ITEM 1. BUSINESS
INTRODUCTION
Huntingdon Life Sciences Group plc (the "Company" or "Huntingdon") is one of the world's leading Contract Research Organisations (CROs). The Company is the second largest independent world-wide provider of pre-clinical and non-clinical biological safety evaluation research services to most of the world's leading pharmaceutical, biotechnology, agrochemical and industrial chemical companies. 65% of the Company's orders are in support of early stage development of promising new pharmaceutical and biotech compounds. The purpose of this safety evaluation is to identify risks to humans, animals or the environment, resulting from the use or manufacture of a wide range of chemicals that are essential components of these industries products. Huntingdon's services are designed to meet the regulatory requirements of governments around the world.
The Company is based in the United Kingdom, with facilities in Huntingdon (Cambridgeshire) and Eye (Suffolk), England, and the Princeton Research Centre in New Jersey (USA).
GENERAL DEVELOPMENT OF THE BUSINESS
Huntingdon was originally incorporated in the UK in 1951 as a limited liability company to provide contract research services to the UK pharmaceutical, agrochemical and food industries. In 1964 it was acquired by the US company, Becton Dickinson. Over the next 20 years it successfully established itself as a leading CRO with business across a number of sectors and with a number of leading pharmaceutical and agrochemical companies. In April 1983, the Company was re-registered as a public limited company with the name "Huntingdon Research Centre plc". In June 1985, the Company's name was changed from Huntingdon Research Centre plc to Huntingdon International Holdings plc.
In 1988 the Company was floated on the London Stock Exchange and in early 1989 it obtained a listing for its ADR's on the New York Stock Exchange. (The ADR's currently trade on the NASD OTC Bulletin Board.)
In order to diversify its activities, Huntingdon entered the engineering and environmental services business in the 1980s through acquisition, primarily in the US. Through HIH USA Inc and its subsidiary Huntingdon Engineering and Environmental Services Inc. the Company provided construction-related engineering services, environmental services, consultancy and testing in the USA. This business grew so that by 1990 it was contributing 70% of total Company revenues of (pound)104 million, but only half the operating profit.
In 1991 the Company began operating a subsidiary, Leicester Clinical Research Centre Ltd. to conduct Phase I clinical trials, so providing a wide range of biological and psychological assessment procedures involving healthy human volunteers. A further diversification was the acquisition in 1991 of Travers Morgan Limited. After acquisition the Company began to provide engineering consultancy services outside the USA in the areas of civil and structural engineering, consultation on the planning and development of transportation systems, project management and environmental consultancy. This investment proved to be unsuccessful and, in December 1994, the High Court of Justice, Chancery Division, Companies Court granted Travers Morgan an administrative order under the UK Insolvency Act 1986. Joint administrators were appointed to Travers Morgan, as a result of which control passed from the Company, the trading of Travers Morgan was isolated from the Company and the Group wrote off its investment, providing (pound)11.6 million against the amounts receivable from Travers Morgan Limited.
In 1995, the engineering and environmental services business, which by then was operating at a loss, was also sold and the Company refocused on its life sciences business. That year it acquired the toxicology business of APBI, which comprised laboratories near Newcastle and Eye, Suffolk in the UK and Princeton, USA for a total consideration of $43 million, including an agreed value of $4.5 million for the sale of the Leicester Clinical Research Unit. Immediately upon acquisition the toxicology business of APBI in the UK was merged with that of Huntingdon Research Centre Ltd and the name of that company changed to Huntingdon Life Sciences Ltd. The US business acquired operates as Huntingdon Life Sciences Inc.
The Company's name was subsequently changed in April 1997 to Huntingdon Life Sciences Group plc. At this time the Company purchased a small specialist research centre in Wilmslow, Cheshire which included a marmoset breeding colony. Huntingdon subsequently decided to close that facility, with all the work shifting to its Huntingdon and Eye facilities. The site was sold on September 1, 1999.
In the first half of 1997 allegations were made relating to animal care and Good Laboratory Practice (GLP) against the Company's operating subsidiaries in the UK and US. Those allegations and the UK Government's subsequent statement in the House of Commons in July 1997 about its investigation into those allegations caused the cancellation of booked orders and a decline in new orders. Significant trading losses and cash outflows resulted during the period from mid 1997 onwards. For further details of these allegations see Government Supervision of Regulations - 1997 Allegations relating to animal care and GLP, below.
During 1998 poor trading results put a heavy strain on cash resources, utilising Huntingdon's available facilities. Given the medium to long term element of many of Huntingdon's activities and the reluctance of clients to place new work until Huntingdon's finances were stabilised, Huntingdon required a substantial injection of finance to both initially restore confidence and then to fund operations during the period until Huntingdon returned to profitability.
On September 2, 1998 a group of new investors subscribed (pound)15 million for 120 million ordinary shares whilst existing shareholders and institutional investors took up a further 57 million shares, contributing (pound)7.1 million. After expenses of (pound)1.7 million, the issue of shares raised (pound)20.4 million. On the same date Huntingdon's bankers agreed to confirm and fix Huntingdon's facilities at (pound)24.5 million until August 31, 2000 and this amount was fully drawn down.
On September 1, 1999 the sale of the Wilmslow Research Centre was completed. Parts of the proceeds from this sale ((pound)1.9 million) were used to repay bank debt and the facility was reduced accordingly. On September 1, 2000 the remaining facility of (pound)22,586,000 was renewed, through a series of extensions, up until January 19, 2001. The debt was refinanced on January 20, 2001 by means of a loan from HLSF LLC, a subsidiary company of the Stephens Group Inc., a related party, and the two other banks who were part of the original loan syndicate. It is now repayable on June 30, 2006.
Since the involvement of the new investor group, a new management team has been appointed, led by Brian Cass, which the Company believes has begun to successfully address many of the Company's past difficulties. Relationships with customers have been restored, a substantial cost and headcount reduction program has been effected and sales have started to grow again at an encouraging rate.
As Huntingdon continues to build on these fundamentals, the Company has the following strategy and goals:
o To be appreciated as the listening, understanding and reliable partner in creative compound development and safety assessment; to be the first choice for the industries we serve. o To provide our employees with the opportunity for individual development in a caring, rewarding and safe working environment. o To be recognised positively in the local communities in which we operate. o To grow to significant profitability and improved return on investment for our shareholders.
In November 1999 a new so called "animal rights" group was formed in the UK with Huntingdon as its target. During 2000 the campaigners focused on the Company, it's staff and directors, but also many other stakeholders in the business, including shareholders, financial institutions, other suppliers and customers.
DESCRIPTION OF BUSINESS
Huntingdon provides pre-clinical and non-clinical biological safety evaluation research services to most of the world's leading pharmaceutical, biotechnology, agrochemical and industrial chemical companies. The purpose of this safety evaluation is to identify risks to humans, animals or the environment resulting from the use or manufacture of a wide range of chemicals which are essential components of our clients' products. The Company's services are designed to meet the regulatory requirements of governments around the world.
The Company's aim is to develop its business within these markets, through a mixture of organic growth and a small number of strategic acquisitions. In doing so the Company will benefit from strong drug pipelines in the pharmaceutical industry, the growing amount of legislation concerning the safety and environmental impact of agrochemicals and industrial chemicals and a growing trend towards outsourcing as clients focus more internal resources on research in the search for new compounds.
Huntingdon's sales and marketing functions are specifically focused on two main groups, pharmaceutical and non-pharmaceutical customers. As much of the research activity conducted for these two customer groups is similar, the company believes it is appropriate, operationally, to view this as one business.
Pharmaceuticals and Biopharmaceuticals
The Pharmaceutical research and development pathway is shown below:
Huntingdon performs non-clinical testing in support of the drug development process. This primarily consists of pre-clinical outsourcing from the pharmaceutical industry, as well as further longer term non-clinical safety testing that is performed in parallel to human clinical testing (such as carcinogenicity studies and safety studies relating to reproductive implications). Approximately two thirds of the Company's orders are derived from this source. Huntingdon views its non-clinical market as extending to "proof of concept" in man (Phase 2A) and to analytical chemistry support for clinical trials. During 1999 the Company entered collaborative relationships with a number of Phase I clinical trial units and offers centralised clinical laboratory services in support of clinical trials.
The Company has also actively pursued opportunities to extend its range of capabilities supporting late stage drug discovery, focussed around invitro and in vivo models for lead candidate drug characterisation and optimisation. Its growing range of biological services is intended to position the Company to take advantage of the knowledge arising from the Human Genome Project as the identification of new molecular disease targets is expected to lead to the development of increased numbers of potential therapies which will require evaluation.
The outsourced market for the large clinical trials (Phase 3 and beyond) is relevant to Huntingdon, but the margins are less attractive and it is subject to a greater degree of volatility driven by the size of individual contracts. While the Company does not preclude entering this market, it is a very different business and one in which a number of major companies are already firmly established.
o Market growth
It is estimated that the pharmaceutical industry annual research and development (R & D) spend is between $35 billion and $40 billion and is growing at around 10% per annum. Around $20 billion is focused on development and, of this, 15% is expenditure in Huntingdon's core business area of pre-clinical development. Huntingdon believes that approximately 30% of this is outsourced which means that the Company is today competing in approximately a $1 billion market.
The market for these services is growing as a result of strong new drug pipelines:
The Company estimates that new drug discovery is growing at 8 - 10% per annum, fueled by new technologies and strong profits. New techniques like combinatorial chemistry and high throughput screening are dramatically increasing the efficiency and effectiveness of the discovery process for new molecules.
The need to replace earnings from drugs coming off patent is driving increases in the number of drugs being put into development. It is estimated there has been a 50% increase in the numbers of projects in the R & D pipeline versus five years ago.
There is also a growing trend towards the outsourcing of development work as clients focus more internal resource on research in the search for new lead compounds.
The biotechnology industry has become a significant source of business for companies like Huntingdon. The number of drugs produced by the biotechnology industry which require US Food and Drug Administration (FDA) approval has grown substantially over the past decade. Many biotechnology companies have strategically chosen to outsource major areas of R & D and utilise contract research organisations to perform these services.
In addition the process of consolidation within the pharmaceutical industry is also accelerating the move towards outsourcing. While there is a short term negative impact from mergers with development pipelines being rationalised and a focus on integration rather than development, longer term resources are increasingly invested in in-house facilities for discovery and lead optimisation rather than development and regulatory safety evaluation. The outsourcing of development and safety evaluation is Huntingdon's core business.
Therefore the overall market for outsourced services is estimated to be growing at an annual rate of around 8 to 10%.
Non-Pharmaceuticals
Huntingdon has historically generated one third to one half of its orders from safety and efficacy testing of compounds for the agrochemical, industrial chemical, veterinary and food industries. The work involved bears many similarities and often uses many of the same facilities, equipment, and scientific disciplines to those employed in pre-clinical testing of pharmaceutical compounds.
Huntingdon's business in these areas is again driven by governmental regulatory requirements. The Company's services address safety concerns surrounding a diverse range of products, spanning such areas as agricultural herbicides and pesticides, medical devices, veterinary medicines, and chemicals used in the manufacture of pharmaceutical intermediates, manufactured foodstuffs, and household products. Huntingdon believes it is a clear market leader in programs designed to assess the safety, environmental impact and efficacy of agricultural chemicals as well as in programs to take new industrial chemicals to market.
o Market Growth
It is estimated that the world-wide market for outsourced contract research from these industries is around $300 million. The growth in the non-pharmaceutical business is driven both by the introduction of novel compounds and increasingly by legislation concerning the safety and environmental impact of existing products.
The Company believes that many market segments included in this broad area of business have the potential for substantial growth in coming years, as a result of:
Recent introduction of new testing requirements for `high production volume' (HPV) chemical products in the US, and similar programs in Europe and Japan.
Increasing scrutiny of any compound which is used in the manufacture of products to which members of the public, especially children, are exposed, either infrequently or on a day-to-day basis (e.g. phthalates used in the plastic of children's toys).
More stringent regulations affecting compounds which have the potential to adversely effect the environment, e.g. biocides and endocrine disrupters.
Growth in concerns over food safety, e.g. additives and genetically modified foods, and the introduction of `nutraceuticals'.
