares and common share equivalents issued or granted by the Corporation at prices below the public offering price during the twelve months immediately preceding the filing of the Corporation's initial Registration Statement and through the effective date of such Registration Statement to be calculated using the treasury stock method based upon the estimated initial public offering price, and to be included for all periods presented regardless of whether they are dilutive. The Corporation has adopted SAB 98 and, accordingly, all EPS data has been restated as required. The following is a reconciliation between net income and net income available to common stockholders used in the numerator for basic EPS for the three and nine months ended September 30:
Three Months Ended Nine Months September 30, Ended September 30, 1997 1998 1997 1998 ---- ---- ---- ---- (In thousands) Net income $1,051 $1,127 $2,829 $3,451 Assumed dividends paid to preferred stockholders --- --- 70 --- ------ ------ ------ ------ Net income available to common stockholders $1,051 $1,127 $2,899 $3,451 ====== ====== ====== ======
7 The following is a reconciliation between net income available to common stockholders and net income available per common and common equivalent stockholders used in the numerator for diluted EPS for the three and nine months ended September 30: Three Months Nine Months Ended Ended September 30, September 30, 1997 1998 1997 1998 ---- ---- ---- ---- (In thousands) Net income available to common stockholders $1,051 $1,127 $2,899 $3,451 Assumed dividends paid to preferred stockholders --- --- (70) --- ------ ------ ------ ------ Net income available to common and common equivalent stockholders $1,051 $1,127 $2,829 $3,451 ====== ====== ====== ====== The following is a reconciliation between the weighted average common stock outstanding denominator used in basic EPS and the weighted average common and common equivalent shares outstanding denominator used in diluted EPS for the three and nine months ended September 30: Three Months Nine Months Ended Ended September 30, September 30, 1997 1998 1997 1998 ---- ---- ---- ---- (In thousands) Weighted average common stock outstanding 5,358 7,815 2,043 7,782 Preferred stock, as if converted 1,402 --- 3,640 --- Stock options, as if converted 806 409 794 468 ----- ----- ----- ----- Weighted average common and common equivalent shares outstanding 7,566 8,224 6,477 8,250 ===== ===== ===== ===== (6) Initial Public Offering On August 1, 1997, the Corporation completed its initial public offering of 2,102,014 shares of its common stock (plus an additional 297,986 shares by a selling stockholder) at an offering price of $15.00 per share. On August 7, 1997, the underwriters exercised an over-allotment option to purchase an additional 315,302 shares. The net proceeds to the Corporation from the public offering and the exercise of the over-allotment option by the underwriters, after deducting the underwriting discounts and commissions and offering expenses payable by the Corporation, were approximately $32.5 million. Upon the closing of the offering, all outstanding shares of the Corporations convertible preferred stock were automatically converted into 4,778,072 shares of common stock. (7) Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This 8 statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. SFAS 130 requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The statement requires reclassification of earlier statements in comparative financial statements and is effective for fiscal years beginning after December 15, 1997. The Corporation adopted this statement during the first quarter of 1998. Total comprehensive income amounted to $1,678,000 for the quarter ended September 30, 1998 and $924,000 for the quarter ended September 30, 1997. For the nine months ended September 30, 1998 and 1997, total comprehensive income amounted to $4,013,000 and $2,074,000, respectively. (8) Commitments Capital Lease Obligations In April 1998, the Corporation entered into certain third-party leasing and subleasing arrangements relating to the construction of new laboratory space. These arrangements require the Corporation to make certain noncancelable lease payments over the next twenty years and to guarantee indebtedness of approximately $4.4 million. The terms of the arrangements require that the leases be accounted for as capital leases. The assets underlying such capitalized leases are included with the Corporations owned property and equipment and are summarized as follows as of September 30, 1998 (in thousands): Land $ 720 Construction in progress 6,035 ------ Total assets at cost 6,755 Less accumulated depreciation --- ------ Net assets $6,755 ====== The future minimum lease payments under the capital lease obligations at September 30, 1998 were as follows (in thousands): Year ending December 31: 1998 $ 27 1999 459 2000 607 2001 607 2002 607 Thereafter 10,495 ------ Total minimum lease payments 12,802 Less amount representing interest (6,061) ------ Present value of minimum lease payments 6,741 Less current portion (92) ------ Long-term portion $6,649 ====== 9 The Corporations obligation for future lease payments will increase as additional costs are incurred for the construction of the space. Such additional amounts are estimated to total $364,000 including interest. Operating Leases In October 1997, the Corporation entered into a lease agreement with a developer to construct a new facility in Rockville, MD. The new facility is being used as the Corporation's headquarters and will provide expanded laboratories and other capacities for operational businesses. The lease requires the Corporation to make certain noncancelable lease payments over the next 15 years. The terms of the agreement require that the lease be accounted for as an operating