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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-27570
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1640186
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3151 Seventeenth Street Extension
Wilmington, North Carolina 28412
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 251-0081
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $448,370,794 as of March 10, 1997, based upon the closing price
of the Common Stock on that date on the NASDAQ National Market System. Shares of
Common Stock held by each executive officer and director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
may not be conclusive for other purposes.
The number of shares outstanding of the registrant's class of Common Stock, par
value $0.10 per share, was 22,185,842 as of March 10, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders (certain parts as indicated herein Part III).
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PART I
Statements in this Annual Report on Form 10-K that are not descriptions
of historical facts are forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those set forth herein and in
the Company's other SEC filings, and including, in particular, risks relating to
government regulation, dependence on certain industries, fixed price nature of
contracts, dependence on personnel, management of growth and competition.
ITEM 1. BUSINESS.
Company Overview
Pharmaceutical Product Development, Inc. ("PPD" or "the Company")
provides a broad range of research and consulting services in the life and
environmental sciences. The Company's life sciences subsidiaries include PPD
Pharmaco, Inc. and Clinix International Inc. PPD Pharmaco is a leading contract
research organization ("CRO") providing integrated product development services
on a global basis to complement the research and development activities of
companies in the pharmaceutical and biotechnology industries. Through its
environmental sciences subsidiary, APBI Environmental Sciences Group, Inc.,
operating under the trade name ENVIRON, the Company provides assessment and
management of chemical and environmental health risk.
In September 1996, a wholly-owned subsidiary of the Company was merged
with and into Applied Bioscience International Inc. ("APBI") pursuant to which
APBI became a wholly-owned subsidiary of the Company. Subsequent to the merger,
the Company believes it is the third largest CRO in the world. The Company's CRO
operations (formerly doing business as Pharmaceutical Product Development, Inc.,
or PPD) and APBI's CRO business (formerly doing business as Pharmaco
International) have been integrated and now operate under the trade name PPD
Pharmaco.
Life Sciences Group
The Company's Life Sciences Group provides services through PPD
Pharmaco, Inc. and its wholly-owned European, South American and South African
subsidiaries (collectively "PPD Pharmaco"), and through Clinix International
Inc. ("Clinix"), which currently operates through one division using the trade
name Chicago Center for Clinical Research ("CCCR").
PPD Pharmaco offers its clients high quality, value-added services
designed to reduce drug development time. Reduced development time allows the
client to get its products into the market faster and to maximize the period of
marketing exclusivity and the economic return for such products. In addition,
PPD Pharmaco's integrated services offer its clients a variable cost alternative
to the fixed costs associated with internal drug development. PPD Pharmaco's
professional CRO services include Phase I clinical testing, laboratory services,
Phase II-IV clinical trial management, clinical data management and
biostatistical analysis, treatment Investigational New Drug Applications,
medical writing and regulatory services, and healthcare economics and outcomes
research. The Company believes that it is one of a few CROs in the world capable
of providing such a broad range of clinical development services.
Clinix was established in 1995 as a wholly-owned subsidiary of APBI. In
August 1995, Clinix acquired the business and substantially all of the assets of
CCCR, a nationally recognized organization which conducts clinical trials in the
pharmaceutical and food and nutrition industries. The Company believes the
acquisition of CCCR is of strategic importance in enhancing and expanding the
range of clinical development services offered.
In addition to the acquisition of APBI, the Company furthered its
expansion outside of the U.S. in 1996 through the acquisition of Trilife
Gesellschaft Fur Medizinische Entwicklung Verwaltungs GmbH ("Trilife") in
Germany, Medisys S.L. ("Medisys") in Spain and Q&Q Suporte A Pesquisa Clinica
Ltda. ("Q&Q") in Brazil. The consideration for Trilife consisted of
approximately $567,000 paid at closing. In addition, the Company may pay up to
an additional $135,000 as additional purchase price, dependent upon the
performance of Trilife for a certain period after the acquisition. The
consideration for Medisys consisted of $400,000 paid at closing, plus an
additional $300,000 due on each of the first and second anniversaries of the
acquisition. The consideration for Q&Q consisted of $500,000 paid at closing,
plus an additional $100,000 due on each of the first three anniversaries of the
acquisition. In 1996, the Company also acquired Data Acquisition and Research
(DAR) Limited ("DAR"), located in Scotland, which allowed it to expand its
biostatistics and data analysis capabilities in Europe. The consideration for
DAR consisted of cash paid at closing of $992,000, plus an additional $348,000
to be paid in 10 installments between June 1997 and December 2001. Subsequent to
year end, the
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Company acquired Belmont Research, Inc. ("Belmont") in a transaction to be
accounted for as a pooling of interests. Belmont provides software development
and system integration services to the pharmaceutical industry. The
consideration for Belmont consisted of 502,384 shares of the Company's common
stock plus the issuance of approximately 115,000 options to acquire shares of
the Company's common stock.
In November 1995, APBI sold its toxicology laboratories, located in New
Jersey and Suffolk, England, to Huntingdon International Holdings plc
("Huntingdon"). The Company received as consideration net cash proceeds of $32.5
million and Huntingdon's Phase I clinical center located in Leicester, England,
at an agreed-upon value of $4.5 million.
Environmental Sciences Group
ENVIRON. The Company's Environmental Sciences Group provides services
through APBI Environmental Sciences Group, Inc., operating under the trade name
ENVIRON. ENVIRON is a multidisciplinary environmental and health sciences
consulting firm that provides a broad range of services relating to the presence
of hazardous substances in the environment, in drugs and medical devices, in
consumer products and in the workplace. Services provided by ENVIRON are
concentrated in the assessment and management of chemical risk and are
characterized by engagements supporting private sector clients with complex,
potentially high-liability concerns.
For the first time, the Company expanded its environmental services
business outside the U.S. with the acquisition of Environmental Assessment Group
Limited ("EAG"), located in the United Kingdom, in September 1996. The
consideration for EAG consisted of $1.9 million cash, a note for approximately
$350,000 and the potential to earn up to an additional $500,000, depending upon
the profits of EAG during the two years after the acquisition. Subsequent to
year end, the Company furthered its expansion in its Environmental Sciences
Group through the acquisition of Technical Assessment Systems, Inc. ("TAS") in
January 1997. The consideration for TAS consisted of cash of $490,000, a note
for $300,000 and the potential to pay an additional amount depending upon TAS'
profitability for a certain period after the acquisition.
Industry Overview
Life Sciences Group
The CRO industry provides independent product development services to
the pharmaceutical and biotechnology industries. In general, CROs derive
substantially all of their revenue from the research and development
expenditures of pharmaceutical and biotechnology companies. The CRO industry has
evolved from providing limited clinical services in the 1970s to a full-service
industry today that encompasses the clinical research process (including
pre-clinical evaluations), study design, clinical trial management, data
collection and biostatistical analysis and product registration support. All of
these services are provided in accordance with applicable government regulations
covering clinical trials and the drug approval process in the jurisdictions
where the services are provided, including the regulations of the Food and Drug
Administration ("FDA") in the United States and the European Medicines
Evaluation Agency ("EMEA").
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical and biotechnology
industries. Implementation of government healthcare reform may adversely affect
research and development expenditures by pharmaceutical and biotechnology
companies which could decrease the business opportunities available to the
Company. The Company is unable to predict the likelihood of such or similar
legislation being enacted into law or the effects such legislation would have on
the Company.