The requirement to register or re-register pesticides on lists 2 and 3 to meet the European Directive 91/414/EEC. Huntingdon has unrivalled experience with the chemicals which were included on list 1 of the Directive.
Safety testing in these industries is also more likely to be outsourced as, unlike the pharmaceutical industry, fewer companies have comprehensive internal testing facilities. While overall R & D is growing at approximately 5%, we believe that this coupled with increased outsourcing could provide market growth of up to 10% per annum over the next five years.
COMPETITION
Competition in both the pharmaceutical and non pharmaceutical market segments ranges from the in-house research and development divisions of large pharmaceutical, agrochemical and industrial chemical companies who perform their own safety assessments, to "full service" providers - contract research organisations like Huntingdon who provide a full range of services to the industries - and "niche" suppliers focussing on specific services or industries.
Huntingdon is the second largest independent world-wide provider of pre/non-clinical safety testing services, behind Covance Inc. which has estimated sales for 2000 of approximately $290 million in this area.
ORDERS AND BACKLOG
1999 saw a 17% growth in orders with the return of client confidence after the refinancing in September 1998. This growth continued in the first three quarters of 2000 with orders 12% above 1999 levels. The strongest growth was in the non pharmaceutical business. After a relatively weak year in 1999 orders grew by 53% in the period up to the end of September as the impact of new legislation fed through into orders. The Company's pharmaceutical business was not as strong, declining 10% in the same period. A lack of toxicology work from continental Europe, due to weak drug pipelines and the strength of Sterling against the Euro, and the continuing uncertainties of the Japanese pharmaceutical market were the principal contributing factors to this decline.
As the Company moved into the last quarter of the year the growth in the non pharmaceutical business slowed. Given the tremendous growth in the first three quarters this was to be expected, but the overall growth rate for 2000 was still 35% and the business is forecast to grow further, albeit at lower levels, in 2001. The fourth quarter also saw some recovery in the Company's pharmaceutical business from the low levels seen in the third quarter. However, this wasn't sufficient to offset the decline in the first three quarters and orders for the year overall were 11% down on 1999. Total orders for the final quarter were 23% down on the third quarter and 16% down on 1999. Nevertheless the Company's overall growth in orders for the year over 1999 was still 5%.
Given the uncertainties surrounding the refinancing of the Company's bank debt and the threats by animal rights campaigners directed at companies and their employees in our client industries, the weakness in orders seen in the latter part of the year is expected to continue through the early part of 2001. It is, however, encouraging to see the more recent, very public support for the Company and the work it undertakes both from the UK Government and Pharmaceutical, Biotechnology and Chemical industries. The quality of work undertaken by the Company is not at question. With the refinancing complete and a greater realisation that the issue of animal testing is one that affects all companies in the industry, a resumption in order growth is expected during 2001.
The geographical split of orders is as follows:
% of Orders from each Geographic area
2000 1999 Europe 35 39 Far East 21 23 United States 44 38 -------- --------- Total 100 100 -------- ---------
After a 30% increase in the Company's US business in 1999, 2000 saw a further 13% increase in orders. Business placed at the Princeton laboratory was the driver behind this with growth at over 20%. US business referred to the UK laboratories was flat. Japanese and European orders were both down on the previous year for the reasons noted above. The weakness in Europe though did not extend to UK derived business which showed a gratifying 10% growth on the previous year.
GOVERNMENT SUPERVISION OF OPERATIONS
Supervisory regimes
Since the services provided by Huntingdon are used to support pharmaceutical, biotechnological, chemical or agrochemical product approval applications, its laboratories are subject to both formal and informal inspections by appropriate regulatory and supervisory authorities, as well as by representatives from client companies. Huntingdon is regularly inspected by US, Japan and UK governmental agencies because of the number and complexities of the studies it undertakes. In 1979, the US Food and Drug Administration (FDA) promulgated the GLP regulations, defining the standards under which biological safety evaluations are to be conducted. Other governmental agencies such as the Environmental Protection Agency (EPA), the Japanese Ministry Of Health and Welfare, the Japanese Ministry of Agriculture, Forestry and Fisheries, and the UK Department of Health, have introduced compliance monitoring programs with similar GLP standards. Huntingdon has had over 30 such inspection visits and audits since 1985.
Huntingdon's operations in the UK are regulated by the Animals (Scientific Procedures) Act 1986. This legislation, administered by the UK Home Office, provides for the control of scientific procedures carried out on living vertebrate animals and regulation of the animals' environment. Personal licences (Huntingdon has approximately 300 licensees) are issued by the UK Home Office to personnel who are competent to perform regulated procedures and each program of work must be authorised in advance by a Project Licensee. Premises where procedures are carried out must also be formally designated by the UK Home Office. Consultations and inspections are regularly undertaken in order to ensure continued compliance with regulatory and legislative requirements. Typically, Huntingdon has 18 such inspections annually.
Huntingdon's laboratory in the USA is subject to the United States Department of Agriculture (USDA) Animal Welfare Regulations (Title 9, Code of Federal Regulations, Subchapter A). The laboratory is regularly inspected by USDA officials for compliance with these regulations. Compliance is assured through an Institutional Animal Care and Use Committee, comprising staff from a broad range of disciplines within Huntingdon and including external representation. Furthermore, laboratories in the USA are expected by the USDA to be certified by an independent and internationally recognised organisation, the Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC).
At each of its research centres, Huntingdon ensures the availability of suitably experienced and qualified veterinary staff backed by a 24 hour call out system.
1997 Allegations relating to animal care and GLP
In the Spring of 1997 allegations of malpractice related to animal care and GLP were made at both Huntingdon's UK and US operations. The UK allegations were received by the regulatory authorities following the television broadcast of an animal rights "undercover" film showing breaches of animal care procedures by employees of the Company. Those in the US were submitted to the USDA and based on reports received by PeTA, an animal rights activist group.
In July 1997 the UK Home Office Inspectors confirmed to their satisfaction that whilst there was an incident of maltreatment, it was isolated. However, a statement made by the Government caused many clients to conclude that there were separate further allegations. The Home Office then established a number of conditions, which Huntingdon had to comply with by the end of November. On September 29, 1997, the Home Office stated that the Company had demonstrated full compliance with the conditions and that they were fully satisfied.
In the US the USDA undertook two inspections during the summer of 1997 and one in February 1998, these followed their annual inspection in April and an intensive FDA inspection in February - both of which were satisfactory. In December 1997 Huntingdon announced the receipt of a settlement agreement as a Court Order in which PeTA agreed to give up all of its campaign against Huntingdon. The AAALAC inspected the site and unanimously endorsed its continued accreditation. In 1998 the USDA investigation was concluded and did not include any concessions of violations by Huntingdon. In December 1998 the USDA conducted its annual routine inspection of the laboratories and concluded that they were in full compliance with all aspects of the Department's Regulations.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
Whilst Huntingdon is obliged in the conduct of its business to comply with certain environmental regulations, compliance with such regulations does not impact significantly on its earnings or competitive position. Management believes that its operations are currently in material compliance with all applicable environmental regulations.
OTHER INFORMATION PERTAINING TO THE COMPANY
Human Resources
Huntingdon's most important resource is its people, they have created the Company's knowledge base, its expertise and its excellent scientific reputation. Scientists from the Company are represented at the highest levels in several UK and international committees on safety and toxicity testing. Several staff members are considered leaders in their respective fields, they frequently lecture at scientific seminars and regularly publish articles in scientific journals. This recognition has resulted in frequent assignments from clients for consultation services. Some of Huntingdon's staff serve by invitation or election on a number of scientific and industrial advisory panels and groups of certain organisations and agencies such as the FDA, the EPA, the UK Department of Health, and the World Health Organisation.
To ensure that this experience and expertise is transmitted throughout the organisation, the Company maintains training programs. For example, Huntingdon's Introductory and Advanced Graduate Training Programs train graduate staff in all phases of toxicology. Also, in conjunction with the Institute of Animal Technology, Huntingdon maintains what it believes to be one of the largest animal technician training programs in the world. Huntingdon employs approximately 300 licensed personnel.
The number of employees in the Group at December 31, 2000 and 1999 were as follows:
Employees at December 31 2000 1999
UK ............................ 1,093 1,090 USA............................ 212 199 Japan.......................... 10 10 ------------ ---------- 1,315 1,299 ------------ ----------
Animal Rights Activism
In parallel with an increase in so called "animal rights" activity internationally, during November 1999 a new campaign group was formed in the UK with Huntingdon as its target. The group's broad aim is to end all animal research; targeting Huntingdon is the next step on this path. During 2000 this campaign intensified with any stakeholder in the Company becoming a potential target; this included staff, directors, institutional and personal shareholders, customers, financial institutions and other suppliers. The protests took the form of direct action; incorporating demonstrations outside the Company's facilities and in local towns; distribution of propaganda; abuse, intimidation and threats directed at many of the stakeholders listed above. Many of these illegal activities were carried out by extreme "animal rights" activists. The worst acts of violence have been targeted at members of staff and directors of the Company. These have taken the form of night-time arson attacks on employees' cars outside their homes and physical attacks on senior managers as they returned home from work.
To counter this "animal rights" campaign Huntingdon has adopted a strategy of openness and direct co-operation with the media and the local communities. The Company has taken every opportunity to promote the value of the work it does in helping its customers bring to market safe and effective products. Members of the media, schools, local groups and national bodies have all visited the Company, toured the animal facilities and laboratories, and talked with staff. These visitors have been consistently impressed with Huntingdon's ethics, standards of animal welfare and the professionalism of its staff. As a consequence of the Company's high profile public relations activities and the irrationality of the "animal rights" messages, the national media coverage has become increasingly positive throughout the year.
The Company has successfully lobbied politicians and the British parliament, with great support from industry trade bodies such as the Association of the British Pharmaceutical Industry, Bioindustry Association, Chemical Industry Association and Research Defence Society. As a result the British Government has made very positive statements in support of Huntingdon and has been extremely critical of the illegal acts of some "animal rights" supporters. The Government is currently reviewing legislation to offer more protection to those targeted and are encouraging the police and courts to ensure the law is enforced.
Management and Labour Relations
Huntingdon's labour force is non-union and there has never been any disruption of the business through strikes or other employee action. Huntingdon regularly reviews its pay and benefits packages and believes that its labour relations, policies and practices and management structure are appropriate to support its competitive position.
Research and Development
In addition to experience gained through research activities performed for clients, Huntingdon engages in research in order to respond to the changing needs of clients and to maintain competitiveness within the industries in which it operates. Most of the research undertaken, however, is an inherent part of the research carried out on behalf of clients in completing studies and as such it is not identified separately.
Know-how and Patents
Huntingdon believes that its proprietary know-how plays an important role in the success of its business. Where Huntingdon considers it appropriate, steps are taken to protect its know-how through confidentiality agreements and protection through registration of title or use. However Huntingdon has no patents, trade-marks, licenses, franchises or concessions which are material and upon which any of the services offered is dependent.
Quality Assurance
Huntingdon maintains extensive quality assurance programs, designed to ensure that all testing programs meet client requirements, as well as all relevant codes, standards and regulations. Based on a Master Schedule, periodic inspections are conducted as testing programs are performed to assure adherence to project specifications or protocols and final reports are extensively inspected to ensure consistency with data collected. Huntingdon's quality assurance programs are controlled by a formally constituted Quality Board, a Quality Monitoring Committee and Quality Groups.
Financial information about geographic areas
See Financial Statements
Available Information
Huntingdon files annual, quarterly and current reports and other information with the SEC (including an Annual Report on Form 10-K for the Fiscal Year ended December 31, 1999). You may read and copy any of these reports, statements or other information at the SEC's Internet site (http:/www.sec.gov) or at the SEC's public reference rooms (450 Fifth Street, N.W., Washington, DC 20549). You can request copies of those documents, upon payment of a duplicating fee, by writing to the SEC.
ITEM 2.
ITEM 2. PROPERTIES
Huntingdon's head office is situated within the research centre at Huntingdon.
Huntingdon believes that its facilities, described below, are adequate for its operations and that suitable additional space will be available when needed.