lease. Future minimum lease payments under the lease are as follows at September 30, 1998 (in thousands): Year ending December 31: 1998 $ 135 1999 572 2000 672 2001 693 2002 713 Thereafter 9,159 ------- Total minimum lease payments $11,944 ======= (9) New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivatives Instruments and for Hedging Activities". SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value and establishes "special accounting" for the following three different types of hedges: hedges of changes in the fair value of assets, liabilities or firm commitments; hedges of the variable cash flows of forecasted transactions; and hedges of foreign currency exposures of net investments in foreign operations. SFAS No. 133 is effective for years beginning after June 15, 1999, with earlier adoption permitted. The Corporation believes that the effect of adoption of SFAS No. 133 will not be material. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements made in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("the Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words "believe", "anticipate", "expect", "estimate", "project", "will be", "will continue", "will likely result", or similar words or phrases. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by BioReliance with the Securities and Exchange Commission, including in its Prospectus, dated July 28, 1997, and its Forms 10-K and 10-Q, and include, among others, the following: general economic and market conditions; the size and growth of the overall markets for biopharmaceuticals, including the amounts spent on research and development by biotechnology and pharmaceutical companies; changes in government regulations; the size, timing and mix of contracts for the Corporation's products and services; the ability of BioReliance to attract and retain qualified technical and management personnel; seasonal demand for the Corporation's products and services; fluctuations and difficulty in forecasting operating results; the ability of BioReliance to sustain, manage or forecast its growth and utilize its facilities; the loss of significant contracts or customers; business disruptions and other factors referenced in the above reports. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Corporation's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also be aware that while BioReliance does, from time to time, communicate with securities analysts, it is against BioReliance's policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that BioReliance agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, BioReliance has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of BioReliance. Results of Operations Three months ended September 30, 1998 compared with three months ended September 30, 1997 Revenue was $13.0 million in the three months ended September 30, 1998, an increase of 11% over revenue of $11.7 million in the three months ended September 30, 1997. The increase was attributable to broad gains by most operations throughout the United States and Europe. 11 Cost of sales was $8.1 million in the three months ended September 30, 1998, an increase of 11% over cost of sales of $7.3 million in the three months ended September 30, 1997. The increase was primarily due to increased material, facility and other ancillary indirect costs. Selling, general and administrative expense was $2.9 million in the three months ended September 30, 1998, an increase of 23% over selling, general and administrative expense of $2.4 million in the three months ended September 30, 1997. This increase was due primarily to investments in information systems, systems development and legal costs. Research and development expense was $312,000 in the three months ended September 30, 1998, a decrease of 11% over research and development expense of $347,000 in the three months ended September 30, 1997. The decrease primarily was attributable to adjustments in accrued compensation costs. Operating income remained constant at $1.7 million in the three months ended September 30, 1998, and in the three months ended September 30, 1997. This resulted from higher gross profit in the three months ended September 30, 1998 being offset by similarly higher operating expenses. The Corporation earned net interest income and other expense of $149,000 in the three months ended September 30, 1998, compared to net interest income and other expense of $131,000 in the three months ended September 30, 1997. The small improvement was due primarily to the net of higher interest income as offset by higher levels of other corporate expenses. The provision for income taxes was $675,000 in the three months ended September 30, 1998, compared to a provision of $761,000 in the three months ended September 30, 1997. The effective tax rate was 37% for the three months ended September 30, 1998 and 42% for the three months ended September 30, 1997. The tax rate declined primarily due to the implementation of certain tax strategies in Europe. Net income was $1.1 million in the three months ended September 30, 1998, and in the three months ended September 30, 1997. No material variances arose. Nine months ended September 30, 1998 compared with nine months ended September 30, 1997 Revenue was $37.6 million in the nine months ended September 30, 1998, an increase of 4% over revenue of $36.1 million in the nine months ended September 30, 1997. The increase was attributable to the strength of the BioSafety Testing business in the United States offset primarily by volume declines in German manufacturing and BioTrials revenue. Cost of sales was $21.8 million in the nine months ended September 30, 1998, a decrease of 2% over cost of sales of $22.3 million in the nine months ended September 30, 1997. The decrease was attributable primarily to volume mix variances in favor of higher margin business. Costs of approximately $0.46 million, previously included in selling, general and administrative expense for the six months ended June 30, 1998, have been reclassified to Cost of Sales for comparative purposes. 