As a general matter, the clinical CRO industry is not capital intensive
and the financial costs of entry into the industry are relatively low. The CRO
industry is highly fragmented, with several hundred small, limited-service
providers, several medium-sized CROs and a few full-services CROs with
international capabilities. Although there are few barriers to entry for small,
limited-service providers, the Company believes that there are significant
barriers to becoming a full-service CRO with international capabilities. Some of
these barriers include the cost and experience necessary to develop broad
therapeutic expertise, the ability to manage large, complex clinical trials, the
experience to prepare regulatory submissions and the infrastructure and
experience to respond to the international needs of clients.
Environmental Sciences Group
The environmental industry has long been dependent upon governmental
programs and regulations developed in response to concerns regarding the safety
of chemicals in the air, water, food, consumer products and land. Historically,
much of the growth experienced by environmental firms has come from assisting
private sector clients respond to the regulatory systems that have been put into
place at both the federal and state levels. In addition, litigation support on
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behalf of private sector clients involved in disputes with government agencies
or other private parties has been a significant source of market opportunity and
revenue.
For the next several years, the Company believes that the environmental
industry will find continued, but more limited, opportunities to grow.
Opportunities to provide litigation support are expected to increase. However,
the extent to which new or existing regulations provide a growing base of
business will depend largely on how the differences between the views of the
current and new Congressional Class of 1997 and the President are resolved. In
addition, after many years of dealing with problems created in the past, general
industry, especially the manufacturing, industrial and chemical concerns, is now
able to turn its attention to current operations and prevention of future
environmental issues. The industry's proactive approach will create new and
expanding opportunities for the environmental industry. For example, leaders in
industry are already developing programs to incorporate safety, health and
environmental considerations into their product and process design. A growing
area for the environmental industry to provide services is in assisting
companies to incorporate environmental and public health concerns into plans for
effective corporate strategic growth.
The Company believes that international opportunities for environmental
industry growth will continue to expand as the world moves toward a global
economy. Companies seeking to enter the world economy will need assistance in
developing environmental management systems and in monitoring these programs for
compliance with international standards. In addition, as world markets become
more developed, opportunities will increase for the environmental industry to
assist private firms in merger and acquisition planning and in general
evaluation and management of environmental and public health risks. The Company
believes that its acquisition of EAG will allow it to better pursue these
opportunities.
The Drug Development Process
Before a new drug is marketed, the drug must undergo extensive testing
and regulatory review in order to determine that it is safe and effective. The
development process consists of two stages: pre-clinical and clinical. The first
stage is the pre-clinical research, in which the new drug is tested in vitro
(test tube) and in animals, generally over a one-to three-year period, in order
to determine the basic biological activity and safety of the drug. The Company
does not provide animal-based services in this stage of development. If the drug
is perceived to be safe for human testing, the drug then undergoes a series of
clinical tests in humans. During the clinical stage, one of the most
time-consuming and expensive parts of the drug development process, the drug
undergoes a series of tests in humans, including healthy volunteers and patients
with the targeted disease or condition.
Prior to commencing human clinical trials in the United States, the
sponsor must file an Investigational New Drug ("IND") application with the FDA.
In order to receive IND status, the sponsor of the new drug must provide
available manufacturing data, pre-clinical data, information about any use of
the drug in humans in other countries or in the United States for other purposes
and a detailed plan for the conduct of the proposed clinical trials. The design
of these trials, also referred to as the study protocols, is essential to the
success of the drug development effort, because the protocols must correctly
anticipate the nature of the data to be generated and results that the FDA will
require before approving the drug. In the absence of any FDA comments within 30
days after the IND filing, human clinical trials may begin.
Although there is no statutory definition of the structure or design of
clinical trials, human trials usually start on a small scale to assess safety
and then expand to larger trials to test efficacy. These trials are usually
grouped into the following three phases, with multiple trials generally
conducted within each phase:
- Phase I. Phase I trials involve testing the drug on a limited
number of healthy individuals, typically 20 to 80 persons, to
determine the drug's basic safety data relating to tolerance,
absorption, metabolism and excretion as well as other
pharmacological indications and actions. This phase lasts an
average of six months to one year.
- Phase II. Phase II trials involve testing a small number of
volunteer patients, typically 100 to 200 persons who suffer
from the targeted disease or condition, to determine the
drug's effectiveness and dose response relationship. This
phase lasts an average of one to two years.
- Phase III. Phase III trials involve testing large numbers of
patients, typically several hundred to several thousand
persons, to verify efficacy on a large scale, as well as
long-term safety. These trials involve numerous sites and
generally last two to three years.
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After the successful completion of all three clinical phases, the
sponsor of a new drug in the United States submits a New Drug Application
("NDA") to the FDA requesting that the product be approved for marketing. The
NDA is a comprehensive, multi-volume filing that includes, among other things,
the results of all pre-clinical and clinical studies, information about the
drug's composition and the sponsor's plans for producing, packaging and
labeling the drug. In addition, while the FDA does not use price as a criterion
for approving a new drug, advisory panels of scientists that help the FDA
evaluate new types of therapies have started taking cost into consideration.
The FDA's review of an NDA can last from a few months, for drugs related to
life-threatening circumstances, to many years, with the average review lasting
two and one-half years. Drugs that successfully complete this review may be
marketed in the United States, subject to the conditions imposed by the FDA.
As a condition to its approval of a drug, the FDA may require that the
sponsor conduct additional clinical trials following receipt of NDA approval to
monitor long-term risks and benefits, study different dosage levels or evaluate
different safety and efficacy parameters in target patient populations. In
recent years, the FDA has increased its reliance on these trials, known as Phase
IV trials, which allow new drugs that show early promise to reach patients
without the delay associated with the conventional review process. Phase IV
trials usually involve thousands of patients.
Regulatory Environment
The market for the services offered by both the Company's CRO
operations and ENVIRON has developed as a result of significant laws and
regulations governing the development and testing of certain drugs and hazardous
substances and the impact of hazardous substances on the environment.
Many countries require safety testing prior to obtaining governmental
approval to market various substances, including pharmaceutical products,
industrial chemicals and agrochemicals. The most significant laws and
regulations concern the safety of pharmaceutical products. The results of
clinical tests conducted upon pharmaceutical products must be submitted to
appropriate government agencies, such as the FDA in the U.S., the EMEA and
national regulatory agencies in Europe and the Ministry of Health and Welfare in
Japan, as part of the relevant pre-market approval process in individual
countries.
Manufacturers of industrial chemicals and agrochemicals must also
comply with toxicological testing requirements in connection with the pre-market
approval process. In recent years, heightened concern over the presence of
potentially toxic substances in the environment has focused attention on the
need to evaluate the effects of existing and new chemical substances. As a
result, regulations have been enacted in many jurisdictions expanding the
regulatory process for industrial chemical and agrochemical products, including
the Toxic Substances Control Act ("TSCA") and the Federal Insecticide, Fungicide
& Rodenticide Act in the United States ("FIFRA"), and the council Directive
91/414/EEC in Europe.
The management and remediation of hazardous substances in the
environment are also subject to extensive federal legislation in the U.S.,
including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA", commonly known as the "Superfund" legislation) and the
Superfund Amendment and Reauthorization Act of 1986 ("SARA"), which address
problems involving the remediation of past waste disposal practices; the
Resource Conservation and Recovery Act of 1976 ("RCRA") and the Hazardous Solid
Waste Amendments of 1984, which regulate the management of newly created wastes;
the Safe Drinking Water Act of 1974; the Clean Water Act; the Occupational
Safety and Health Act ("OSHA") and the 1990 Clean Air Act Amendments. In
addition, state authorities have enacted significant environmental legislation,
including California's Safe Drinking Water and Toxic Enforcement Act of 1986 and
New Jersey's Industrial Site Recovery Act.