The following table shows the location of the facilities of Huntingdon, approximate size and the principal activities conducted at such facilities each of which is owned by the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Huntingdon is party to certain legal actions arising out of the normal course of its business. In management's opinion, none of these actions will have a material effect on Huntingdon's operations or financial condition. No form of proceedings has been brought, instigated or is known to be contemplated against Huntingdon by any governmental agency.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Ordinary Shares are listed on the London Stock Exchange Ltd under the Stock Exchange Automated Quotation symbol "HTD." American Depositary Shares "ADS"s, each of which evidences twenty five Ordinary Shares and which in turn are evidenced by American Depositary Receipts "ADR"s, are listed on the National Association of Securities Dealers' Over the Counter Bulletin Board (NASDOTC) under the symbol "HTDLY". Prior to December 27, 2000 these were listed on the New York Stock Exchange, Inc ("NYSE") under the symbol "HTD". They were suspended from the NYSE because they no longer met the NYSE's continuing listing criteria, in particular the market capitalisation of the Company was below $50 million.
On July 10, 2000 the Company changed its ADS ratio from one ADS representing five Ordinary Shares to one ADS representing twenty five Ordinary Shares. The ratio change was implemented to ensure compliance with the New York Stock Exchange's listing requirement that ADS's trade at a minimum price of $1.00 per share.
The Bank of New York is the depositary for the Ordinary Shares represented by ADSs. As at March 2, 2001, there were 73 recorded holders of ADSs. It is believed that, at such date, 83,862,740 of the Company's total issued share capital of 291,184,962 Ordinary Shares were represented by 3,354,510 ADSs. The remaining Ordinary Shares were, as at such date, held in the form of Ordinary Shares for which there were 2,623 recorded holders.
The high and low quarterly sales prices (in pounds sterling) of the Company's Ordinary Shares on the London Stock Exchange from January 1, 1999 to December 31, 2000 were as follows:
HIGH SALES LOW SALES QUARTER ENDED PRICE PRICE - ------------- -------------- ------------ (pound) (pound)
March 31, 1999.................................. 0.215 0.11 June 30, 1999................................... 0.195 0.1875 September 30, 1999.............................. 0.1925 0.175 December 31, 1999............................... 0.175 0.105 March 31, 2000.................................. 0.2775 0.08 June 30, 2000................................... 0.1475 0.0775 September 30, 2000.............................. 0.1125 0.06 December 31, 2000............................... 0.06 0.0225
The high and low quarterly sales prices (in US dollars) of the Company's ADSs, as evidenced by ADRs, on the NASDOTC and previously the NYSE from January 1, 1999 to December 31, 2000 were as follows:
HIGH SALES LOW SALES QUARTER ENDED PRICE PRICE - ------------- ------------- ------------ $ $ March 31, 1999................................. 10.95 5.65 June 30, 1999.................................. 9.4 6.25 September 30, 1999............................. 8.15 4.4 December 31, 1999.............................. 6.9 4.05 March 31, 2000................................. 14.7 2.5 June 30, 2000.................................. 7.5 3.15 September 30, 2000............................. 4.31 1.69 December 31, 2000.............................. 1.94 0.19
The prices for periods prior to July 10, 2000 have been adjusted for the ratio change of ordinary shares to ADS's. On March 2, 2001, the mid-market closing price of Huntingdon's Ordinary Shares was (pound)0.065 and was $2.25 per ADR.
The Board does not expect to declare or pay cash dividends on Huntingdon's Ordinary Shares in the near future. The Board of Directors will determine the extent to which legally available funds will be used to pay dividends. In making decisions regarding dividends, the Board will exercise its business judgment and will take into account such matters as results of operations and financial condition and any then-existing or proposed commitments for the use of available funds.
See Item 7 for discussion of restrictions impacting the export or import of capital or that affect the remittance of dividends or other payments to non resident holders of the Company's equity.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated statement of operations and operating data for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 and the consolidated balance sheet data as of December 31, 1996 through 2000 were derived from Huntingdon's audited consolidated financial statements and the related notes included in this Annual Report on Form 10-K beginning on page 22 and previously audited financial statements.
The Company reports primarily in UK GAAP as it is incorporated in the UK and the majority of its operations and assets are based in the UK. The following financial information has been prepared under the US generally accepted accounting principles, which is the basis on which the financial statements are prepared for this Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
You should read the following together with the consolidated financial statements and the related notes included in this Annual Report on Form 10-K beginning on page 22. Certain statements in this section are "forward-looking statements." You should read the information under "Forward-Looking Statements" later in this section for special information about our presentation of forward-looking information.
Huntingdon is a leading CRO which provides an extensive range of pre-clinical and non-clinical services to the pharmaceutical, agrochemical and industrial chemical industries. The Company provides those services under contracts which may range from one day to three years. Income from these contracts is recognised on the basis of work done and variable costs are matched with such income. Contracts are generally terminable upon notice by the client with the client being responsible for reimbursing Huntingdon for the value of work done to the date of cancellation plus the value of work required to wind down a study on an orderly basis.
The Company's business is characterised by high fixed costs, in particular staff and facility related costs. Such a high proportion creates favourable conditions for the Company as excess capacity is utilised but, during periods of declining revenue, careful planning is required to reduce costs without impairing revenue generating activities.
RESULTS OF OPERATIONS
12 months ended December 31, 2000 compared with the 12 months ended December 31, 1999.
Revenues in the twelve months ended December 31, 2000 were (pound)63.3 million, an increase of 9% on revenues of (pound)58.2 million for the twelve months ended December 31, 1999. The recovery in the volume and value of orders placed following the refinancing in September 1998 was maintained in the first three quarters of 2000 and was behind the 11% growth in revenues in the first three quarters of the year. However the decline in orders in the final quarter led to a fall off in revenues in the final quarter.
Cost of sales in the twelve months ended December 31, 2000 were (pound)54.4 million, an increase of 6% on cost of sales of (pound)51.5 million for the twelve months ended December 31, 1999. Increases in the US were in line with the growth in revenues. However, in the UK cost increases were higher than those reflecting revenue growth alone. Partly this was due to a change in the mix of business which required higher animal and sub contract costs. However the main increase was in labour costs reflecting actions taken to adjust salaries to allow retention and recruitment of key employees. This program started in 1999 and continued through 2000.
Selling and administrative expenses rose by 11% to (pound)10.0 million for the twelve months ended December 31, 2000 from (pound)9.0 million in the twelve months ended December 31, 1999. This growth was due to a build-up of the Company's sales force during the year and a higher proportion of commission based orders.
Other operating expenses in the twelve months ended December 31, 2000 comprised a write off of costs incurred in the refinancing of the Company's bank debt of (pound)22.6 million. The costs have been written off rather than carried forward and amortised over the period of the new loan agreement. The reason for this is that the costs were incurred on elements of the refinancing which did not proceed or on facility extensions prior to the year end. Other operating income in the twelve months ended December 31, 1999 comprised a profit of (pound)1.8 million on the sale of the Wilmslow Research Centre, offset by a loss of (pound)1.3 million to write off assets that are not Year 2000 compliant.
Net interest expense rose by 21% to (pound)4.7 million for the twelve months ended December 31, 2000 from (pound)3.9 million in the twelve months ended December 31, 1999. (pound)0.4 million of this increase was due to facility renewal fees, the balance due to lower cash balances and higher interest rates following the extension of the Company's loan facility after August 2000.
The unrealised loss on exchange of (pound)1.7 million arose on net liabilities denominated in US dollars (primarily the Convertible Capital Bonds of $50 million) with the weakening of sterling against the dollar. In the twelve months to December 31, 1999 sterling also weakened against the dollar resulting in a loss on exchange of (pound)0.7 million.
Taxation relief on losses for the twelve months ended December 31, 2000 was (pound)1.8 million representing relief at 20% compared to (pound)2.3 million representing relief at 36% for the twelve months ended December 31, 1999. A reconciliation between the UK Corporation tax rate and the effective rate of income tax relief on losses before income taxes for the twelve months ended December 31, 2000 and December 31, 1999 is shown below:
% of Income before Income Taxes 2000 1999 % % UK statutory rate 30 30 Effect of non taxation of profit on sale of fixed assets, goodwill & exceptional bad debt recovery - 6 Exchange loss not taxable (4) (5) Effect of reduction in UK tax rate on deferred tax - 5 Prior year adjustments (6) - -------- ---------- Effective tax rate 20 36 -------- ----------
The overall net loss for the twelve months ended December 31, 2000 was (pound)7.0 million compared to a loss of (pound)4.1 million in the twelve months ended December 31, 1999. The loss per share for the twelve months ended December 31, 2000 was (pound)0.024 compared to a loss per share of (pound)0.014 for the twelve months ended December 31, 1999 on shares in issue of 291,206,073 (1999, 291,010,294).
12 months ended December 31, 1999 compared with the 12 months ended December 31,
Revenues in the twelve months ended December 31, 1999 were (pound)58.2 million, an increase of 11% on revenues of (pound)52.6 million for the twelve months ended December 31, 1998. The recovery in the volume and value of orders placed following the refinancing in September 1998, noted in the final quarter of 1998, continued throughout 1999.
Cost of sales fell by 9% to (pound)51.5 million for the twelve months ended December 31, 1999 from (pound)56.7 million for the twelve months ended December 31, 1998 despite the increase in revenues. Huntingdon's operating capacity was reduced throughout 1998 through natural attrition and the closure of the Wilmslow Research Centre. In addition a cost reduction program was announced by new management in December 1998. This was designed to align operations with current sales levels and has produced targeted savings of (pound)6 million per year.
Selling and administrative expenses fell by 2% to (pound)9.0 million for the twelve months ended December 31, 1999 from (pound)9.2 million in the twelve months ended December 31, 1998, due to lower commission expenses.
Other operating income in the twelve months ended December 31, 1999 comprised a profit of (pound)1.8 million on the sale of the Wilmslow Research Centre, offset by a loss of (pound)1.3 million to write off assets that are not Year 2000 compliant. In the twelve months ended December 31, 1998 other operating expenses were (pound)14.9 million. These arose from:
(i) Closure of the Company's UK site at Wilmslow and write down of related assets. Redundancy and related costs amounted to (pound)0.4 million and asset write down (pound)2.9 million. (ii) The December 1998 cost reduction program designed to rationalise capabilities in the UK. The cost of this program was (pound)3.4 million including asset write offs of (pound)0.5 million. (iii) The write off of the unamortised balance of the goodwill arising on the acquisition of businesses in 1995 of (pound)7.3 million. Following the decline in revenues and the successful integration of the businesses, this no longer has any intrinsic value. (iv) A review of asset values in the UK resulting in accelerated depreciation of (pound)0.9 million.
Net interest expense fell by 29% to (pound)3.9 million for the twelve months ended December 31, 1999 from (pound)5.5 million in the twelve months ended December 31, 1998. Interest expense in 1998 included (pound)1.2 million relating to the review and renewal of borrowing facilities.
The unrealised loss on exchange of (pound)0.7 million arose on net liabilities denominated in US dollars (primarily the Convertible Capital Bonds of $50 million) with the weakening of sterling against the dollar. In the twelve months to December 31, 1998 sterling strengthened against the dollar resulting in a (pound)0.2 million gain on exchange.
Taxation relief on losses for the twelve months ended December 31, 1999 was (pound)2.3 million representing relief at 36% compared to (pound)9.0 million representing relief at 27% for the twelve months ended December 31, 1998. The difference in effective tax rates is due to a combination of exchange losses not taxable, changes in tax rates and the effect of non-taxation of other operating income/expense.
The overall net loss for the twelve months ended December 31, 1999 was (pound)4.1 million compared to a loss of (pound)24.4 million in the twelve months ended December 31, 1998. The 1999 loss per share was (pound)0.014, compared to a loss per share of (pound)0.142 last year on shares in issue of 291,010,294 (1998, 172,199,772).