12 Selling, general and administrative expense was $9.6 million in the nine months ended September 30, 1998, an increase of 25% over selling, general and administrative expense of $7.7 million in the nine months ended September 30, 1997. This increase was due to investment in information systems, systems development, European infrastructure and the costs of being a public company. Research and development expense remained fairly constant at $1.0 million in the nine months ended September 30, 1998, and in the nine months ended September 30, 1997. No material variances arose. Operating income was $5.1 million in the nine months ended September 30, 1998, and in the nine months ended September 30, 1997. Higher gross profit in the nine months ended September 30, 1998 was offset by similarly higher selling, general and administrative expense. The Corporation earned net interest and other expense of $566,000 in the nine months ended September 30, 1998, compared to net interest and other expense of $186,000 in the nine months ended September 30, 1997. The improvement was due primarily to interest earned on cash investments net of a higher level of other corporate expenses. The provision for income taxes was $2.2 million in the nine months ended September 30, 1998, compared to a provision of $2.0 million in the nine months ended September 30, 1997. The effective tax rate was 39% for the nine months ended September 30, 1998 and 42% for the nine months ended September 30, 1997. The tax rate declined primarily due to the decreased incidence of high rate Germany taxes occasioned by both lower pretax income and the implementation of certain tax strategies in Europe. Net income was $3.5 million in the nine months ended September 30, 1998, an increase of 22% over net income of $2.8 million in the nine months ended September 30, 1997. The improvement primarily was due to higher interest income. Liquidity and Capital Resources At September 30, 1998, the Corporation had cash, cash equivalents and marketable securities of $28.9 million, compared to cash, cash equivalents and marketable securities of $33.8 million at December 31, 1997. The Corporation used cash flows in operations of $513,000 in the nine months ended September 30, 1998, compared to a generation of $5.1 million in the nine months ended September 30, 1997. Net income, as adjusted for depreciation and amortization, loss on disposal of fixed assets, and deferred income taxes, provided $7.0 million and $7.1 million in the nine months ended September 30, 1998 and 1997, respectively. The decrease in adjusted net income was due primarily to a decrease in the deferred income tax provision for the nine months ended September 30, 1998 which more than offset an increase in net income for the nine months ended September 30, 1998 compared to the same period in 1997. Changes in current assets and 13 liabilities used cash of $7.4 million and $2.3 million in the nine months ended September 30, 1998 and 1997, respectively. Working capital increased to $39.5 million at September 30, 1998, compared to $38.1 million at December 31, 1997. The net increase in working capital primarily was due to a reduction in payment of accounts payable and other current liabilities and an increase in accounts receivable. Such items are offset by a decrease in marketable securities and an increase in the current deferred tax liability. The Corporation spent $3.9 million for capital expenditures for the nine months ended September 30, 1998, compared to $2.7 million for the nine months ended September 30, 1997. The increase in capital expenditures reflects the Corporation's investment in information systems and expansion of the Corporation's laboratory facilities and related equipment, and equipping and furnishing of the Corporation's new headquarters building. In October 1997, the Corporation entered into a lease agreement with a developer to construct and lease a facility adjacent to one of the Corporation's existing facilities in Rockville, Maryland. The new facility is being used as the Corporation's headquarters to consolidate existing research and development and administrative activities, and will provide expanded laboratory and other capacity for operational businesses. The lease agreement requires the Corporation to make certain noncancelable lease payments totaling approximately $11.9 million over the next 15 years. In April 1998, the Corporation entered into certain third-party leasing and subleasing arrangements relating to the construction of the exterior shell of new biomanufacturing space. These arrangements require the Corporation to make certain net noncancelable lease payments totaling approximately $11.8 million over the next twenty years and to guarantee indebtedness of approximately $4.4 million. In addition, the Corporation intends to incur approximately $20.0 million over the next 12-18 months in leasehold improvements and laboratory equipment relating to the new laboratory. The terms of the arrangements require that the leases be accounted for as capital leases. The assets underlying such capitalized leases are included with the Corporation's owned property and equipment as of September 30, 1998. Property and equipment at September 30, 1998 includes approximately $6.8 million related to such leases. The related obligation is included in the Corporation's liabilities at September 30, 1998. The Corporation financed the acquisition of BIOMEVA in July 1996 and obtained additional funds for working capital and expansion of its business through a promissory note with NationsBank, N.A. ("NationsBank") in the amount of $1.8 million and a subordinated note from Sidney R. Knafel, the Corporation's largest stockholder, in the amount of $1.9 million, which was repaid on March 28, 1997. The NationsBank promissory note has a maturity date of June 30, 1999, requires monthly principal payments of $30,000, and at September 30, 1998, approximately $1.0 million was outstanding on the note. The note bears interest at the same rate as the Mortgage Loan. At September 30, 1998, the interest rate was 6.4%. 