Trends Affecting the CRO Industry
In 1996, worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $30
billion, of which the Company estimates $10-15 billion was spent on drug
development activities of the type offered by the CRO industry. The Company
believes that approximately $2.7 billion of such spending was outsourced to
CROs.
The Company believes that the outsourcing of drug development
activities by pharmaceutical and biotechnology companies has been increasing and
will continue to increase for the following reasons:
Cost Containment Pressures
Market forces and governmental initiatives have placed significant
pressure on pharmaceutical and biotechnology companies to reduce drug prices.
Pressures on profit margins have arisen from increased competition as a result
of patent expiration, market acceptance of generic drugs and governmental and
private efforts to reduce healthcare
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costs. In addition, private managed care organizations are beginning to limit
the selection of drugs from which affiliated physicians may prescribe, thereby
further increasing competition among pharmaceutical and biotechnology companies.
The Company believes that the pharmaceutical industry is responding to these
pressures by downsizing operations, decentralizing the internal research and
development process and converting the fixed costs of maintaining a research and
development infrastructure to variable costs by outsourcing drug development
activities to CROs. The downsizing of research and development activities also
creates demand for CROs as internal development bottlenecks arise when a large
number of compounds emerge from the research process and need to be pushed
through the development pipeline. In addition, increased pressure to
differentiate products and to generate support for product pricing serves as the
foundation for growth in the area of healthcare economics, both with respect to
drugs under development and to products already on the market.
Revenue Enhancement Through Faster Drug Development
Pharmaceutical and biotechnology companies face increased pressure to
bring innovative, patent-protected medicines to market in the shortest possible
time, while following good science practices and adhering to government
regulations. Pharmaceutical and biotechnology companies are attempting to
increase the speed of new product development, and thereby maximize the period
of marketing exclusivity and economic returns for their products, by outsourcing
development activities to CROs. The Company believes that CROs, by providing
specialized development services, are often able to perform the needed services
with a higher level of expertise or specialization, and more quickly, than a
pharmaceutical or biotechnology company could perform such services internally.
In addition, some pharmaceutical and biotechnology companies are beginning to
contract with large full-service CROs to conduct all phases of clinical trials
for new product programs lasting several years, rather than separately
contracting specific phases of drug development to several different CROs, an
approach which the Company believes may result in shorter overall development
times.
Biotechnology Industry Growth
The United States biotechnology industry has grown rapidly over the
last ten years and is developing significant numbers of new drug candidates that
will require regulatory approval. Many of these new drug candidates are now
moving into clinical development and many biotechnology companies do not have
the necessary staff, expertise or financial resources to conduct clinical trials
on their own. Accordingly, many of these companies have chosen to outsource the
product development process rather than expend significant time and resources to
develop an internal clinical development capability. Further, PPD Pharmaco's
experience suggests that biotechnology companies are increasingly turning to
CROs for their sophisticated regulatory expertise to provide assistance in the
generation of the ideal development plan. Moreover, the biotechnology industry
is expanding into and within Europe, providing growth opportunities for CROs
with international capabilities.
Need for International Support
Pharmaceutical and biotechnology companies are attempting simultaneous
filings of registration packages in several major jurisdictions rather than
following the past practice of sequential filings. The studies to support such
registration packages may include a combination of multinational and domestic
trials. Pharmaceutical and biotechnology companies may turn to CROs for
assistance with such trials, as well as collecting, analyzing, integrating and
reporting the data. The Company believes that CROs with an international
presence and management experience in the simultaneous filing of multiple
applications may benefit from these trends.
Consolidation in the CRO Industry
As a result of competitive pressures, the CRO industry is
consolidating. Mergers and acquisitions, including the Company's merger with
APBI, have resulted in the emergence of several large, full-service CROs that
have the capital, technical and financial resources to conduct all phases of
clinical trials on behalf of pharmaceutical and biotechnology companies. As
pharmaceutical and biotechnology companies increasingly outsource development,
they may turn to larger CROs that provide a broad range of clinical services,
while at the same time they may also limit the number of CROs they choose to
provide such services. The Company believes that this trend will further
concentrate market share among larger CROs with a track record of speed,
flexibility, responsiveness and overall development experience and expertise.
Company Strategy
The Company's fundamental strategy is to distinguish its services on
the basis of superior performance. The Company strives to deliver to its clients
efficient and innovative services that accelerate the rate of new product
development. The Company intends to expand the depth and breadth of its services
by (i) capitalizing on its managerial
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and operational strengths, (ii) focusing on hiring and training its staff, (iii)
focusing on its strategic marketing initiatives, (iv) developing its services in
healthcare economics and communications consulting, (v) pursuing strategic
acquisitions, (vi) expanding geographically and (vii) pursuing opportunities
provided by technological advances.
Management and Operational Strength
The Company is guided by senior management who have spent much of their
careers as development experts within major pharmaceutical companies and who
have a record of success before the United States FDA and the EMEA in Europe.
PPD Pharmaco concentrates on its core operational strengths in all phases of
clinical studies and other critical path studies such as treatment
Investigational New Drug Applications. Timely performance is based on parallel
drug development processes and leveraging the knowledge and experience of
management and investigators. Basic medical, scientific and regulatory services
continue to be integrated with, and streamlined through, advances in various
areas of technology, all directed toward a reduction in overall development
times. PPD Pharmaco emphasizes efficiencies in each phase of clinical trials,
data acquisition, data management and analysis, report writing and report
filing, in order to reduce the time and cost of obtaining regulatory approval
for its clients' products. As a means of differentiating itself from its
competitors, PPD Pharmaco emphasizes therapeutic area specialization, in
particular in the areas of virology/AIDS/infectious diseases,
gastroenterology/metabolic diseases, cardiovascular diseases, critical care,
pulmonary/allergy, central nervous systems, dermatology, food and nutrition,
oncology, rheumatology and women's health.
Hiring and Training
The Company believes that its success is based on the quality and
dedication of its employees. The Company strives to hire the best available
people in terms of ability, attitude, experience and fit with the Company's
performance philosophy. New employees are trained extensively, and the Company
believes that it is an industry leader in the thoroughness of its training
programs. In addition, employees are encouraged to continually upgrade and
broaden their skills through internal and external training. As new technologies
develop, employees are equipped with and trained to make use of such
technological innovations.
Strategic Marketing
PPD Pharmaco focuses its marketing and sales efforts with an emphasis
on high volume clients with needs in the service segments and therapeutic areas
in which the Company specializes. Direct salespeople concentrate on a group of
assigned clients, marketing across service segments. PPD Pharmaco's business
development personnel consult with potential clients early in the bidding stage
in order to determine their needs. The business development personnel and PPD
Pharmaco's project managers then invest significant time to determine the
optimal way to design and carry out the potential client's proposal. PPD
Pharmaco's recommendations to the potential client with respect to study design
and implementation are an integral part of PPD Pharmaco's bids and an important
aspect of the integrated services that PPD Pharmaco offers to its clients. PPD
Pharmaco believes that its extensive preliminary efforts relating to the
evaluation of a potential client's proposed clinical protocol and implementation
plan allows accelerated commencement of the clinical trial after the contract
has been awarded to PPD Pharmaco.
ENVIRON conducts separate marketing activities at each of its office
locations, and believes that its regional presence enables its professionals to
gain a greater knowledge of regional environmental issues, a better
understanding of regional laws and regulations and a more constructive working
relationship with regional governmental agency personnel. Because of the
technical nature of ENVIRON's business, most marketing activities at each of
ENVIRON's operating divisions are conducted by technical and scientific
personnel, with initial contacts frequently followed up by personal visits to
clients' offices.