LIQUIDITY & CAPITAL RESOURCES
During the twelve months ended December 31, 2000 funds absorbed were (pound)3.1 million, reducing cash in hand and on short term deposit from (pound)5.3 million at December 31, 1999 to (pound)2.2 million at December 31, 2000. The funds were utilised as follows:-
2000 1999 (pound)m (pound)m Operating loss (1) (1.1) (2.3) Depreciation 6.0 5.9 Cost reduction program - (2.1) Working capital movements (1.6) (1.6) Refinancing costs (1.2) - Interest (4.4) (3.8) Proceeds from sale of Wilmslow - 4.2 Capital expenditure (1.9) (3.0) Loan receipts/(payments) 1.1 (6.1) ------------ ----------- (3.1) 8.8 ------------ -----------
(1) Before other operating expense of (pound)(1.2) million in 2000 and other operating income of (pound)0.5 million in 1999
During 1998 poor trading results put a heavy strain on cash resources, utilising Huntingdon's available facilities. Given the medium to long term element of many of Huntingdon's activities and the reluctance of clients to place new work until Huntingdon's finances were stabilised, Huntingdon required a substantial injection of finance to both initially restore confidence and then to fund operations during the period until Huntingdon returned to profitability.
On September 2, 1998 a group of new investors subscribed (pound)15 million for 120 million ordinary shares whilst existing shareholders and institutional investors took up a further 57 million shares, contributing (pound)7.1 million. After expenses of (pound)1.7 million, the issue of shares raised (pound)20.4 million. On the same date Huntingdon's bankers agreed to confirm and fix Huntingdon's facilities at (pound)24.5 million until August 31, 2000 and this amount was fully drawn down.
On September 1, 1999 the sale of the Wilmslow Research Centre was completed. Part of the proceeds from this site ((pound)1.9 million) were used to repay bank debt and the facility was reduced accordingly. On September 1, 2000 the remaining facility of (pound)22,586,000 was renewed through a series of extensions, up until January 19, 2001. The debt was refinanced on January 20, 2001 by means of a loan from HLSF LLC, a subsidiary company of the Stephens Group Inc., a related party, and the two other banks who were part of the original loan syndicate. It is now repayable on June 30, 2006.
Interest was payable in quarterly breaks at "LIBOR" plus 1.75% per annum in respect of drawings up to (pound)19,500,000 and "LIBOR" plus 2% in respect of drawings over (pound)19,500,000 up until August 31, 2000. From that date interest was payable at "LIBOR" plus 3% per annum. The interest rate payable at December 31, 2000 was 8.95%. Following the refinancing on January 20, 2001 interest is again payable in quarterly breaks at "LIBOR" plus 1.75% in respect of drawings up to (pound)19,500,000 and "LIBOR" plus 2% in respect of drawings over (pound)19,500,000.
In addition a (pound)2,000,000 loan facility was made available to the Company on September 25, 2000 by a director, Mr Baker. (pound)1,000,000 of this was drawn down immediately. The loan is repayable on demand, although it is subordinate to the bank loan, it is unsecured and interest is payable quarterly at 10%.
The remainder of Huntingdon's long term financing is provided by Convertible Capital Bonds repayable in 2006. These Bonds, totalling $50 million, were issued in 1991 and remain outstanding as at December 31, 2000. They carry interest at 7.5% per annum, payable at six-monthly breaks in March and September. The conversion rate, which is based upon a fixed rate of exchange of (pound)1.00=US $1.6825 is 242.3 pence per Ordinary Share and is subject to adjustment in certain circumstances.
The balance of the consideration payable for the purchase of the Wilmslow Research Centre (acquired in 1997) which remained outstanding as at December 31, 1998 ((pound)3.3 million) was repaid during 1999.
EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
In the twelve months to December 31, 2000 following the weakening of sterling against the US dollar, net liabilities denominated in US dollars (primarily the Convertible Capital Bonds of $50 million) have increased in value on consolidation to sterling. This does not affect the cash flow of Huntingdon but has increased the reported loss before tax, accounting largely for the unrealised loss on exchange of (pound)1.7 million reported in these results. This compares with an exchange loss in the twelve months to December 31, 1999 of (pound)0.7 million.
Interest on the Convertible Capital Bonds is payable half-yearly (in March and September) in US dollars and the impact of fluctuations in the exchange rate between sterling and US dollars is offset by US dollar denominated revenues receivable by Huntingdon. Although reported results have been affected partially by conversion into sterling of the Bonds on consolidation and there may be an impact in the future, Management has decided not to hedge against this exposure. Such a hedge might impact upon Huntingdon's cash flow compared with movements on the Bonds which do not affect cash flow in the medium term. Huntingdon's current treasury policy does not include any hedging or derivative activity.
Huntingdon operates on a world-wide basis and generally invoices its clients in the currency of the country in which it operates. Thus, for the most part, exposure to exchange rate fluctuations is limited as sales are denominated in the same currency as costs. Trading exposures to currency fluctuations do occur as a result of certain sales contracts, performed in the UK for US clients, which are denominated in US dollars and contribute approximately 17% of total revenues, and exchange rate fluctuations have an impact on the relative price competitiveness of Huntingdon vis a vis competitors who trade in currencies other than sterling or dollars.
Exchange rates for translating sterling into US dollars were as follows:
YEAR ENDED AT DECEMBER 31 AVERAGE RATE (1) DECEMBER 31 - -------------------------- ----------------------- --------------------- 1996 1.71 1.57 1997 1.64 1.64 1998 1.66 1.66 1999 1.61 1.62 2000 1.49 1.52
(1) Based on the average of the exchange rates on the last day of each month during the period.
On March 2, 2001 the noon buying rate for sterling was $1.4675 =(pound)1.00
Huntingdon has not experienced difficulty in transferring funds to and receiving funds remitted from those countries outside the US or UK in which it operates and Management expects this situation to continue.
Whilst the UK has not at this time entered the European Monetary Union, Huntingdon has ascertained that its financial systems are capable of dealing with Euro denominated transactions. In addition, these systems ensure that Huntingdon, if ever required to do so, will be able to report in Euros.
COMPETITION
Competition in both the pharmaceutical and non-pharmaceutical market segments ranges from in-house research and development divisions of large pharmaceutical, agrochemical and industrial chemical companies, who perform their own safety assessments to contract research organisations like Huntingdon, who provide a full range of services to the industries and niche suppliers focussing on specific services or industries.
This competition could have a material adverse effect on Huntingdon's net revenues and net income, either through in-house research and development divisions doing more work internally to utilise capacity or through the loss of studies to other competitors on pricing. As Huntingdon operates on an international basis, movements in exchange rates, particularly against sterling, can have a significant impact on its price competitiveness.
INDUSTRY CONSOLIDATION
The process of consolidation within the pharmaceutical industry should accelerate the move towards outsourcing work to contract research organisations such as Huntingdon in the longer term as resources are increasingly invested in in-house facilities for discovery and lead optimisation, rather than development and regulatory safety evaluation. However, in the short term, there is a negative impact with development pipelines being rationalised and a focus on integration rather than development. This can have a material adverse impact on Huntingdon's net revenues and net income.
INFLATION
While most of Huntingdon's net revenues are earned under fixed price contracts, the effects of inflation do not generally have a material adverse effect on its operations or financial condition as only a minority of the contracts have a duration in excess of one year.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognise all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. As amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FAB Statement No. 133", this statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, although early adoption is encouraged. The adoption of this statement will not have a material impact on the Company's financial statements.
FORWARD LOOKING STATEMENTS
Statements in this management's discussion and analysis of financial condition and results of operations, as well as in certain other parts of this Annual Report on Form 10-K (as well as information included in oral statements or other written statements made or to be made by Huntingdon) that look forward in time, are forward looking statements made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. Forward looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, expectations, predictions, and assumptions and other statements which are other than statements of historical facts. Although Huntingdon believes such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements are subject to, and are qualified by, known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by those statements. These risks, uncertainties and other factors include, but are not limited to Huntingdon's ability to estimate the impact of competition and of industry consolidation and risks, uncertainties and other factors set forth in Huntingdon's filings with the Securities and Exchange Commission, including without limitation this annual report on Form 10-K.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the consolidated financial position, results of operations or cash flows of the Company. The Company is exposed to market risk in the areas of interest rates and foreign currency exchange rates.
INTEREST RATES
The Company's exposure to market risk for changes in interest rates relates primarily to the Company's debt obligations. The Company has a cash flow exposure on its bank loans due to its variable LIBOR pricing. In the 12 months ended December 31, 2000 a 1% change in LIBOR would have resulted in a fluctuation in interest expense of approximately (pound)230,000.
FOREIGN EXCHANGE RISK
See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, Exchange Rate Fluctuations and Exchange Controls.
For disclosure of other risks see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Deloitte & Touche - Independent Auditors 20
Report of Arthur Andersen - Independent Auditors 21
Consolidated Balance Sheets - December 31, 2000 and 1999 22
Consolidated Statements of Operations - Years ended December 31, 2000, 1999 and 1998 23
Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 2000, 1999 and 1998 24
Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 25
Notes to Consolidated Financial Statements 26
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Huntingdon Life Sciences Group plc, Huntingdon, Cambridgeshire, England
We have audited the accompanying consolidated balance sheet of Huntingdon Life Sciences Group plc and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in the United Kingdom and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Huntingdon Life Sciences Group plc at December 31, 2000 and 1999 and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles in the United States.
Deloitte & Touche
Chartered Accountants London England
March 30, 2001
REPORT OF INDEPENDENT AUDITORS
To the Board of Huntingdon Life Sciences Group plc
We have audited the accompanying consolidated balance sheet of Huntingdon Life Sciences Group plc and subsidiaries as of December 31, 1998 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1998 and 1997.
Respective responsibilities of directors and auditors
The financial statements and the financial statements schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
Basis of opinion
We conducted our audits in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Huntingdon Life Sciences Group plc and subsidiaries as of December 31, 1998 (not separately presented herein) and the consolidated results of their operations and their cash flows for the years ended December 31, 1998 and 1997 (not separately presented herein) in conformity with generally accepted accounting principles.
Arthur Andersen
Chartered Accountants Cambridge England
April 30, 1999
Huntingdon Life Sciences Group plc and subsidiaries Notes to Consolidated Financial Statements December 31, 2000, 1999 and 1998
1. Business
The Company is a leading Contract Research Organisation, offering world-wide pre-clinical and non-clinical testing for biological safety and efficacy assessment which is necessary for the development of pharmaceuticals and chemicals. The Company serves the rapidly evolving requirements to perform safety evaluations on new pharmaceutical compounds and chemical compounds contained within the products that man uses, eats, and is otherwise exposed to. In addition, it tests the effect of such compounds on the environment and also performs work on assessing the safety and efficacy of veterinary products.
2. Basis of Financial Statements
These financial statements are not the Company's primary financial statements and do not constitute statutory accounts within the meaning of Section 227 of the Companies Act 1985 of Great Britain. Such statutory accounts for the years ended December 31, 1998 and 1999 have been and for the year ended December 31, 2000 will be delivered to the Registrar of Companies for England and Wales. The auditors have issued unqualified audit reports on these accounts.
These financial statements are prepared in conformity with the accounting principles generally accepted in the United States ("US GAAP"). These US GAAP statements are prepared solely for the purposes of preparing the Annual Report on Form 10-K. They are presented in pounds sterling since the United Kingdom is the country in which the Company is incorporated.
3. Summary of Significant Accounting Policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the year ended December 31, 2000, and the preceding periods presented is set out below:
Basis of consolidation
The consolidated financial statements incorporate the accounts of the Company and each of its subsidiaries for the year ended December 31, 2000 and the preceding periods presented except as described below. The results of subsidiaries acquired or disposed of during any period are included in the Consolidated Statement of Operations from or to, the date on which control passed.
Travers Morgan Group ("TM")
Joint administrators were appointed to TM, on December 15, 1994. Upon granting of the administration order, control of the realisation of the assets and settlement of liabilities passed from the Company to the Administrator. Accordingly , the residual assets and liabilities of TM have not been included in the Consolidated Balance Sheet at December 31, 1998, December 31, 1999 and December 31, 2000. In addition, as full provision was made for the losses of TM at September 30, 1994, the results of TM have not been included in the Consolidated Statements of Operations for the 12 months ended December 31, 1998, December 31, 1999 and December 31, 2000.
Going concern
As a result of the refinancing of the Company's bank debt on January 20, 2001 bank loans totalling (pound)22,586,000 currently shown in current liabilities are now repayable in June 2006.