14 In December 1994, the Corporation's existing loan agreement with NationsBank was modified to provide term loan financing in the amount of $4,300,000 with a maturity date of November 30, 1999 (the "Mortgage Loan"). In October 1997 and on April 1, 1998, the Mortgage Loan was modified and restated to release the foreign subsidiaries from joint and several liability, to include all the U.S. subsidiaries as joint and several makers, to release the liens created by the first security interest in all of its tangible and intangible assets, and to modify the interest rate terms. The Mortgage Loan is secured by a deed of trust on one of the Corporation's facilities in Rockville, Maryland. In addition to a principal payment of $30,000 per month, the note bears interest at the London Inter-Bank Offering Rate ("LIBOR") plus the applicable LIBOR Rate Additional Percentage ("LIBOR Rate Option"). The LIBOR Rate Option ranged from 0.85% to 2.15% depending on the Corporation achieving certain funded debt to EBITDA ratios. At September 30, 1998 the applicable interest rate was 6.4%. At September 30, 1998, approximately $2.6 million was outstanding on the loan. In May 1995, the Corporation entered into an interest rate swap agreement whereby the variable interest rate of the Mortgage Loan was effectively converted into debt with a fixed rate of 9.05% per annum. Amounts to be paid or received under the interest rate swap agreement are recognized as interest income or expense in the periods in which they accrue and are recorded in the same category as that arising from the Mortgage Loan. This agreement expires on November 30, 1999. The effect of the interest rate swap agreement on interest expense was not material in the quarters ended September 30, 1997 and 1998. In addition to the Mortgage Loan, the Corporation has entered into a revolving loan agreement with NationsBank with a maximum available balance not to exceed $1,000,000. Amounts to be paid include interest only on the unpaid principal sum, payable monthly, and unless paid sooner, the unpaid principal sum, together with unpaid accrued interest payable in full on May 31, 1998. The note bears interest at the same rate as the Mortgage Loan. The Corporation has also agreed to pay a quarterly commitment fee equaling 0.25% of the average unused portion of the revolving bank loan. At September 30, 1998, no amounts were outstanding under the facility. This line of credit expires in May 1999. The various agreements with NationsBank are cross collateralized and are secured by a deed of trust on one of the Corporation's facilities in Rockville, Maryland. The agreements require the Corporation to meet certain financial and restrictive covenants, including maintaining certain tangible net worth levels and funded debt to equity ratios. At September 30, 1998, the Corporation had commitments to spend approximately $200,000 for computer systems, software and integration related to the development of new information and telecommunication systems, approximately $100,000 for furniture and building fixtures, and approximately $275,000 for laboratory equipment. The Corporation expects to continue expanding its operations through internal growth, geographic expansion and possible strategic acquisitions. The Corporation expects that such activities will be funded from existing cash, cash equivalents and marketable securities; cash flows from operations; and bank borrowings and lease financing. Although the Corporation has 15 no agreements or arrangements in place with respect to any future acquisition, there may be acquisition or other growth opportunities that require additional external financing, and the Corporation may, from time to time, seek to obtain funds from public or private issuances of equity or debt securities. There can be no assurances that such financing will be available on terms acceptable to the Corporation. Based on its current operating plan, the Corporation believes that available liquid resources are sufficient to meet its foreseeable cash needs. Foreign Currency The accounts of foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated into U.S. dollars at period-end exchange rates, and income and expense accounts are translated at average monthly exchange rates. Net gains and losses resulting from such translations are included in comprehensive income and are accumulated in a separate component of stockholder's equity. Year 2000 The Corporation uses a significant number of information technology ("IT") and non-IT computer systems in its operations. The IT systems include the Corporation's accounting systems, its office and administrative systems, its communications systems and its other corporate systems. The non-IT systems include embedded microprocessors that control laboratory equipment and facilities equipment. The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Corporation's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Corporation has established a task force to address the year 2000 issue. The task force has implemented a three-phase approach. The first phase, which is substantially complete, consists of an inventory of all IT and non-IT systems. The Corporation is actively involved in the second phase, which consists of setting priorities and developing a test plan. The Corporation anticipates that the second phase