The Company sponsors and encourages the participation by its personnel
in a variety of scientific endeavors, including the presentation of papers by
its professional staff at meetings of professional societies and major
conferences and the publication of scientific articles in respected journals.
The Company believes such activities enhance its reputation for professional
excellence. The Company's core marketing efforts are complemented by advertising
in trade journals and by exhibits at scientific conferences.
Healthcare Economics and Outcomes Research
The healthcare market in the United States is evolving from a
fragmented system of individual providers with little incentive to control costs
to a managed care system in which large organizations attempt to lower the cost
of healthcare through a number of means. The Company believes that such market
dynamics support the need for healthcare economics analysis and outcomes
research. PPD Pharmaco offers programs integrating such analysis in clinical
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development programs to support regulatory approval, as well as pricing,
marketing and reimbursement strategies. While PPD Pharmaco's current focus in
this area is on its traditional client base within the pharmaceutical and
biotechnology industries, both with respect to drugs under development and
products already on the market, PPD Pharmaco expects to extend such services to
payers and providers as well.
Acquisitions
The Company will continue to actively seek strategic acquisitions, both
within and outside current CRO service segments. Acquisition candidates must
provide opportunities for innovation, synergy and growth. The Company's criteria
for acquisitions may include complementary client lists, ability to increase
market share within and across clients, complementary therapeutic area and
service segment strengths, strategic geographic capabilities or particular
process expertise.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and services of the acquired companies, the
expenses incurred in connection with the acquisition and subsequent assimilation
of operations and products, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. If the Company consummates any acquisitions in the future, there can be
no assurance that such acquisitions will be successfully integrated into the
Company's operations.
The Company's merger with APBI allowed the Company to become one of the
few full-service, multi-national CROs, capable of monitoring clinical trials
involving hundreds of investigative sites, conducted simultaneously in North
America and Europe.
Geographical Expansion
In addition to the merger with APBI, the Company's recent acquisitions
in Germany, Spain, Brazil, Scotland and England reflect its commitment to
strategic geographic expansion. Outside the United States, PPD Pharmaco
currently has operations in many locations in Europe, along with Australia,
Brazil, Canada and South Africa. PPD Pharmaco has identified certain strategic
areas of promise where CROs currently have limited or no presence and intends to
selectively pursue these and other strategic opportunities internationally.
With its recent acquisition of EAG in the United Kingdom, the Company's
Environmental Sciences Group has expanded outside the U.S. for the first time.
ENVIRON will continue to pursue other strategic opportunities, both within the
U.S. and internationally.
Technological Advances
PPD Pharmaco believes that optimizing the use of information technology
in conjunction with drug development experience can accelerate the drug
development process and yield valuable marketing information. PPD Pharmaco has
experience in the use of information technology in clinical trial management and
offers or is developing a wide range of technology-based services, including
initial market research and study design, remote monitoring and data
acquisition, ongoing study management, outcomes research, patient and disease
management and the filing of Computer Assisted New Drug Applications and Product
License Applications. The Company believes that the use of third-party systems
and selected internally developed software allows it to offer its clients the
best available technology for expediting the drug development process.
Services Offered
Life Sciences Group
PPD Pharmaco has designed its various services to be flexible and
integrated in order to assist its clients in optimizing their research and
development spending through the clinical stages of the drug development
process. PPD Pharmaco provides Phase I clinical testing, laboratory services,
Phase II-IV clinical trial management, clinical data management and
biostatistical analysis, treatment Investigational New Drug Applications,
medical writing and regulatory services and healthcare economics and outcomes
research for its clients. PPD Pharmaco's services can be provided individually
or as an integrated package of services to meet its client's needs. Through the
CCCR division of Clinix, the Life Sciences Group participates in and conducts
clinical trials in the pharmaceutical and food and nutrition industries. During
1996, $152.3 million, or 77.0%, of the Company's net revenue was generated by
the Life Sciences Group.
Phase I Clinical Testing
After an Investigational New Drug Application has been filed with the
FDA, human testing of a new drug can begin. The drug is typically first
administered to healthy volunteers to determine the drug's basic safety data
based on
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tolerance, absorption, metabolism, excretion and other pharmacological actions.
Later, special studies are conducted in volunteers and special patient
populations to further define the drug's overall pharmacological profile. PPD
Pharmaco is the largest Phase I provider, with clinical testing services
conducted in its 200-bed unit in Austin, Texas, its 66-bed unit located near
Research Triangle Park, North Carolina and its 52-bed unit in Leicester,
England. The Phase I's professional nursing staff administers general Phase I
safety tests, special population studies and bioavailability and bioequivalence
testing. Special population studies may involve the elderly, women or patients
with specific diagnoses such as renal failure or asymptomatic HIV disease.
The Company's clinical research studies rely upon the ready
accessibility and willing participation of volunteer subjects. These subjects
generally include volunteers from the communities in which the studies are
conducted, including the Phase I centers in Austin, Texas; Raleigh, North
Carolina and Leicester, England; which have provided a substantial pool of
potential subjects for research studies. The Company's business could be
adversely affected if the Company were unable to attract suitable and willing
volunteers.
Bioavailability and bioequivalence testing, generally conducted each
time the dosage, form or formulation of the drug is modified, involves
administration of the test compounds and obtaining biological fluids
sequentially over time to measure absorption, distribution, metabolization and
excretion of the drug.
PPD Pharmaco attempts to manage its Phase I services to maximize
scheduling flexibility and efficiency. The services also can be smoothly and
quickly integrated with PPD Pharmaco's other service segments such as
laboratory, pharmacokinetic and biostatistical services. PPD Pharmaco is one of
the few full-service CROs offering Phase I clinical testing in the United States
and Europe.
Laboratory Services
PPD Pharmaco provides bioanalytical and product analysis services
through its laboratories in Richmond, Virginia, and Madison, Wisconsin.
Biological fluid samples from clinical studies, such as those conducted by PPD
Pharmaco's Phase I units, must be transported to a laboratory such as PPD
Pharmaco's to be analyzed for drug and metabolite content and concentration. PPD
Pharmaco currently has approximately 275 non-proprietary validated assays
available for its clients' use in conducting laboratory analyses, thereby
qualifying PPD Pharmaco for a wide range of assignments. PPD Pharmaco's
laboratories also process fluid samples for pre-clinical studies.
Product analysis services include dissolution and stability studies
which are necessary to characterize a dosage form's release patterns and
stability under various environmental conditions in the intended package for
marketing. These studies must be carried out over the commercial life of
products, beginning at the clinical trial stage. New formulations require the
same set of studies as the original dosage form. Comprehensive measurement
services include Gas Chromatography/Mass Spectrometry, Liquid
Chromatography/Mass Spectrometry, High Performance Liquid Chromatography, Gas
Chromatography, Radioimmunoassay and Enzyme Linked Immunosorbent Assay. Support
services include HIV positive sample handling, sample/data management for
kinetic studies from multi-center trials and sample/data archiving.
PPD Pharmaco is one of a few full-service CROs able to offer its
clients the advantages of both bioanalytical and product analysis and Phase I
clinical testing.