As part of the refinancing additional working capital was made available to the Company to meet its immediate trading requirements. This, together with other financing options still available to the Group are expected to provide adequate finance for the foreseeable future.
In the light of the above the directors have formed a judgement that it is appropriate to adopt the going concern basis in preparing the accounts.
Summary of Significant Accounting Policies (continued)
Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity date of three months or less at the date of purchase and consist principally of amounts temporarily invested in money market funds. Cash includes a restricted amount of $250,000 representing an irrevocable standby letter of credit issued to cover the Group's liabilities to a third party.
Financial instruments
The fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses and long term and short term debt are not materially different from their carrying amounts as reported at December 31, 2000 and 1999 except for the Convertible Capital Bonds (see note 6).
Inventories
Inventories are valued at the lower of cost, on a FIFO basis, or net realisable value. They comprise materials and supplies.
Impairment of Long-Lived Assets
Assessments of the recoverability of long-lived assets are conducted when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based upon the ability to recover the asset from the expected future undiscounted cash flows of related operations.
Depreciation
The cost of depreciable assets is written off in equal monthly instalments over their expected useful lives as follows:
Freehold buildings and facilities 15 - 50 years Plant and equipment 5 - 15 years Vehicles 5 years Computer software 5 years
Goodwill arising on consolidation
Goodwill, being the excess of the purchase consideration for subsidiary companies acquired over the fair values ascribed to their tangible net assets at the date of acquisition, is amortized over its expected useful life which is 40 years. In subsequent years, goodwill carried forward is assessed based on its fair value and any permanent impairment is written-off at the time it is identified.
All goodwill has been completely amortised at December 31, 2000 and December 31, 1999.
Investments
On January 2, 1996 the Company entered into an agreement with Chugai Boyeki Co. Ltd to form a company, Huntingdon Life Sciences Co. Ltd owned 50% by each party. Huntingdon Life Sciences Co. Ltd is responsible for selling and marketing all Huntingdon services in Japan. This investment represents a joint venture which is accounted for using the equity method.
Taxation
The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to each entity in the Company. Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in income
Summary of Significant Accounting Policies (continued)
in the period that includes the enactment date. Deferred tax assets are recognised in full subject to a valuation allowance that reduces the amount recognised to that which is more likely than not to be realised.
Revenue recognition
Revenues represent the value of work done for clients, exclusive of VAT or sales taxes. Billings in advance of work performed are recorded as fees invoiced in advance and included in current liabilities, while billings in arrears of work performed are included in current assets as amounts recoverable on contracts.
Contracts
Profit on contracts, irrespective of length, is taken as the work is carried out. The profit is calculated to reflect the proportion of the work performed, by recording turnover and related costs as contract activity progresses. Turnover is calculated as that proportion of total contract value which costs incurred to date bear to total expected costs for that contract. Full provision is made for losses on contracts when they are first foreseen.
Foreign currencies
Assets, liabilities, revenues and costs denominated in foreign currencies are recorded at the rates of exchange ruling at the dates of the transactions; monetary assets and liabilities at the balance sheet date are translated at period end rates of exchange. All exchange differences thus arising are reported as part of the net income for the period.
On consolidation, the assets and liabilities of overseas subsidiaries are translated at the period end rates of exchange, and the revenues and costs are translated at monthly average rates of exchange. Translation adjustments where material are included as a separate component of stockholders' equity in the consolidated financial statements.
Leased assets
Assets held under the terms of capital leases are included in tangible fixed assets and are depreciated in accordance with the Company's policy. Obligations for future lease payments, less attributable finance charges are shown within liabilities and are analysed between amounts falling due within and after one year. Operating lease rentals are charged to the Consolidated Statement of Operations as incurred.
Pension costs
Contributions to defined contribution plans are charged to income in the period in which they accrue. Current service costs for defined benefit plans are also accrued in the period to which they relate. Prior service costs, if any, resulting from amendments to the plans are recognised and amortised over the remaining period of service of such employees.
Costs of raising long-term debt
The costs of raising long term financing are capitalised as an asset and are amortised, using the effective interest method, over the term of the loan. Convertible debt is reported as a liability unless conversion actually occurred.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting periods. Although these estimates are based upon management's best knowledge of current events and actions, actual results could differ from those estimates.
Summary of Significant Accounting Policies (continued)
Loss per share
Loss per share is computed in accordance with FASB Statement No. 128, Earnings Per Share. Basic loss per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period. The computation of diluted loss per share is similar to the computation of basic loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. The potential dilution which could arise from outstanding share options and the Convertible Capital Bonds is not disclosed as any adjustments would be anti-dilutive.
Segment Analysis
The Company's operations have been aggregated into a single reportable segment, contract research, which operates in two geographical areas, the UK and the US. The Company's operating locations have similar economic characteristics, production processes and types of customers and provide similar services.
Stock-Based Compensation
SFAS No. 123 encourages, but does not require, companies to record compensation cost for stock-based compensation plans at fair value. The Company has elected to continue to account for stock-based compensation in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations, as permitted by SFAS No. 123. Compensation expense for stock options is measured as the excess, if any, of the average quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock.
New accounting standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognise all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. As amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FAB Statement No. 133", this statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000, although early adoption is encouraged. The adoption of this statement will not have a material impact on the Company's consolidated financial statements.
4. Property and Equipment
Property and equipment at December 31, 2000 and 1999 consists of the following:
2000 1999 (pound)'000 (pound)'000 Property and equipment at cost: Freehold property 63,828 63,228 Plant equipment and vehicles 59,116 55,810 Assets in the course of construction 730 2,032 --------------- -------------- 123,674 121,070 --------------- -------------- Less: Accumulated depreciation and 58,297 52,101 amortisation --------------- -------------- Property and equipment, net 65,377 68,969 --------------- --------------
Depreciation and amortisation expenses aggregated (pound)5,995,000, (pound)5,979,000 and (pound)10,649,000 for 2000, 1999 and 1998 respectively.
The net book value of assets held under capital leases and included above under plant, equipment and vehicles is as follows:
Cost Depreciation Net book Value (pound)'000 (pound)'000 (pound)'000 At December 31, 1999 314 82 232 At December 31, 2000 324 80 244
5. Taxes on Income
The components of loss before taxes and the related benefit for tax relief on losses for 2000, 1999 and 1998 are as follows:
Profit/(loss) before taxes 2000 1999 1998 (pound)'000 (pound)'000 (pound)'000 United Kingdom (9,302) (6,019) (30,000) United States 512 (419) (3,420) ---------- ---------- ------------ (8,790) (6,438) (33,420) ---------- ---------- ------------
Benefit for income taxes 2000 1999 1998 (pound)'000 (pound)'000 (pound)'000 UK tax calculated at 30% (1999:30%, 1998: 31%) - 28 539 Deferred taxation 1,794 2,315 8,444 ---------- ---------- ------------ 1,794 2,343 8,983 ---------- ---------- ------------
The differences between the benefit for income taxes and income taxes computed using the UK corporation tax rate for 2000, 1999 and 1998 are as follows:
% of Income before Income Taxes 2000 1999 1998 % % % UK statutory rate 30 30 31 Effect of non taxation of profit on sale of fixed assets, goodwill & exceptional bad debt recovery - 6 (7) Increase in taxes arising from effect of foreign earnings - - 1 Exchange loss not taxable (4) (5) - Effect of reduction in UK tax rate on deferred tax - 5 - Prior year adjustments (6) - 2 ---------- -------- --------- Effective tax rate 20 36 27 ---------- -------- ---------
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 2000 and 1999 are as follows:
2000 1999 (pound)'000 (pound)'000 Current deferred tax assets Liabilities not currently deductible 330 825 ------------- ------------- 330 825 ------------- ------------- Non current deferred tax assets Net operating losses 5,150 5,492 ------------- ------------- 5,150 5,492 ------------- ------------- Non current deferred tax liabilities Property and equipment 16,298 18,915 Net operating losses (4,818) (4,804) ------------- ------------- 11,480 14,111 ------------- -------------
Net operating losses are set off against tax liabilities to the extent that is allowed under UK tax legislation. Of these tax losses (pound)7,209,000 have no expiry date, (pound)414,000 expire in 2011 and (pound)2,345,000 expire in 2012.
The Company has not provided a valuation allowance on deferred tax assets because those amounts are expected to be realised through taxable income from future operations.
No account is taken of the benefits of capital losses incurred in prior years as the Company would be required to make a capital gain before such losses could be utilised.
6. Short and Long Term Debt
2000 1999 (pound)'000 (pound)'000 Bank overdrafts and loans - short term: Bank loans 22,586 22,586 Capital leases 54 70 Other loans 1,000 - -------------- ------------- 23,640 22,656 -------------- -------------
Loans - long term: Capital leases 140 - Convertible Capital Bonds 33,472 31,023 -------------- ------------- 33,612 31,023 -------------- -------------
The bank loan was repayable on January 19, 2001 and hence is shown in amounts falling due within one year. Interest was payable in quarterly breaks at "LIBOR" plus 1.75% in respect of drawings up to (pound)19,500,000 and LIBOR plus 2% in respect of drawings over (pound)19,500,000 up until August 31, 2000. From September 1, 2000 it was payable at "LIBOR" plus 3%. The interest rate payable at December 31, 2000 was 8.95% .
The bank loans are secured by guarantees from the Company, Huntingdon Life Sciences Ltd., and Huntingdon Life Sciences Inc., together with charges over the assets of those Companies.
6. Short and Long Term Debt (continued)
On January 20, 2001 the bank loans were refinanced by means of a loan from HLSF LLC, a subsidiary company of the Stephens Group Inc., a related party, and the other two banks who were part of the original loan syndicate The debt is now repayable on June 30, 2006 and interest is payable in quarterly breaks at "LIBOR" plus 1.75% in respect of drawings up to (pound)19,500,000 and "LIBOR" plus 2% in respect of drawings over (pound)19,500,000.
A (pound)2,000,000 loan facility was made available to the Company on September 25, 2000 by a director, Mr Baker. (pound)1,000,000 of this was drawn down immediately. The loan is repayable on demand, although it is subordinate to the bank loan, it is unsecured and interest is payable monthly at 10%.
On August 12, 1991, an issue of US $50,000,000 7 1/2% Convertible Capital Bonds, 2006, ("the Bonds"), was made by a subsidiary company, HIH Capital Ltd. The Bonds are guaranteed on a subordinated basis by the Company, and are convertible by the holders at any time into Redeemable Preference Shares of HIH Capital Ltd., which in turn are immediately exchangeable for Ordinary Shares of 5 pence each in the Company. The conversion rate, which is based upon the paid-up value of the Redeemable Preference Shares and a fixed rate of exchange of (pound)1.00=US $1.6825, is 242.3 pence per Ordinary Share (1998: 242.3 pence) and is subject to adjustment in certain circumstances. At this conversion rate the number of Ordinary Shares to be issued on conversion and exchange of each unit of US $1,000 comprised in a Bond would be 245 (1998: 245). The proceeds of the Bonds issue of US $47,300,000 were passed to the Company by HIH Capital Ltd., in consideration for the issue of US $50,000,000 Debenture, on terms similar to those of the Bonds. The (pound)1,590,000 costs of issuing the Bonds are amortised over the life of the Bonds and together with the interest payable are charged to the Consolidated Income Statement using the effective interest method.
The Bonds are redeemable by the holders at the maturity date and by the Company at any time. To date no Bonds have been redeemed.
Fair value of financial instruments
Cash and cash equivalents are held on short term deposit at commercial rates. Long term loans are offered to the Company at fair rates of interest for similar debt. Accordingly the carrying values approximate to the fair value. The Convertible Capital Bond is however a negotiable instrument and the fair value is the quoted market price. The estimated fair value of the Bonds are as follows: 2000 1999 (pound)'000 (pound)'000 Carrying Amount 33,472 31,023 Fair value 8,389 18,769
7. Other Long Term Liabilities
2000 1999 (pound)'000 (pound)'000 Restructuring - 60 Pension liabilities 960 2,403 Other 256 514 ------------- ------------- 1,216 2,977 ------------- -------------
8. Stockholders' Equity
Ordinary shares
The authorised share capital of the Company as at December 31, 1997 was (pound)7,000,000, comprising 140,000,000 ordinary shares of 5p each. This was increased in 1998 to (pound)20,000,000 comprising 400,000,000 ordinary shares of 5p each.