will be completed by the end of the first quarter of 1999. The third phase, which overlaps with the second phase, will include testing and remediation and will commence during the fourth quarter of 1998. The Corporation depends on various suppliers to continue its operations. The Corporation is working with its suppliers to determine whether they and their products are or will be year 2000 compliant. The Corporation has received compliance certifications from some suppliers, and is following up with the other suppliers to obtain such certificates. However, the Corporation does not control its suppliers, the Corporation cannot fully audit their year 2000 16 compliance, and for some suppliers the Corporation may have no feasible alternative supplier available. The failure of such suppliers to remediate year 2000 problems in a timely manner could have a material adverse effect on the Corporation. The Corporation has not completed its analysis of its most reasonably likely worst case year 2000 scenarios. The Corporation's task force intends to investigate these scenarios and, throughout 1998 and 1999, to develop contingency plans to reduce or avoid harm to the Corporation's business and operations. The Corporation's historical costs for remediation are not material and the Corporation does not anticipate that its future remediation costs will be material. The Corporation does expect to have to replace certain application software to be year 2000 compliant. Estimates of these costs are very preliminary, but could be as much as $.5 million. The Corporation has not delayed any material projects as a result of the year 2000 problem. The Corporation's plans to complete the year 2000 modifications are based on management's best estimates, which were derived utilizing assumptions of future events including the continued availability of certain resources, and other factors. Estimates on the status of completion and the expected completion dates are based on costs incurred to date compared to total expected costs. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Failure by the Corporation or its suppliers to complete year 2000 remediation in a timely manner could have a material adverse effect on the Corporation. Specific factors that might cause such material differences include, but are not limited to, the cooperation of third party suppliers, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. 17 PART II -- OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds As of September 30, 1998 the Corporation had used approximately $5.2 million of the net proceeds from the Corporation's initial public offering toward debt repayment and purchases of laboratory equipment, information systems hardware and software, and interior construction and furnishings of the Corporation's new facility. At September 30, 1998, approximately $19.4 million of the net proceeds of the initial public offering were invested in short-term United States government securities, and the balance was invested in money market funds pending the purchase of additional United States government securities or in other operating accounts of the Corporation. Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to Vote of Security Holders None Item 5. Other Information Patrick J. Spratt will join the Corporation as Vice President, Chief Financial Officer and Treasurer on November 30, 1998. Mr. Spratt will replace Michael Thomas, who is leaving BioReliance to pursue other activities in financial management. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The documents required to be filed as exhibits to this report under Item 601 of Regulation S-K are listed in the Exhibit Index included elsewhere in this report, which list is incorporated herein by reference. (b) Reports on Form 8-K None 18 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. Dated: November 16, 1998 BioReliance Corporation (Registrant) By _________________ Capers W. McDonald President and Chief Executive Officer By _________________ Michael R.N. Thomas Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 19 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.33 Employment Agreement with attachment thereto by and between BioReliance Corporation and Michael R.N. Thomas dated October 1, 1998 20 EX-10.33 2 EXHIBIT 10.33 EXHIBIT 10.33 ------------- EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT, effective the 1st day of October, 1998, by and between BioReliance Corporation and all of its subsidiary companies and its successors or assigns (the "Corporation") and Michael R.N. Thomas (the "Employee"). Preliminary Statements ---------------------- WHEREAS, the Employee is currently employed by the Corporation; WHEREAS, the parties desire to provide for the continued employment of the Employee by the Corporation on the terms and conditions set forth in this Agreement; and Terms and Conditions of Agreement --------------------------------- NOW THEREFORE, in consideration of the mutual promises and agreements set forth in this Agreement, the adequacy of which are acknowledged, and with the intent to be bound hereby, the Corporation and Employee agree as follows: A. POSITION The Employee will be employed as Chief Financial Officer of the Corporation through November 15, 1998. Thereafter, the Corporation, at its election, may continue Employee in the position of Chief Financial Officer through the remainder of the Term (as hereinafter defined), or the Corporation many elect to change Employee's position to Vice President, Corporate Development. Employee shall continue as Vice President, Corporate Development, or such other senior management position as may be determined by the Corporation from time to time, through the remainder of the Term. B. DUTIES As Chief Financial Officer, Employee shall perform such duties as may be assigned to him