Phase II-IV Clinical Trial Management
The core of PPD Pharmaco's business is a comprehensive package of
services for the conduct of Phase II-IV clinical trials, which, in concert with
its other analytical and Phase I testing services, allows PPD Pharmaco to offer
its clients an integrated package of clinical management services. The Company
has significant clinical trials experience in the areas of:
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AIDS Primary disease and treatment/prophylaxis of
opportunistic infections
Analgesia Acute and chronic pain modeling
Biotechnology Growth hormone, multiple sclerosis, sepsis,
wound healing
Cardiovascular disease Congestive heart failure, hypertension,
global survival trials
Central nervous system Schizophrenia, depression, anxiety,
disease obsessive-compulsive disorders, panic
disorders
Critical care Acute Respiratory Distress Syndrome,
disseminated fungal diseases, sepsis
Dermatology Wound healing, acne, hair loss
Food and Nutrition Fat substitutes, beta carotene,
oligofructose, fibers
Gastroenterology Duodenal ulcer, gastric ulcer,
gastro-esophageal reflux disease, H. pylori,
nonsteroidal anti-inflammatory drug-induced
ulcers
Infectious disease Acute and critical
Metabolic disease Diabetes, hormone replacement therapy
Oncology Ovarian, lung cancer
Pulmonary/Allergy Asthma, allergic rhinitis, community
acquired pneumonia
Rheumatology Rheumatoid and osteoarthritis
Virology AIDS, herpes simplex, chronic hepatitis B,
chronic hepatitis C
Women's health Hormone replacement, oral contraception
Clients' needs are served by conducting clinical trials through a
dedicated project team. A project manager supervises all aspects of the conduct
of the clinical trial, while PPD Pharmaco's clinical research associates are in
the field, monitoring the trial at the various investigational sites where it is
being conducted. Within this project-oriented structure, PPD Pharmaco can manage
every aspect of the clinical trials in Phases II through IV of the drug
development process, including protocol development, case report form ("CRF")
design, feasibility studies, investigator selection, recruitment and training,
site initiation and monitoring, accelerated patient enrollment, development of
training materials for investigators and training of clients' staff.
PPD Pharmaco monitors its clinical trials in strict adherence to
government regulations. PPD Pharmaco has adopted standard operating procedures
which are intended to satisfy regulatory requirements and serve as a tool for
controlling and enhancing the quality of its clinical trials. PPD Pharmaco's
procedures are written in accordance with the regulations and guidelines
appropriate to the region where they will be used, thus ensuring compliance with
Good Clinical Practice ("GCP") requirements. In North America, FDA regulations
and guidelines serve as a basis for PPD Pharmaco's procedures. The European
Community has agreed to conduct all studies in accordance with the International
Conference on Harmonization ("ICH")'s recommendations which set global clinical
study standards based on GCP. ICH guidelines have superseded the European
Community Note for Guidance, "Good Clinical Practice for Trials on Medicinal
Products in the European Community." The FDA is expected to adopt the ICH's
standards. Data generated during clinical trials are compiled, analyzed,
interpreted and submitted in report form to the FDA or other relevant regulatory
agencies for purposes of obtaining regulatory approval.
PPD Pharmaco provides its clients with one or more of the following
core Phase II-IV clinical trials management services using parallel processing
to accelerate the development process:
Study Design. PPD Pharmaco serves its clients in the critical
area of study design by applying its wide development experience in the
preparation of the study protocols and CRFs. The study protocol defines
the medical issues to be examined in evaluating the safety and efficacy
of the drug under study, the number of patients required to produce
statistically valid results, the clinical tests to be performed in the
study, the time period over which the study will be conducted, the
frequency and dosage of drug administration and the exact inclusion and
exclusion criteria to be met for the patients enrolled in the study.
The success of the study depends not only on the ability of the
protocol to correctly predict requirements of regulatory authorities,
but also on the ability of the protocol to fit coherently with the
other aspects of the development process and the ultimate marketing
strategy for the drug. This includes healthcare economic components to
support rational pricing and positioning.
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Once the study protocol has been finalized, CRFs must be
developed to record the desired information to be obtained from the
clinical studies. The various other disciplines involved in the drug
development process, including data management, must work closely with
the clinical trial management project team to assure that the right
data are acquired in a form which is most efficient for subsequent
data entry, management and reporting. Proper CRF design is critical
to allowing investigators and field monitors to conduct their
respective jobs quickly, accurately and effectively.
Investigator Recruitment. During the clinical trials,
administration of the drug to patients is supervised by physicians,
also referred to as investigators, at hospitals, clinics or other
locations, also referred to as investigational sites. The Life Sciences
Group solicits the participation in the study of investigators who
contract directly with either PPD Pharmaco, CCCR or its client. The
successful rapid identification and recruitment of investigators who
have the appropriate expertise and an adequate base of patients who
satisfy the requirements of the study protocol are critical to the
timely completion of the trial.
PPD Pharmaco maintains and constantly expands and refines its
computerized database of approximately 16,000 investigators.
Information regarding PPD Pharmaco's experience with these
investigators, including factors relevant to rapid study initiation,
are contained in the database. This information allows project managers
to choose the appropriate investigators for a particular study in an
efficient manner.
Study Monitoring. PPD Pharmaco provides study monitoring
services which include investigational site initiation, patient
enrollment assistance and data collection through subsequent site
visits. These visits also serve to assure that data are gathered
according to GCP, according to the requirements of the client and
applicable regulatory authorities and as specified in the study
protocol.
Project management and field monitoring services are the
operational heart of Phase II and III clinical studies. In most
instances a project will meet, exceed or fail to meet expected
timeliness for completion based on meeting deadlines during the first
few months of study initiation. Therefore, PPD Pharmaco focuses at an
early stage on identifying and quickly completing the critical
rate-limiting steps of screening and selecting investigators,
processing pre-study regulatory paperwork, obtaining investigative
review board approvals and scheduling investigational site initiation
visits. Drugs under study cannot be released to the investigational
sites, and thus the study cannot begin, until these activities have
been completed.
Following study initiation, PPD Pharmaco utilizes all
appropriate methods of accelerating patient recruitment. This may
involve PPD Pharmaco's integrated systems of telephone recruitment,
telefaxing and media advertising. As with Phase I clinical trials,
patient recruitment is critical to the Company's success.
Patient data must be obtained from the field efficiently,
quickly and accurately to speed subsequent data entry, management and
analysis and report writing. PPD Pharmaco acquires data via visits by
its field monitors to investigative sites and by electronic means.
Field monitors are equipped with laptop computers for the purpose of
data collection.
PPD Pharmaco has monitored many clinical trials, including a
number of very large studies. For example, PPD Pharmaco is in its
second five-year contract with the National Institutes of Health
("NIH") to monitor investigational sites for AIDS treatment related
trials sponsored by the NIH. This project involves approximately 200
investigational sites and total enrollment of approximately 58,000
patients.
Clinical Data Management and Biostatistical Analysis
PPD Pharmaco's data management and biostatistical analysis operations
are managed by professionals with extensive pharmaceutical and biotechnology
industry experience in the design and construction of local and multinational
clinical trial databases. PPD Pharmaco provides clients with assistance in such
areas as study design, sample size determination, CRF design and production, fax
based monitoring, database design and construction, New Drug Application
preparation and production, including electronic submission to the FDA, known as
Computer Assisted New Drug Applications and FDA presentations and defense.
Data management and biostatistical analysis services are offered as
discrete products and as part of an integrated drug development program. During
the design of development plans and protocols, PPD Pharmaco offers consulting
services relating to, and the determination of, sample size parameters for
patient enrollment, development of data analysis plans and randomization
schemes. During the conduct of clinical trials, PPD Pharmaco assists in the
rapid acquisition of clean and accurate data. Following completion of the
clinical trials, PPD Pharmaco assists in report preparation and FDA
presentations. PPD Pharmaco's biostatisticians may participate with clients in
meetings with the FDA to present and
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defend biostatistical analyses prepared by PPD Pharmaco. PPD Pharmaco has
expertise in electronically capturing and integrating geographically diverse
data. PPD Pharmaco employs SAS, Clintrace, Oracle and BBN Clintrial software, as
specified by clients, combined with customized programs developed by PPD
Pharmaco.