At an Extraordinary General Meeting on September 2, 1998 shareholders approved a subscription of 120,000,000 and a placing and open offer of 57,003,431 shares at 12.5 pence. The shares not taken up by existing qualifying shareholders were placed by Kleinwort Benson Securities Limited with institutional investors in the UK. These transactions raised (pound)20.4M net of expenses. The issue discount before expenses was 36 per cent as compared with 19.5 pence per share, being the London Stock Exchange middle market price at the time the issue price was agreed. However, the issue price net of expenses represented a 6 per cent discount to the price of the Company's ADR's on the New York Stock Exchange at the time that the price was agreed. Dealings commenced in these new Ordinary shares on September 3, 1998 and the discount at that time was 4 per cent as compared with the then prevailing middle market price on the London Stock Exchange.
From September 2000 shares have been issued to satisfy the Company's liability to make contributions to the US defined contribution pension scheme.
Paid in Capital
This is not distributable.
Loss per share
The computation of loss per share is as follows:
2000 1999 1998 Numerator Net loss ((pound)'000) (6,996) (4,095) (24,437) Denominator Weighted average Shares outstanding (000) 291,206 291,010 172,200 Loss per share (pound)(0.024) (pound)(0.014) (pound)(0.142)
The potential dilution, which could arise from outstanding share options and the Convertible Capital Bonds in all three years is not disclosed as any adjustments would be anti-dilutive.
Share option plans
On April 8, 1983, the Company adopted the Unapproved Share Option Plan (the "Unapproved Plan") pursuant to which options to acquire Ordinary Shares could be granted to any eligible employee or Director. Options may be exercised, subject to certain exceptions, in respect of 50% of the shares allocated from the second anniversary of the date of the grant and in respect of 100% of the shares from the third anniversary. Options lapse on the seventh anniversary.
On January 29, 1985, the Company adopted a second share option plan, the Approved Management Share Option Plan (the "Approved Plan"), which has been approved by the Board of Inland Revenue (the "Inland Revenue") pursuant to the Finance Act 1984. The rules of the Approved Plan broadly follow those of the Unapproved Plan, except that an option may be exercised, subject to certain exceptions, only between three and ten years after it is granted.
Both the Unapproved Plan and the Approved Plan terminated on December 31, 1997 with respect to the grant of new options. Options outstanding at that date are not affected by such termination.
Under the terms of the plans, the following Options to purchase Ordinary Shares of 5p in the Company have been granted but not relinquished or exercised as at December 31, 2000.
Date of grant Number of shares Option price outstanding
UNAPPROVED PLAN December 18, 1995 112,500 (pound)0.77 November 21, 1996 50,000 $1.60 December 1, 1997 100,000 (pound)0.50 December 31, 1997 471,670 (pound)0.465 December 31, 1997 635,000 $0.77
APPROVED PLAN February 13, 1995 155,000 (pound)0.49 December 11, 1995 455,000 (pound)0.78 December 11, 1995 105,000 $1.19 December 18, 1995 59,000 (pound)0.77 November 21, 1996 422,500 (pound)0.95 December 31, 1997 570,000 (pound)0.465
Other share options
At the Extraordinary General Meeting held on September 2, 1998 the Shareholders approved a new option scheme (the rules of which were amended at the Annual General Meeting held on June 3, 1999) and a separate Option Agreement with Mr Baker:
a. The Huntingdon Life Sciences Group Unapproved Share Option Scheme ("Unapproved Scheme")
(i) 8,000,000 Founder Options had been granted but not relinquished or exercised at December 31, 2000. They are exercisable from the third anniversary of the date of the grant subject to the share price reaching the following pre-determined targets for a period of seven consecutive dealing days at any time after January 1, 1999.
Target price per share Proportion of options exercisable 25p 25% 50p 50% 75p 75% 100p 100%
(ii) 2,000,000 options, other than Founder Options, which are generally exercisable between the third and tenth anniversary of the date of grant subject to the attainment of performance related conditions were granted on March 29, 1999 at a Subscription Price of 19.25 pence each and remained outstanding on December 31, 2000.
All options lapse on the tenth anniversary.
b. Option Agreement
Mr Baker was granted Options over 5,000,000 Ordinary Shares of 5p in the Company, the principal terms of which are the same as those applicable to the Founder Options referred to above.
Huntingdon Life Sciences Group Incentive Option Plan
Details of the Huntingdon Life Sciences Group Incentive Option Plan ("Incentive Plan"), which was adopted on June 3, 1999, were included in the circular to shareholders dated April 30, 1999. As stated therein the Incentive Plan was introduced to run alongside the Scheme described above and is designed to reward short term improvement in financial performance. Options are available for grant to management and senior staff, subject to the achievement of a performance measure and personal performance conditions. Options have been granted to such employees subject to a performance measure designed to reward the recipients for returning the Company to profit after interest and tax and a net cash inflow in respect of any one trading quarter in 2000. It is intended that further grants will be made in respect of each financial year. Options may generally be exercised from the third anniversary of the date of grant. Options lapse on the tenth anniversary.
Date of grant Number of shares outstanding Option Price
March 7, 2000 4,250,000 (pound)0.1625
Huntingdon Life Sciences Sharesave Scheme
The Huntingdon Life Sciences Sharesave Scheme ("Sharesave Scheme") was also adopted at the Annual General Meeting held on June 3, 1999 and the main terms thereof were summarised in the circular to shareholders referred to above. Approximately 55% of eligible employees, who will fund the exercise of their options with the proceeds of a related Save As You Earn (SAYE) savings contract, accepted the invitation to join the Sharesave Scheme. Options may generally be exercised from the third anniversary of the Bonus Date, which falls on November 1, 2002. Options generally lapse six months after the Bonus Date.
Date of grant Number of shares outstanding Option Price
September 9, 1999 6,071,140 (pound)0.14
The following table sets forth certain information relative to the changes to options outstanding in the periods presented:
A summary of the status of the Company's option plans, schemes and agreements for the years ended December 31, 1998, December 31, 1999 and December 31, 2000 and changes during the years then ended is presented in the table and narrative below:
The 28,456,810 options outstanding at December 31, 2000 have an exercise price between (pound)0.125 and (pound)0.95, with a weighted average exercise price of (pound)0.19 and a weighted average remaining contractual life of 5.1 years. 3,135,670 of these options are exercisable. The 4,250,000 options granted in 2000 have an exercise price of (pound)0.1625 and a weighted average remaining contractual life of 9.2 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for the option grants in 1998, and 1999 respectively: risk-free interest rates of 4.94 percent and 5.68 percent; expected dividend yields of 0.00 percent; expected life of 7.0 years for the Unapproved Scheme, 3.0 years for the Sharesave Scheme and 5.0 years for the Incentive Plan; expected volatility of 57.4 percent and 57.0 percent. The options granted in 2000 were subject to performance criteria which mean they will lapse at the end of 2000, accordingly no fair value has been calculated for them.
The Company accounts for share options under APB Opinion No. 25, under which no compensation cost has been recognised. Had compensation cost for stock options awarded under the plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been restated as follows:
As at December 31, 2000, the Company may grant options in respect of 15,211,868 shares in aggregate under the plans and scheme.
9. Commitments and Contingent Liabilities
Operating leases
Operating lease expenses were as follows 2000 1999 1998 (pound)'000 (pound)'000 (pound)'000 Hire of plant and equipment 793 172 142 Other operating leases 46 20 354
The Company has commitments payable under operating leases as follows:
Plant and machinery Year ended December 31 (pound)'000
2001 559 2002 222 2003 66 2004 4 thereafter - ------------- -------------
10. Pensions
The Company operates the Huntingdon Life Sciences Pension and Life Assurance Scheme a funded pension scheme providing benefits, based on final pensionable salary, for Group employees in the UK. This Scheme was closed to new entrants from April 5, 1997.
On April 6, 1997 the Company established a defined contribution Group Personal Pension Plan for Company employees in the UK. A defined contribution scheme is available for employees in the US. The net pension expense for these plans for the twelve months ended December 31, 2000 were (pound)526,000 (1999, (pound)423,000; 1998, (pound)278,000)
The net pension expense for the twelve months ended December 31, 2000, 1999 and 1998 were as follows:
The Net Asset at Transition, Prior Service Cost and Net Gain subject to amortisation have been amortised on a straight line basis over periods of 15 years, 10 years and 10 years respectively.
A reconciliation of the projected benefit obligation for the pension plans to the accrued pension expense recorded at December 31, 2000, 1999 and 1998 is as follows:
11. Geographical analysis
During the 12 months ended December 31, 1998, December 1999 and December 31, 2000 the Company operated from within two geographical markets, the United Kingdom and the United States. The Company has had one continuing activity, Contract Research, throughout this period. All disclosure therefore refers to continuing activities.
Geographical segment information is as follows:
12. Other operating income / (expense)
In 2000 costs incurred in the refinancing of the Company's bank debt amounting to (pound)1,200,000 have been written off. The costs have been written off rather than carried forward and amortised over the period of the new loan agreement as the costs were incurred on elements of the refinancing which did not proceed, or on facility extensions prior to the year end.
In 1999 as a result of the Company's Year 2000 compliance program a number of assets that were not Year 2000 compliant were identified, principally computer hardware and software. A charge of (pound)1,250,000 was made to write these off.
The Company also disposed of its Wilmslow research site in 1999. The site was sold for (pound)4,214,000 net of expenses, a gain of (pound)1,757,000 over its written down value.
In 1998 the Company's UK site at Wilmslow was closed and the carrying value of the site written down by (pound)2,887,000 to net realisable value. Redundancy and related costs of (pound)361,000 have been classified as restructuring costs.
In addition, in December 1998 the Company announced a cost reduction program. The program which was completed in 1999 rationalised service lines and capabilities across the two UK sites and aligned overall staff resources with present revenue levels. It resulted in the loss of 151 positions, 7 in 1998 and 144 in 1999. Associated costs of (pound)3,430,000 were included in restructuring costs in 1998. This comprised severance pay of (pound)2,656,000, fixed asset write off's of (pound)452,000 and stock write downs of (pound)322,000.
A review of asset values led to the accelerated depreciation of certain assets in the UK. These costs, (pound)891,000, were included in restructuring costs in 1998.
Finally, following the decline in revenues and the renaming and successful integration of the businesses acquired in 1995 into the Huntingdon group, the unamortised balance of the goodwill acquired at that time, (pound)7,342,000, has no longer any intrinsic value and was therefore written off in 1998.
Of total restructuring costs of (pound)4,682,000, (pound)2,086,000 was accrued at the end of 1998 and (pound)60,000 at the end of 1999.
Amortisation of goodwill has no tax effect and the depreciation included within exceptional items of (pound)4,240,000 has reduced deferred tax liabilities by (pound)1,314,000. The other costs incurred will be available for offset against future trading profits.
13. Allowance for uncollectable accounts
14. Unaudited Quarterly Financial information
The following is a summary of unaudited quarterly financial information for the 12 months ended December 31, 2000 and December 31, 1999.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company filed a report on Form 8-K/A on September 7, 1999, amending its Form 8-K filed on July 14, 1999, announcing the resignation of Arthur Andersen as auditors and the engagement of Deloitte & Touche.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth certain information with respect to the current directors and executive officers of the Company:
Name Age Office Held Appointed
Andrew H Baker 52 Director 1998 Chairman of the Board 1998 Brian Cass 53 Director 1998 Managing Director/Chief Operating Officer 1998 Gabor Balthazar 59 Director 2000 Frank W Bonner 48 Director 1998 Director of Science and Technology 1998 John Caldwell 54 Director 1997 Kirby L Cramer 63 Director 1999 Julian T Griffiths 48 Director 1999 Finance Director 1999 Secretary 2000
(a) Identification of Directors
Andrew Baker was appointed to the Board as Executive Chairman in September 1998. He is a chartered accountant and has operating experience in companies involved in the delivery of healthcare ancillary services. He spent 18 years until 1992 with Corning Incorporated ("Corning") and held the posts of President and CEO of MetPath Inc., Corning's clinical laboratory subsidiary, from 1985 to 1989. He became President of Corning Laboratory Services Inc. in 1989, which at the time controlled MetPath Inc. (now trading as part of Quest Diagnostics Inc.), and Hazleton Corporation, G.H.Besselaar Associates and SciCor Inc., all three now trading as part of Covance Inc. Since leaving Corning in 1992, Andrew Baker has focused on investing in and developing companies in the healthcare sector including Unilab Corporation, a clinical laboratory services provider in California, and Medical Diagnostics Management, which is a US based provider of radiology and clinical laboratory services to health care payers. In 1997, he formed FHP, an investment partnership which acts as general partner for healthcare startup and development companies. FHP's largest investment was the purchase in 1998 of Unilabs Group (UK) Limited, which is a UK clinical laboratory company, based in London.