from time to time (consistent with the limitations set forth in Section D(iv) of this Agreement) by the President and Chief Executive Officer ("CEO"), including, but not limited to: (i) finance, accounting and treasury responsibilities; (ii) diligently pursuing the filing of the Corporation's 10-Q for the third quarter and signing the same; (iii) handling the investor conference call and other contacts specifically related to the release of the Corporation's third quarter 1998 results; and (iv) maintaining a policy that contacts with investors, analysts, investment brokers or managers and other like persons will be at the direction of the President and CEO of the Corporation, except for routine contacts with bank and cash managers. As Vice President, Corporate Development, Employee shall perform such duties as may be assigned to him from time to time by the President and CEO of the Corporation, including, but not limited to, the evaluation and analysis of acquisition opportunities related to such target companies as may be identified from time to time by the President and CEO. The Corporation and Employee acknowledge that the duties of Vice President, Corporate Development may not require the full-time attention of the Employee, and the Corporation shall be flexible concerning the Employee's hours and place of work for the remainder of the Term. Employee shall continue to be entitled to all rights of indemnification by the Corporation as to which he is presently entitled, and the Corporation's obligation to indemnify Employee shall not be diminished by the limitations on Employee's duties or hours of work. C. TERM The terms and conditions of this Employment Agreement will cover a period beginning as of the date hereof and ending on December 31, 1998 (the "Term"), unless otherwise terminated as provided in Section E below. During the Term of this Agreement, the parties acknowledge that Employee's employment is not "at will" employment, and the Corporation's obligation to pay Employee the compensation described in Section D of this Agreement shall exist regardless of any decision by the Corporation to terminate Employee's employment for any reason (other than a termination for cause) prior to the expiration of the Term. At the end of the Term of this Agreement, the Employee's employment status shall terminate. The terms and conditions contained in Section E of this Agreement will expire at the end of the Term. D. COMPENSATION AND BENEFITS (i) Base Salary The Employee's annual base salary will be One Hundred and Seventy-Five Thousand Dollars ($175,000), payable on the Corporation's regular bi-weekly payroll basis. The Employee shall receive only that portion of the base which will become due during the Term, and not the total annual base salary. (ii) Bonus The Employees shall be paid a bonus of Fifteen thousand Dollars ($15,000), less applicable withholdings and deductions (if any), on January 1, 1999. 2 (iii) Incentive Compensation As an inducement to remain in the employ of the Corporation and as an incentive to build the Corporation's value, if the Employee remains in the employ of the Corporation through December 31, 1998, and performs his duties as described in Paragraph B hereof (consistent with the limitations set forth in Section D(iv) of this Agreement), he shall be paid a bonus in the amount of $35,000 (less applicable withholdings and deductions, if any), without appraisal, at such time as other bonuses are paid in the first quarter of 1999. The Corporation will be obligated to pay Employee this Incentive Compensation bonus no later than January 15, 1999 as long as Employee (i) does not resign from the Corporation before December 31, 1998 and (ii) is not terminated for Cause (as hereinafter defined) on or before December 31, 1998. (iv) Hours of Work From the date hereof until November 15, 1998, the Employee shall be required to work no more than thirty (30) hours per week performing his duties as CFO and all hours in excess thereof will be governed by Section G hereof. After November 15, 1998, all hours in excess of sixteen (16) hours per week spent by Employee performing his duties will be governed by Section G hereof. (v) Other Provisions The Corporation will provide such medical and other coverage to the Employee as the Corporation makes available to all employees generally from time to time. The Employee will also receive the Corporation's standard vacation, sick time and personal holiday benefits. Eligibility to extend group health coverage beyond the Term for Employee or any dependants may be exercised by signing the applicable COBRA agreement. Employee will continue accruing Paid Personal Leave (PPL) through the Term. E. TERMINATION COMPENSATION AND BENEFITS In the event that during the Term of this Agreement, the Employee's employment with the Corporation is involuntarily terminated by the Corporation other than for Cause or because of the Employee's death or substantial inability to work, the Corporation will pay the Employee a lump sum payment equal to all amounts that would have otherwise become due hereunder, including without limitation the Bonus and Incentive Compensation described in Section D (ii) and (iii) hereof. For a period of twelve (12) months after such termination, the Corporation will also continue to make available the same health and dental (but no other) benefits made available to Corporation employees generally at a cost equal to the 3 cost the Employee would have paid if he had continued to be an employee of the Corporation. In the event the Employee becomes employed at any time during the twelve (12) month continuance period, all remaining health and dental benefits shall terminate as of date of hire by the Employee's new employer. If Employee terminates his employment prior to the end of the Term, the Corporation shall have