Drug development time is reduced by performing data management and
biostatistical analysis activities in parallel with other drug development
activities where possible. For example, data management personnel work with
clinical program managers and field monitors to continuously enter data, program
output tables and listings and validate the database so that there is a rapid
progression from data lock, to database freeze, to final tables and listing
preparation and to biostatistical analyses. Similarly, there is a close working
relationship with medical writing and regulatory services personnel.
Treatment Investigational New Drug Application
A treatment Investigational New Drug ("IND") Application is an
application by a pharmaceutical or biotechnology sponsor and the associated
procedure to allow patients to receive treatment with an investigational new
drug for a serious or immediate life-threatening disease, such as AIDS or
multiple sclerosis, for which no comparable or satisfactory therapy is
available. This treatment is provided during the clinical trial phase of
development, but outside the controlled clinical trial. For promising new drugs,
the treatment IND application has the advantage of getting the new drug into an
expanded patient base early, as well as allowing earlier publicity about the
potential success of the drug. PPD Pharmaco's involvement in a treatment IND
application may range from monitoring the treatment to an integrated service
project involving full investigational site management, data management and
biostatistical analysis and report writing.
Medical Writing and Regulatory Services
PPD Pharmaco provides report writing and regulatory services to its
clients in a manner designed to complement parallel development processes to
reduce overall development time. Strategic plan and protocol design services
provided at the beginning of a project, combined with clear, concise data
presentation, analysis and discussion at the completion of the project assist
the client in obtaining regulatory approvals. These services are fully
integrated with PPD Pharmaco's other services to assure maximum speed consistent
with good service and regulatory compliance.
PPD Pharmaco maintains a large internal compliance and quality
assurance department to provide in-process monitoring of GCP performance. PPD
Pharmaco also offers these services to clients to assess their own trials,
whether conducted by the client or another CRO.
Healthcare Economics and Outcomes Research
PPD Pharmaco is developing a number of services in the healthcare
economics area to be offered to pharmaceutical and biotechnology companies as
well as managed care payers and providers. These services include prospective
and retrospective clinicoeconomics analysis, quality of life and drug therapy
evaluation, large sample market research, clinical hypothesis testing for
product marketing, enhanced patient, investigator and managed care plan
recruiting, managed care consulting, patient therapeutic support systems and
disease management consulting.
Environmental Sciences Group
APBI Environmental Sciences Group currently provides health and
environmental sciences and engineering consulting services through its ENVIRON
division. During 1996, the Environmental Sciences Group generated 23.0% of the
Company's net revenue.
ENVIRON is a leading provider of multidisciplinary consulting services
in the chemical risk assessment and risk management field. ENVIRON provides
services primarily to private sector clients facing potentially high liability
as a result of the presence of hazardous substances in the environment, in drugs
and medical devices, in consumer products and in the workplace. ENVIRON's
engagements typically involve providing creative, multidisciplinary solutions to
complex problems.
ENVIRON provides services primarily in two areas: (1) health sciences
and (2) environmental sciences and engineering. ENVIRON's health sciences staff
includes professionals trained in toxicology, epidemiology, chemistry,
biochemistry, microbiology, industrial hygiene, risk assessment and allied
fields. Its environmental sciences and engineering staff includes professionals
trained in hydrogeology; geology; environmental chemistry; environmental,
chemical and civil engineering and ecotoxicology, ecology and natural resources.
Approximately 43% of ENVIRON's employees have advanced degrees at the master's
level or above. Of those with advanced degrees, approximately 35% have attained
their Ph.D.
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ENVIRON offers services in the following areas:
Chemical Risk Assessment and Risk Management
ENVIRON assesses the potential risk of injury to human health and the
environment associated with industrial chemicals during all stages of
manufacturing use and disposal. It also provides assistance in determining
exposures and the potential health impact of chemicals present in food, consumer
products, pharmaceuticals, medical devices and the workplace.
The chemical risk assessment services provided by ENVIRON typically
involve two components. ENVIRON analyzes toxicological and biological data to
assess the inherent hazard or toxicological properties of industrial chemicals
and other substances. In addition, ENVIRON assesses the physical-chemical
properties of industrial chemicals and other substances in the media in which
they are found to evaluate the fate and transport of such substances in the
environment and the potential for exposure. The assessments performed by ENVIRON
are generally used to evaluate the potential for public health risk and
ecological damage. ENVIRON also assists clients in developing workplace
standards for industrial chemicals and prepares assessments of risks resulting
from occupational exposure. In addition, ENVIRON conducts audits to determine
compliance with specific laws regulating chemical releases into air, water and
other environmental media and to obtain permits for manufacturing or processing
facilities.
ENVIRON provides such services in a variety of project areas, including
complex hazardous waste sites, current and former industrial manufacturing
facilities, leaking underground storage tanks, municipal and hazardous waste
disposal facilities, incinerators, abandoned mine sites, pesticide-contaminated
agricultural land and large-scale spills and releases. In performing
assessments, ENVIRON also analyzes the potential for exposure at the project
site and the surrounding environment.
Environmental Liability Assessments
ENVIRON performs environmental liability assessments of industrial
properties, commercial and residential developments, undeveloped parcels of land
and hazardous waste sites to identify practices that could result in significant
exposure or liability. These services include environmental audits to determine
compliance with current and anticipated federal, state and local regulations and
to estimate the present value of environmental liabilities. Such assessments
have been performed across a broad range of industries, including iron and
steel; pulp and paper; mining, oil and gas; textiles, lumber and wood; plastics,
leather and electronics.
Site Investigation and Remediation
ENVIRON assists clients in determining the nature and extent of
contamination at industrial and hazardous waste sites through the collection and
analysis of soil, water and sediment samples. ENVIRON's services in this area
also include the evaluation and analysis of the cost-effectiveness of various
alternative remediation strategies designed to protect human health and the
environment. ENVIRON also designs the selected remedial strategy, hires
subcontractors as appropriate and provides oversight of the implementation of
the strategy. Such services are often provided in connection with the
negotiation and resolution of disputes that relate to the apportionment of
liability arising under various federal, state and local statutes, or private
contracts.
Litigation Support
ENVIRON provides expert technical assistance and strategic support to
clients who are or who anticipate becoming involved in litigation relating to
environmental, occupational and product safety issues. These services cut across
substantially all of its practice areas. Services provided in this area include
reviewing environmental data and waste handling records, allocating liability
among multiple site owners, developing information on state-of-the-art waste
disposal practices, determining the timing of contaminant release events,
evaluating sampling programs and remedial measures developed for contaminated
sites, reviewing toxicological and epidemiological data associated with the use
of consumer products and establishing relationships between exposure and disease
or injury. ENVIRON's senior staff members have extensive experience providing
expert testimony in the areas of toxicology, risk assessment and contaminant
releases.
Product Safety Regulation
ENVIRON provides strategic scientific support and regulatory affairs
guidance in the pre-market approval process for and subsequent use of various
products, including drugs and pharmaceuticals, medical devices, food additives,
consumer products, agricultural chemicals and biotechnology products.
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Air Quality
ENVIRON offers a full spectrum of air quality services, including: air
emissions and dispersion modeling from industrial facilities and hazardous waste
sites, including siting studies and air toxics impact evaluations; air pollution
compliance assistance, including compliance auditing, regulatory analysis and
obtaining local and state permits, as well as federal Title V operating permits;
ambient and indoor monitoring program design and implementation; process
engineering; emergency release modeling and off-site consequence analysis;
analysis of the potential regional air quality impacts of alternative control
strategies, including advanced vehicles, alternative and reformulated fuels and
other mobile and stationary source control measures and leak detection and
repair services, including monitoring equipment recommendations, software/data
base management system design, program management consulting and field services.