Brian Cass, FCMA, was appointed to the Board as Managing Director/Chief Operating Officer in September 1998. Prior to joining Huntingdon he was a Vice President of Covance Inc. and Managing Director of Covance Laboratories Ltd (previously Hazleton Europe Ltd) for nearly 12 years, having joined the company in 1979 as Controller. Brian Cass worked at Huntingdon Research Centre between 1972 and 1974 and has previous experience with other companies in the electronics and heavy plant industries. He has also held directorships with North Yorkshire Training & Enterprise Council Ltd and Business Link North Yorkshire Ltd.
Gabor Balthazar was appointed to the Board as the Senior Independent Non-Executive Director in March 2000. He has been active in international marketing and management consulting for almost 30 years. He was a founding Board member of Unilab Corporation, serving as President from 1989 to 1992, and continuing to sit on Unilab's Board until November 1999. From 1985 to 1997 Gabor Balthazar served as a consultant to Frankfurt Consult, the merger/acquisition subsidiary of BHF-Bank, Frankfurt, Germany and to Unilabs Holdings SA, a Swiss clinical laboratory testing holding company, from 1987 to 1992. Mr Balthazar also serves as a director of Decora Industries, Inc. He is a graduate of the Columbia Law School in New York City.
Frank Bonner, BSc., PhD., was appointed to the Board as Director of Science & Technology in September 1998. He studied Biochemistry and Toxicology at the University of Surrey, Guildford (1973-1979). After post-doctoral research in the Institute of Industrial and Environmental Health, he joined Sterling Winthrop to establish a Drug Safety department. Following the acquisition of Sterling by Sanofi, he was appointed Scientific and Administrative Director of the UK Research Centre in Northumberland, a position he held until joining Huntingdon in 1997. He is past Chairman of the British Toxicology Society and serves on the Research and Development Committee of the Association of the British Pharmaceutical Industry.
John Caldwell, B.Pharm., PhD., D.Sc., C.Biol., F.I.Biol., was appointed to the Board as an Independent Non-Executive Director in December 1997. He is Professor of Biochemical Toxicology and Head of the Division of Biomedical Sciences of the Imperial College School of Medicine. His distinguished career includes membership of the UK Committee on Safety of Medicines, Ministry of Agriculture Fisheries and Food Steering Group for Food Surveillance, permanent membership of the International Scientific Committee of the International Symposia on Chiral Discrimination, Honorary Membership of the Royal College of Physicians, Representative on the Court of the University of Surrey for the British Pharmacological Society and he is a Past President of the International Society for the Study of Xenobiotics. He is also a member of the Institute of Directors. Professor Caldwell has extensive involvement as a consultant with pharmaceutical companies in Europe, North America and Japan.
Kirby L Cramer was appointed to the Board as an Executive Director in September 1999. He served as Chief Executive Officer of Hazleton Laboratories Corporation from 1968 and led it to become the world's largest provider of pre-clinical testing services when it was sold to Corning Inc in 1987. Following the acquisition he served as Chairman of the Board of Directors of Hazleton from 1987 through 1991. The Hazleton laboratories now form the pre-clinical segment of Covance. Mr Cramer also currently serves as a director of D J Orthopedics, Immunex Corp., SonoSite Inc., Array BioPharma, Commerce Bancorporation, Landec Corporation and Northwestern Trust Company. Previously Mr Cramer was a director of ATL Ultrasound Inc., Unilab Corporation, Pharmaceutical Product Development Inc., and Kirschner Medical.
Julian Griffiths, M.A., F.C.A., was appointed to the Board as Finance Director in April 1999 and Secretary in February 2000. Prior to joining Huntingdon he was most recently Vice President of Analytical Services in the European pre-clinical division of Covance Inc., having spent the previous nine years as Vice President of Finance in the same organisation. Prior to that he held various positions with KPMG.
The Articles of Association of the Company provide that, unless and until otherwise determined by ordinary resolution passed at a general meeting of the Company, the directors shall be not less than two in number and there shall be no maximum number of directors. The Company may by ordinary resolution passed at a general meeting of the Company appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing board of directors. Any director appointed by the board of directors holds office only until the next following general meeting and shall then be eligible for re-appointment but he is not taken into account in determining the directors or the number who are to retire by rotation at such meeting. At every annual general meeting one third of the directors (being those who do not wish to be re-appointed or who have been the longest in office since their last appointment) must retire from office. Directors so retiring may be removed from office by resolution of the shareholders.
No director or executive officer has a family relationship with any other director or executive officer.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
In the 12 months ended December 31, 2000 the aggregate compensation of the executive directors and officers as a group, paid or accrued, was (pound)940,930.
The services of Mr Baker are provided through a management services agreement with Focused Healthcare Partners ("FHP"), the vehicle through which Mr Baker provides his services. The agreement provides for a minimum notice of termination by the Company of twelve months.
Mr Cass has a service contract providing for a minimum notice of termination by the Company of two years. The contract provides for liquidated damages amounting to two years' basic salary and an amount equal to twice the annual average of bonuses, if any, received during the two financial years of the Company immediately preceding a change of control of the Company (as defined in the service contract) or in the event of termination in certain circumstances. The Board has determined that both the period of notice required for termination of Mr Cass' contract and the change of control provisions are warranted by Mr Cass' value to the Company.
Dr Bonner, Mr Cramer and Mr Griffiths each have service contracts providing for a minimum notice of termination by the Company of twelve months.
Professor Caldwell, and Mr Balthazar each have service contracts providing for a minimum notice of termination by the Company of three months.
Mr B Cass and Dr F Bonner retire at the Annual General Meeting, but will offer themselves for re-election.
The Company operates a discretionary bonus plan for executive directors and key managers of Huntingdon based upon improvements to operating income and achievement of pre-defined targets. Bonus awards to directors and officers are administered by the Remuneration Committee. The Committee believes that the discretionary bonus payments to Mr Baker, Mr Cass and Mr Griffiths in 1999 and to Mr Rice, Prof. Caldwell and Mr Baker in 1998 reflect their respective contribution to the development of Huntingdon . No bonus awards were made in respect of 2000.
The following table shows the remuneration of Directors in the 12 Months ended December 31, 2000, December 31, 1999, and December 31, 1998;
One Director is a member of the Group Personal Pension Plan. The other Directors' pension contributions are privately invested.
OPTIONS TO PURCHASE SECURITIES FROM THE REGISTRANT
The Unapproved Share Option Plan. On April 8, 1983, the Company adopted the Unapproved Share Option Plan (the "Unapproved Plan") pursuant to which options to acquire Ordinary Shares may be granted to any person who is required to devote substantially the whole of his time (being not less than 25 hours per week) to serve as a Director or employee of the Company or one of its subsidiaries. The maximum number of Ordinary Shares which may be issued under the Unapproved Plan according to the rules thereof is 10% of the issued share capital of the Company from time to time, less options outstanding under the Approved Plan from time to time.
An option granted pursuant to the Unapproved Plan may be exercised two years after the grant in respect of not more than 50% of the Ordinary Shares subject to the option. An option may be exercised in full between three and seven years after the grant in respect of the unexercised balance of the Ordinary Shares subject to the option. Options may be exercised earlier in certain specified circumstances, including a change in control of 25% or more of the outstanding Ordinary Shares of the Company.
The Approved Management Share Option Plan. On January 29, 1985, the Company adopted a second share option plan, the Approved Management Share Option Plan (the "Approved Plan"), which has been approved by the Board of Inland Revenue (the "Inland Revenue") pursuant to the Finance Act 1984. The rules of the Approved Plan broadly follow those of the Unapproved Plan, except that an option may be exercised, subject to certain exceptions, only between three and ten years after it is granted.
Pursuant to the Approved Plan, options to acquire Ordinary Shares may be granted to any Director or employee of the Company whose terms of employment require him to work for at least thirty-seven and one-half hours per week. Approval of the Approved Plan by the Inland Revenue means that important personal tax concessions are available to participants who reside in the UK. The maximum number of Ordinary Shares which may be issued under the Approved Plan according to the rules thereof is 10% of the issued share capital from time to time, less options outstanding under the Unapproved Plan from time to time.
Both the Unapproved Plan and the Approved Plan terminated on December 31, 1997 with respect to the grant of new options. Options outstanding at that date are not affected by such termination. The grant of options under both the Unapproved Plan and the Approved Plan was a matter for the discretion of the Board of Directors of the Company. The consideration payable to the Company for the grant of an option to acquire Ordinary Shares was the sum of (pound)1. The exercise price per share at which an option may be exercised is equal to the average of the middle market quotations on the International Stock Exchange of the United Kingdom and Republic of Ireland Ltd. for the Ordinary Shares on the five dealing days prior to the date of grant or, if no established market in the Ordinary Shares exists, the fair value of an Ordinary Share as determined by the Board. Generally, an option may not be exercised unless at the date of exercise the participant is then, and has been continuously since the grant of the option, in the full-time employ of the Company. This rule, however, is subject to alteration in specific cases at the discretion of the Board.
At the Extraordinary General Meeting held on September 2, 1998 the Shareholders approved a new option scheme (the rules of which were amended at the Annual General Meeting held on June 3, 1999) and a separate Option Agreement with Mr Baker:
(a) The Huntingdon Life Sciences Group Unapproved Share Option Scheme (the "Unapproved Share Option Scheme")
(i) 8,000,000 Founder Options had been granted but not relinquished or exercised as at December 31, 2000 at an option price of 12.5p per Ordinary Share. The Options may be exercised from the third anniversary of the date of the grant subject to the share price reaching the following pre-determined targets for a period of seven consecutive dealing days at any time after January 1, 1999.
Target price per share Proportion of options exercisable 25p 25% 50p 50% 75% 75% 100p 100%
(ii) 2,000,000 options, other than Founder Options, which are generally exercisable between the third and tenth anniversary of the date of grant subject to the attainment of performance related conditions were granted on March 29, 1999 at a subscription price of 19.25 pence each and remained outstanding on December 31, 2000.
All Options lapse on the tenth anniversary of the date of the option grant.
(b) An Option Agreement
Andrew Baker was granted Options over 5,000,000 Ordinary Shares of 5p in the Company, the principal terms of which are the same as those applicable to the Founder Options referred to above.
The Huntingdon Life Sciences Group Incentive Option Plan (the "Incentive Option Plan") The Incentive Option Plan was adopted on June 3, 1999. The Plan was introduced to run alongside the Unapproved Share Option Scheme described above and is designed to reward short term improvement in financial performance in the Company's turn around phase. Options are available for grant to management and senior staff, subject to the achievement of a performance measure and personal performance conditions; they may generally be exercised from the third anniversary of the date of grant and they lapse on the tenth anniversary. Options have been granted to such employees subject to a performance measure designed to reward the recipients for returning the Company to profit after interest and tax and a net cash inflow in respect of any one trading quarter in 2000. It is intended that further grants will be made.
The Huntingdon Life Sciences Sharesave Scheme (the "Sharesave Scheme") The Sharesave Scheme was adopted at the Annual General Meeting held on June 3, 1999. Approximately 55% of eligible employees, who will fund the exercise of their options with the proceeds of a related Save As You Earn (SAYE) savings contract, accepted the invitation to join the Scheme. Options may generally be exercised from the Bonus Date which falls on November 1, 2002. Options generally lapse six months after the Bonus Date.