no further obligations under Sections D or E hereof after the effective date of termination. As used in this Agreement, "Cause" shall mean that the Employee (a) committed a material act or material acts of personal dishonesty intended to result in the Employee's personal enrichment at the expense of the Corporation, and which constitute(s) fraud, grand larceny or any felonious act, (b) failed or refused to perform the Employee's material duties and obligations (consistent with the limitations set forth in Section D(iv) of this Agreement) as an employee, officer and/or director of the Corporation (other than due to disability or reasons beyond the Executive's reasonable control) if such failure or approval is not remedied within a reasonable period of time following the Employee's receipt of notice thereof. F. CONFIDENTIALITY By signing below, Employee acknowledges his ongoing and continuing obligation to abide by the Confidentiality, Trade Secrets and Noncompetition Agreement that he executed on July 28, 1998, and to keep secret or confidential, and not to utilize in any matter or disclose to third parties, any proprietary and confidential information of the Corporation, which may have been made available to him or came into his possession during the period of his employment with Corporation. Employee also agrees that, during and after the Term, he shall not make any defamatory or disparaging comments about the Corporation, its agents, employees, successors, assigns, corporate parent, affiliates, officers, or directors to third parties, or to former, present, or prospective customers, clients, vendors, business associates or anyone else in the industry, and shall not unlawfully interfere with the business advantage or contracts of the Corporation, its successors, assigns, corporate subsidiaries, and affiliates. During and after the Term, the Corporation agrees that it shall not make any defamatory or disparaging comments about Employee. G. CONSULTING SERVICES During the Term, the Employee and Corporation may also agree that Employee will provide separate and additional consulting services in excess of the hours of performance required pursuant to Section D hereof, and during the 3 1/2 month period following the expiration of the Term hereof, as set forth in Exhibit A, Employee may provide such consulting services to the Corporation for the purpose of accomplishing a smooth transition of obligations from Employee to the new Chief financial Officer and to facilitate the Corporation's quarterly and year-end audits and the filing of its subsequent annual report on Form 10-K, tax 4 filings and matters related thereto. Such services shall be provided on the terms and conditions set forth in the Professional Services Agreement attached hereto as Exhibit A.The CEO must approve all consulting services to be provided by Employee in writing in advance of the performance of such services. H. SURVIVAL Except for the terms and conditions set forth above in Section E, the terms and conditions of this Agreement, including without limitation the terms and conditions set forth above in Section F regarding Confidentiality, Non-Competition and Non-Solicitation, will remain in effect after the end of the Term. I. ASSIGNABILITY Except by will or by the laws of descent and distribution, neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Employee or by the Employee's beneficiaries or legal representatives. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal personal representative. J. GOVERNING LAW This agreement shall be construed and governed by the laws of the State of Maryland without regard to its choice of law provisions. K. SEVERABILITY The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. L. ENTIRE AGREEMENT This Agreement constitutes the entire Agreement between the Corporation and the Employee and supersedes all prior agreements, offers, terms or conditions regarding Employee's employment, except for the Confidentiality, Trade Secrets and Noncompetition Agreement, which will survive. M. WAIVER Employee acknowledges, absent this Agreement, Employee has no right or entitlement to any severance payment and benefit, or to a separate allowance in any particular amount. For the consideration set forth in Section D (ii) hereof, the adequacy of which is hereby acknowledged, except for breach of this Agreement by the Corporation, the Employee hereby remises, releases and forever discharges and quitclaims onto the Corporation and its officers, directors, shareholders, employees, agents and representatives of and from any and all debts, actions, causes of action, suits, accounts, covenants, contracts, agreements, damages, and 5 any and all claims, demands and liabilities whatsoever of every name and nature, both in Law and in Equity (collectively referred to therein as "Claims"), which the Employee now has or ever had from the beginning of time. N. NO CONFLICTS OF INTEREST By signing this Agreement, the Employee represents that he is not subject to any restrictions, particularly, but without limitation, in connection with any previous employment, which prevents the Employee from entering into and performing his obligations under this Agreement or which materially and adversely affect (or may in the future, so far as the Employee can reasonably foresee, materially and adversely affect), the Employee's right to participate in the affairs of the Corporation. O. PROOF OF CITIZENSHIP AND ABILITY TO WORK This Agreement is contingent on the Employee providing the Corporation, if not previously provided, with proof of U.S. citizenship or alien work permission, as required by federal law. BioReliance Corporation By: ___________________________ Name: Capers W. McDonald Title: President and CEO _______________________________ Michael R.N. Thomas 6 EXHIBIT A PROFESSIONAL SERVICES AGREEMENT