Other Environmental Services
ENVIRON also provides a variety of other services that complement its
primary service areas. Such services include facility siting and permitting,
water quality assessments, waste management, emergency planning and development
and integration of environmental management systems. Although such other
services have historically represented a relatively small percentage of
ENVIRON's net revenue, the Company believes that it will have opportunities to
expand its business in these areas in the future.
Clients and Marketing
The Company's Life Sciences Group provides development services to
pharmaceutical and biotechnology companies. For the year ended December 31,
1996, approximately 83% of the Company's Life Sciences Group's net revenue was
attributable to clinical services and 17% to laboratory services. For the year
ended December 31, 1996, net revenue of the Life Sciences Group was derived
approximately as follows:
Percentage of
Source Net Revenue
------ -----------
Pharmaceutical 80.8%
Biotechnology 11.2
Government (NIH) 1.4
Other 6.6
The Company has provided services to 24 of the top 25 pharmaceutical
companies in the world as ranked by 1995 research and development spending.
The Company provides services to the pharmaceutical and biotechnology
industries and its revenue is highly dependent on expenditures on research and
development by clients in these industries. Accordingly, the Company's
operations could be materially and adversely affected by general economic
downturns in these industries, the current trend toward consolidation in these
industries or other factors resulting in a decrease in research and development
expenditures. Furthermore, the Company has benefited to date from the increasing
tendency of pharmaceutical and biotechnology companies to outsource large
clinical research projects. Should this trend be reversed, the revenue of the
Company could be materially and adversely affected. The Company believes that
concentration of business among certain large customers is not uncommon in the
CRO industry. The Company has experienced such concentration in the past and may
experience such concentration in the future. However, during 1995 and 1996, no
single client contributed more than 10% of the Company's total net revenue. In
1996, the Company's ten largest clients accounted for approximately 33% of the
Company's total net revenue and approximately 44% of the Company's total 1996
net revenue was derived from clients located outside the U.S., in particular in
Europe and Japan.
ENVIRON's clients come from a wide variety of industrial companies. A
significant portion of these engagements is initiated by lawyers whose clients
are engaged in merger, acquisition or real estate transactions, or who become
involved in or anticipate becoming involved in litigation. ENVIRON also provides
services to investment banks, lenders, insurance firms, trade associations, and
to a lesser extent, state and local government agencies.
Contractual Arrangements
Many of PPD Pharmaco's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. In other
contracts, PPD Pharmaco is paid based on applying agreed upon hourly rates to
hours worked. Generally, for multi-year contracts involving clinical trials, a
portion of the contract fee is paid at the time the trial is initiated, with the
balance of the contract fee payable in installments over the trial duration. The
installment payments are typically performance-based, relating payment to
previously negotiated events, such as investigator recruitment, patient
enrollment or delivery of databases. For contracts which are fixed price, PPD
Pharmaco bears the risk
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of cost overruns, but benefits if costs are lower than anticipated.
Under-pricing of contracts or significant cost overruns could have a material
adverse effect on the Company. Most of PPD Pharmaco's contracts for the
provision of its services, including contracts with government agencies, are
terminable by the client upon 30- to 90-days' notice under certain
circumstances, including the client's unilateral decision to terminate the
development of the product or end the study. Contracts may be terminated for a
variety of reasons, including the failure of a product to satisfy safety
requirements, unexpected or undesired results of the product, the client's
decision to forego a particular study or insufficient patient enrollment or
investigator recruitment. Although the contracts typically require payment of
certain fees for winding down the study and, in some cases, a termination fee,
the loss of a large contract or the loss of multiple contracts could materially
and adversely affect the Company.
Backlog
Backlog consists of anticipated net revenue from letters of intent and
contracts that have not been completed. Net revenue is defined as professional
fee income (gross revenue) less reimbursed costs consisting principally of
investigator fees and travel. Once contracted work begins, net revenue is
recognized over the life of the contract. In certain cases, PPD Pharmaco begins
work for a client before a contract is signed. Backlog does not include
anticipated net revenue for which PPD Pharmaco has begun work but for which PPD
Pharmaco does not have a letter of intent or signed contract, or fee for service
contracts with no specified amount. The order backlog of the Life Sciences Group
for the services described above under written agreements, including signed
letters of intent, was $156.5 million in net revenue at December 31, 1996,
compared to $142.5 million in net revenue at December 31, 1995.
PPD Pharmaco believes that its backlog as of any date is not
necessarily a meaningful predicator of future results, because backlog can be
affected by a number of factors, including variable size and duration of
contracts, many of which are performed over several years. Additionally,
contracts generally are subject to early termination by the client or delay by
regulatory authorities for many reasons, including unexpected test results.
Moreover, the scope of a contract can change during the course of a study. There
can be no assurances that PPD Pharmaco will be able to fully realize all of its
backlog as net revenue.
ENVIRON's net revenue is not represented by an order backlog, as
ENVIRON's engagements are generally of an indefinite duration in which services
are performed on a time-and-expenses basis. Clients are billed at fixed hourly
rates for each staff member involved in an assignment, rather than on a project
basis.
Competition
The CRO industry consists of several hundred small, limited-service
providers, several medium-sized CROs and a few full-service global drug
development companies. The CRO industry is consolidating and, in recent years,
several large, full-service competitors have emerged. This trend of industry
consolidation will likely result in greater competition among the larger CROs
for clients and acquisition candidates. PPD Pharmaco's competitors include
ClinTrials Research Inc., Covance, Inc. (formerly Corning Pharmaceutical
Services, Inc.), IBAH, Inc., Parexel International Corporation and Quintiles
Transnational Corporation. PPD Pharmaco also competes against certain
medium-sized companies. Additionally, PPD Pharmaco competes against the in-house
research and development departments of pharmaceutical and biotechnology
companies, as well as universities and teaching hospitals. In addition, there
are few barriers to entry for small, limited-service entities considering
entering the CRO industry. These entities may compete against larger CROs for
clients. Furthermore, the CRO industry has attracted the attention of the
investment community, which could lead to increased competition by increasing
the availability of financial resources for CROs. Increased competition may lead
to price and other forms of competition that may adversely affect PPD Pharmaco's
operating results.
CROs compete on the basis of several things, including reputation for
on-time quality performance, expertise and experience in specific therapeutic
areas, scope of service offerings, strengths in various geographic markets,
technological expertise and systems, ability to acquire, process, analyze and
report data in a time-saving accurate manner, ability to manage large-scale
clinical trials both domestically and internationally, expertise and experience
in healthcare economics and communication. The Company believes that it competes
favorably in these areas.
CCCR is among the largest private clinical investigational sites,
capable of conducting over 70 trials simultaneously. CCCR's major competitors
are other large investigator sites, including reSearch for Health Inc. and
Collaborative Clinical Research, Inc.
ENVIRON competes with many firms, ranging from small local firms to
large national firms. ENVIRON competes principally on the basis of reputation,
scientific and technical expertise, experience and qualifications of
professional staff, quality of services, ability to handle complex problems and
its risk assessment orientation. A large percentage of ENVIRON's business is
generated by existing or former clients. ENVIRON believes that pricing is
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generally not the primary factor in attracting the types of engagements on which
it focuses, which typically involve providing creative, multidisciplinary
solutions and significant value-added services.