Any US subsidiary of the Company, which received the services in respect of which an option was granted, will be entitled to a deduction in an amount equal to the compensation taxable to the optionee, in computing its US Federal income tax. Generally this is in the calendar year in which the optionee is deemed to have received such compensation.
Under the terms of the various share option arrangements the following options to purchase Ordinary Shares in the Company have been granted (net of expired options) but not exercised as of February 29, 2000.
(i) The Unapproved Share Option Plan
Date of Grant Number of shares Option Price Expiry Date Outstanding
December 18, 1995 112,500 (pound)0.77 December 17, 2002 November 21, 1996 50,000 $1.60 November 20, 2003 December 1, 1997 100,000 (pound)0.50 November 30, 2004 December 31, 1997 471,670 (pound)0.465 December 30, 2004 December 31, 1997 635,000 $0.77 December 30, 2004
(ii) The Approved Management Share Option Plan
Date of Grant Number of shares Option Price Expiry Date Outstanding
February 13, 1995 155,000 (pound)0.49 February 12, 2005 December 11, 1995 455,000 (pound)0.78 December 10, 2005 December 11, 1995 105,000 $1.19 December 10, 2005 December 18, 1995 59,000 (pound)0.77 December 17, 2005 November 21, 1996 422,500 (pound)0.95 November 20, 2006 December 31, 1997 570,000 (pound)0.465 December 30, 2007
(iii) The Unapproved Share Option Scheme and Mr Baker's Option Agreement
Date of Grant Number of shares Option Price Expiry Date Outstanding
September 2, 1998 5,000,000 (pound)0.125 September 1, 2008 December 3, 1998 7,000,000 (pound)0.125 December 2, 2008 December 31, 1998 1,000,000 (pound)0.125 December 30, 2008 March 29, 1999 2,000,000 (pound)0.1925 March 28, 2009
(iv) Incentive Option Plan
Date of Grant Number of shares Option price Expiry Date Outstanding
March 7,2000 4,250,000 (pound)0.1625 March 6, 2010
(v) Sharesave Scheme
Date of Grant Number of shares Option price Expiry Date Outstanding
September 9, 1999 6,071,140 (pound)0.14 May 1, 2003
In the period since options to acquire shares have been capable of being exercised to March 2, 2001 options for 3,798,856 shares have been exercised and the shares issued. The total number of options held by Directors and Officers as a group as at March 2, 2001 is 12,873,142.
The following table shows the number of share options held by Directors as at March 2, 2001.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS AT MARCH 2, 2001.
The following table sets forth, as of March 2, 2001, certain information regarding the beneficial ownership of the Ordinary Shares, by (a) each person or entity who is known by the Company to own beneficially 5% or more of its outstanding Ordinary Shares; (b) each Director of the company; and (c) all Directors and Executive Officers as a group.
Name No. of Shares Percent of Outstanding Ordinary Shares Stephens Group Inc 45,572,179 15.65% Quilcap Corp / Quilcap Int'l Corp 29,092,125 10.0% Oracle Partners LP 23,333,333 8.01% Mr A Baker 10,200,000 3.5% Mr G Balthazar - * Dr F W Bonner 17,768 * Mr B Cass 1,000,000 * Prof. J Caldwell - - Mr K Cramer 9,483,167 3.26% Mr J Griffiths - - All Executive Officers and Directors 20,700,935 7.11% as a group - ------------------------------------ ------------------ --------------------- BNY Nominees Ltd 83,862,740 28.8%
* Signifies less than 1%
The shares held by BNY Nominees Ltd. are as Depositary for the Company's ADRs and may duplicate some of the shareholdings reported above.
From time to time US depositary institutions hold shares on behalf of their clients to enable a market to be made in the Company's shares. No holdings of 3% or more have been reported to the Company by those institutions at March 2, 2001.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(1) A (pound)2,000,000 loan facility was made available to the Company on September 25, 2000 by a director, Mr Baker. (pound)1,000,000 of this was drawn down immediately. The loan is repayable on demand, although it is subordinate to the bank loan, it is unsecured and interest is payable monthly at 10%.
(2) On January 20, 2001 the Company's bank loans were refinanced by means of a loan from HLSF, LLC a subsidiary company of the Stephens Group Inc., a related party, and the other two banks who were part of the original loan syndicate. The debt is now repayable on June 30, 2006 and interest is payable in quarterly breaks at "LIBOR" plus 1.75% in respect of drawings up to (pound)19,500,000 and "LIBOR" plus 2% in respect of drawings over (pound)19,500,000.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report ----------------------------------------------
(1) Index to Financial Statements Page
Report of Deloitte & Touche - Independent Auditors............. 20 Report of Arthur Andersen - Independent Auditors...................21 Consolidated Balance Sheets .......................................22 Consolidated Statements of Operations .............................23 Consolidated Statement of Changes in Shareholders' Equity..........24 Consolidated Statement of Cash Flows...............................25 Notes to the Consolidated Financial Statements.....................26
(2) Financial Statement Schedules
Schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
(b) List of Exhibits
Exhibit No. Description of Exhibit
1.1. An agreement between the Company and Kleinwort Benson Limited dated August 10, 1998 under which Kleinwort Benson Limited agreed to subscribe or to procure subscribers for those New Shares not taken up by the Company's shareholders under the Open Offer, with letter dated September 1, 1998 confirming certain alterations INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
2.1 An agreement between the Company, the Directors and various investors dated August 10, 1998 under which the investors agreed to subscribe for, collectively, 120,000,000 New Shares INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
3.1 Memorandum and new Articles of Association adopted by the Company on March 22, 2000 INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
4.1. Deposit Agreement dated June 21, 1983, amended and restated as of June 6, 1996, as of May 8, 2000 and as of July 10, 2000 between the Company (formerly Huntingdon International Holdings plc) and The Bank of New York and Holders of American Depositary Receipts. INCORPORATED BY REFERENCE TO REGISTRANT'S POST-EFFECTIVE AMENDMENT NO.1 TO REGISTRATION STATEMENT ON FORM, REGISTRATION NUMBER 333-11922.
4.2 Specimen Certificate for American Depositary Shares. INCORPORATED BY REFERENCE TO REGISTRANT'S POST-EFFECTIVE AMENDMENT NO.1 TO REGISTRATION STATEMENT ON FORM, REGISTRATION NUMBER 333-11922.
4.3 Subscription Agreement dated August 1, 1991 among HIH Capital Limited("HCL"), the Company, Chase Manhattan Bank Luxembourg S.A. (the "Custodian"), J Henry Schroder Wagg & Co.Limited and Others. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1991.
4.4 Trust Deed, dated August 12, 1991 among HCL, the Company and The Law Debenture Trust Corporation plc INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1991.
4.5 Deed Poll, dated August 12, 1991, executed by the Company INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1991.
4.6 Custodian Agreement, dated August 1, 1991 among the Custodian, HCL, and the Company. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1991.
10.1 Equipment Mortgage dated April 20, 1998 between Huntingdon Life Sciences Ltd and National Westminster Bank plc INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.2 Security Agreement dated April 30, 1998 between Huntingdon Life Sciences Inc., National Westminster Bank PLC and various other banks INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.3 An agreement dated August 7, 1998 between, inter alia, the Company, Huntingdon Life Sciences Limited, Huntingdon Life Sciences Inc. and National Westminster Bank PLC replacing the facilities agreement dated November, 1995 INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.4 A bridging facility being made available by National Westminster Bank PLC in favour of the Company and Huntingdon Life Sciences Limited INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.5 An agreement between the Company, Huntingdon Life Sciences Limited, Huntingdon Life Sciences Inc. and various banks replacing the third intercreditor agreement between the parties dated March 17, 1998 INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.6 Third Supplemental Deed dated August 7, 1998 between the Company and National Westminster Bank PLC INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.7 Third Supplemental Deed dated August 7, 1998 between Huntingdon Life Sciences Ltd and National Westminster Bank PLC. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.8 Deed of variation dated August 7, 1998 to the Service Contract dated March 15, 1993 between the Company and Mr C F Cliffe. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.9 Service Contract dated August 7, 1998 between Huntingdon Life Sciences Ltd and Mr M Sandford INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.10 Service Contract dated August 7, 1998 between Huntingdon Life Sciences Ltd and Dr C M Macdonald INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.11 Deed of variation dated August 7, 1998 to the Contract dated March 20, 1995 as amended on December 23, 1995 between the Company, Harford Consultancy Services Limited and Mr R Pinnington. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.12 A letter of appointment dated August 7, 1998 between the Company and Professor J Caldwell. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.13 A Management Services Agreement dated August 7, 1998 between the Company and Focused Healthcare Partners. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.14 A Deed of Undertaking between the Company and Andrew Baker INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.15 Amendment dated January 26, 2000 to the Management Services Agreement dated August 7, 1999 between the Company and Focused Healthcare Partners. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.16 Service Contract dated April 29, 1999 between Huntingdon Life Sciences Ltd and Mr B Cass INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.17 Service Contract dated April 29, 1999 between Huntingdon Life Sciences Ltd and Mr J Griffiths. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.18 Service Contract dated April 29, 1999 between Huntingdon Life Sciences Ltd and Dr F Bonner. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.19 A letter of appointment dated September 7, 1999 between the Company and Mr J L Dowling III. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.20 Service Agreement dated September 17, 1999 between the Company and Mr K Cramer. FILED HEREWITH.
10.21 A letter of appointment dated March 21, 2000 between the Company and Mr G Balthazar. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.22 A Management Services Agreement dated December 24, 1999 between the Company and Rittle Limited. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.23 Executive's Undertaking dated December 24, 1999 between the Company and Roger Devlin. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.24 Option Deed dated September 2, 1998 between the Company and Andrew Baker INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.25 Rules of the Huntingdon Life Sciences Group Unapproved Share Option Scheme as amended on June 3, 1998. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.26 Rules of the Huntingdon Life Sciences Group Incentive Option Plan INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.27 Rules of the Huntingdon Life Sciences Sharesave Scheme INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.28 The Rules of The HIH Share Option Plan. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.29 The Rules of The HIH Approved Management Share Option Plan. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.30 A Deed of Variation dated August 6, 1998 between Ciba-Geigy plc, Huntingdon Life Sciences Limited and the Company supplemental to an agreement dated March 14, 1997 INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
10.31 Sale Agreement dated June 23, 1999 between the Company and Huntingdon Life Sciences Ltd relating to the sale of Wilmslow Research Centre. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.32 Sale Agreement dated July 12, 1999 between the Company and J S Bloor (Tamworth) Limited relating to the sale of Wilmslow Research Centre. INCORPORATED BY REFERENCE TO REGISTRANTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
10.33 Loan Facility Letter, dated September 25, 2000, between the Company and Andrew Baker, FILED HEREWITH.
10.34 Amendment No. 1 to Loan Facility Letter, dated as of February 22, 2001, between the Company and Andrew Baker, FILED HEREWITH.
10.35 Amendment Agreement dated February 19, 2001 relating to a Facilities Agreement dated August 7, 1998 among the Company, Huntingdon Life Sciences Limited (HLSL), Huntingdon Life Sciences Inc. (HLSI), the Banks (as defined therein) and Stephens Group Inc. as Agent, FILED HEREWITH.
10.36 Fifth Intercreditor Agreement, dated February 19, 2001 among Stephens Group Inc. (as Agent), HLSF LLC, Allfirst Bank, Comerica Bank, the Company, HLSL, HLSI, Andrew Baker and Stephens Group Inc. (as Funder). FILED HEREWITH.
21.1 Subsidiaries FILED HEREWITH
99.1 Consent Decision and Order dated April 8, 1998 between United States Department of Agriculture and Huntingdon Life Sciences Inc. INCORPORATED BY REFERENCE TO REGISTRANT'S ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
99.2 Press Release, dated March 22, 2001, announcing fourth quarter and full year 2000 results. FILED HEREWITH.
Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated. HUNTINGDON LIFE SCIENCES GROUP plc (Registrant)
By: /s/ Brian Cass
Name: Brian Cass
Title: Managing Director/Chief Operating Officer
Date: March 30, 2001