BETWEEN BIORELIANCE CORPORATION AND MICHAEL R.N. THOMAS THIS AGREEMENT is entered into as of date below written by and between BioReliance Corporation ("BioReliance"), a Delaware Corporation, with principal offices located at 9900 Blackwell Rd, Rockville, Maryland 20850, and Michael R.N. Thomas ("Consultant") residing at 12566 Lime Kiln Road, Fulton, MD 20759. WITNESSETH WHEREAS, BioReliance desires to have Consultant perform professional services to assist BioReliance in facilitating the transition of the duties of Chief Financial Officer, and WHEREAS, Consultant has served as the Chief Financial Officer for BioReliance and its subsidiaries and affiliates (the "Corporation") NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, BioReliance and Consultant agree as follows: 1. SCOPE OF WORK Subject to the terms and conditions hereinafter provided, Consultant may provide professional services related to transition of the duties of Chief Financial Officer and the filing of certain reports with the Securities and Exchange Commission and the Internal Revenue Service in connection with the close of the Corporation's fiscal year. Services shall include, but not be limited to the following: reasonable assistance upon prior notice at reasonable times and locations as may be mutually agreed by BioReliance and Consultant in connection with the close of the Corporation's books for year end 1998; the filing of the Corporation's 10-K, annual report and proxy materials for 1998; the filing of the Company's various tax retentions; and the audit of the Corporation's books for 1998. 2. TERM AND TERMINATION This Agreement shall have a term commencing on October 1, 1998, or such an earlier or later date as the parties agree, and terminating April 15, 1999. 3. CONSIDERATION AND PAYMENT TERMS As consideration for services provided by Consultant, BioReliance shall pay the consultant the hourly rate of $200 per hour. 7 4. DIRECTION Consultant shall report to and receive direction from Capers W. McDonald, President and Chief Executive Officer ("CEO"), or other individuals designated by BioReliance from time to time. All services to be provided under this Agreement require the prior written approval of the CEO. The Corporation will not be obligated to pay any fees pursuant to this Agreement for services which have not been approved in writing by the CEO prior to the performance of such services. 5. TRAVEL BioReliance agrees to reimburse Consultant for any non-local travel and living expenses incurred in the performance of this Agreement if such non-local travel is approved in advance by the CEO. Reimbursement will be in accordance with BioReliance's travel policy. 6. PROPRIETARY INFORMATION In providing services to BioReliance, Consultant may have knowledge of its affairs, trade secrets, potential customers and other proprietary information. Consultant shall treat all such information as proprietary and confidential to BioReliance in accordance with the Confidentiality Agreements dated July 8, 1998 and July 28, 1998 between BioReliance and Consultant. 7. WARRANTY Consultant warrants that the professional services provided under this Agreement will be performed competently and in accordance with the standard of care usually and reasonably expected in performance of such services. 8. INDEPENDENT PARTIES Nothing in this Agreement shall be construed as to create any relationship between BioReliance and Consultant other than that of independent contracting parties. Neither party shall have any right, power or authority to assume, create or incur any expense, liability or obligation, express or implied, on behalf of the other. 9. WAIVER No waiver by either party of any breach of any provision hereof shall constitute a waiver of any other breech of that or any other provision hereof. 8 10. SEVERABILITY If any part, term or provision of this Agreement is determined to be invalid or unenforceable, the remainder of this Agreement shall not be affected, and this Agreement shall otherwise remain in full force and effect. 11. ARBITRATION Any claim or controversy relating to or rising out of the Agreement shall be resolved exclusively by arbitration, in accordance with the rules then obtaining of the American Arbitration Association. 12. ENTIRE AGREEMENT This Agreement sets forth the entire agreement and understanding between BioReliance and Consultant relating to the Services to be performed hereunder. This Agreement supersedes all other communications between BioReliance and Consultant relating to the subject matter hereof. Any amendments to or modifications of this Agreement shall be effective only if reduced to writing and executed by both BioReliance and Consultant. 13. HEADINGS The Subject matter headings used in this Agreement are solely for convenience and are not to be taken as modifying, clarifying, describing or limiting any provisions hereof. IN WITNESS THEREOF, BioReliance and Consultant have caused this Agreement to be executed by their duly authorized representative as of the dates set forth above. BioReliance Corporation By __________________ By ___________________ Name Capers W. McDonald Name Michael R.N. Thomas __________________ ___________________ Title President and CEO __________________ ___________________ Date October 1, 1998 Date October 1, 1998 __________________ ___________________ EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the 3rd quarter form 10-Q unaudited consolidated balance sheets and unaudited consolidated statements of income and is qualified in its entirety by reference to such form 10-Q filing. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 11,049 17,877 21,757 0 0 52,497 24,206 0 78,194 12,973 0 0 0 78 53,851 78,194 37,625 37,625 21,842 21,842 10,676 0 381 5,673 2,222 3,451 0 0 0 3,451 .44 .42
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