Potential Liability and Insurance
Clinical research services involve the testing of new drugs on human
volunteers pursuant to a study protocol. Such testing exposes the Company to the
risk of liability for personal injury or death to patients resulting from, among
other things, possible unforeseen adverse side effects or improper
administration of the new drug. Many of these patients are already seriously ill
and are at risk of further illness or death. The Company attempts to manage its
risk of liability for personal injury or death to patients from administration
of products under study through measures such as contractual indemnification
provisions with clients and through insurance maintained by clients. The
contractual indemnifications generally do not protect the Company against
certain of its own actions, such as negligence. The contractual arrangements are
subject to negotiation with clients and the terms and scope of such
indemnification vary from client to client and from trial to trial. Although
most of PPD Pharmaco's clients are large, well capitalized companies, the
financial performance of these indemnities is not secured. Therefore, the
Company bears the risk that the indemnifying party may not have the financial
ability to fulfill its indemnification obligations. The Company could be
materially and adversely affected if it were required to pay damages or incur
defense costs in connection with a claim that is beyond the scope of an
indemnity provision or beyond the scope or level of insurance coverage
maintained by the client or where the indemnifying party does not fulfill its
indemnification obligations. Until September 25, 1996, the Company did not
maintain liability insurance with respect to these risks. The Company currently
maintains liability insurance coverage of up to $5.0 million per claim, with an
annual aggregate policy limit of $5.0 million. However, there can be no
assurance that liability claims will not exceed the limits of such coverage or
that such insurance will continue to be available on commercially reasonable
terms or at all. Consequently, a product liability claim or other claim with
respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on the Company.
Government Regulation
The laboratory services performed by PPD Pharmaco are subject to various
regulatory requirements designed to ensure the quality and integrity of the
testing process. The industry standards for conducting laboratory testing are
embodied in the regulations for Good Laboratory Practice ("GLP") and Good
Manufacturing Practice ("GMP"). GLP and GMP have been adopted by the FDA, by the
Department of Health in the United Kingdom and by similar regulatory authorities
in other parts of the world. GLP and GMP stipulate requirements for facilities,
equipment and professional staff. The regulations require standardization
procedures for studies, for recording and reporting data and for retaining
appropriate records. To help ensure compliance, PPD Pharmaco has established
quality assurance controls at its laboratory facilities which monitor ongoing
compliance with GLP and GMP regulations by auditing test data and conducting
regular inspections of testing procedures.
The industry standard for the conduct of clinical research and development
studies is embodied in the ICH regulations for GCP. Although GCP has not been
formally adopted by the FDA nor, with certain exceptions, by similar regulatory
authorities in other countries, certain provisions of GCP have been included in
FDA regulations. As a matter of practice, the FDA and many other regulatory
authorities require that test results submitted to such authorities be based on
studies conducted in accordance with GCP. These regulations include (i)
complying with FDA regulations governing the selection of qualified
investigators, (ii) obtaining specific written commitments from the
investigators, (iii) verifying that patient informed consent is obtained, (iv)
monitoring the validity and accuracy of data, (v) verifying drug or device
accountability and (vi) instructing investigators to maintain records and
reports. PPD Pharmaco must also maintain reports for each study for specified
periods for inspection by the study sponsor and the FDA during audits.
Noncompliance with GCP can result in the disqualification of data collected
during the clinical trial.
PPD Pharmaco's standard operating procedures are written in accordance with
regulations and guidelines appropriate to the region where they will be used.
Within Europe, all work is carried out in accordance with the ICH's guidelines
which superseded the European Community Note for Guidance "Good Clinical
Practice for Trials on Medicinal Products in the European Community." In
addition, FDA regulations and guidelines serve as a basis for PPD Pharmaco's
North American standard operating procedures. From an international perspective
when applicable, PPD Pharmaco has implemented common standard operating
procedures across regions to assure consistency whenever it is feasible and
appropriate to do so.
PPD Pharmaco's business depends on the continued strict government
regulation of the drug development process, especially in the United States.
Changes in regulation, including a relaxation in regulatory requirements or the
introduction of simplified drug approval procedures, could materially and
adversely affect the demand for the services offered by the Company.
15
<PAGE> 17
The failure on the part of PPD Pharmaco to comply with applicable
regulations could result in the termination of ongoing research or the
disqualification of data for submission to regulatory authorities. Furthermore,
the issuance of a notice of finding by the FDA to either PPD Pharmaco or its
clients based upon a material violation by the Company of GCP, GLP or GMP
requirements could materially and adversely affect the Company.
The consulting services provided by ENVIRON are not significantly
regulated by any governmental authority at this time. However, ENVIRON's
environmental risk management services derive in large part from the
significant federal and state environmental legislation that has been enacted
in the past decade. Recently, the environmental industry has experienced a
slowdown in the enforcement of such government regulation at the federal and
state level based upon a number of factors, including available funding.
Although the Company believes that the environmental industry will find
continued but more limited opportunities to grow if the trend towards decreased
actual enforcement of such regulations continues, the business of ENVIRON could
be adversely affected.
Intellectual Property
PPD Pharmaco has developed certain computer software and technically
derived procedures intended to maximize the quality and efficiency of its
services. Although the Company does not believe that its intellectual property
rights are as important to its results of operations as are such factors as the
technical expertise, knowledge, ability and experience of the Company's
professionals, the Company believes that its technological capabilities provide
significant benefits to its clients.
Employees
At December 31, 1996, the Company had approximately 2,264 full-time
equivalent employees, of whom 1,869 were employed in the Life Sciences Group,
375 were employed in the Environmental Sciences Group and the remainder were in
the Company's corporate headquarters. Of the Company's employees, approximately
99 hold Ph.D., M.D., Pharm.D. or D.V.M. degrees and approximately 250 hold other
masters or postgraduate degrees. None of the Company's employees is represented
by a labor union or is subject to a collective bargaining agreement. The Company
has never had a work stoppage and believes that its relations with its employees
are good.
The Company's performance depends on its ability to attract and retain
qualified professional, scientific and technical staff. The level of competition
among employers for such skilled personnel is high. The Company believes that
its employee benefit plans enhance employee morale, professional commitment and
work productivity and provide an incentive for employees to remain with the
Company. The Company, like many of its competitors, also relies on a number of
key executives. The loss of services of any of the Company's key executives
could have a material and adverse effect on the Company. While the Company has
not experienced any significant problems in attracting or retaining qualified
staff, there can be no assurance that the Company will be able to avoid such
problems in the future.
Foreign and Domestic Operations
Set forth in Note 18 of Notes to Consolidated Financial Statements for
each of fiscal years 1996, 1995 and 1994 are the Company's revenue, operating
profit or loss and assets attributable to each geographic area in which the
Company operates.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Wilmington,
North Carolina. In March 1996, the Company entered into a new 10-year
build-to-suit lease for approximately 70,000 square feet in Wilmington, which it
occupied in November 1996.
The Company owns and operates a 52-bed Phase I facility in Leicester,
England. The facility, which was acquired by the Company in November 1995, is a
modern, state-of-the-art building. The Company also owns a building in Kerswell,
Scotland, which it acquired when it purchased DAR in December 1996. All other
facilities are leased. The Company's operations occupy approximately 635,000
square feet of space worldwide, including over 70,000 square feet of space
located outside of the U.S. The Company believes that its facilities have
adequate capacity to handle significant additional business growth. The
locations of the Company's operating facilities as of December 31, 1996, were as
follows:
16
<PAGE> 18
Life Sciences Group
- -------------------
Wilmington, North Carolina Kerswell, Scotland
Austin, Texas (1) Sao Paolo, Brazil
Raleigh, North Carolina Brussels, Belgium
Triangle Township, North Carolina Prague, Czech Republic
Richmond, Virginia Paris, France
Madison, Wisconsin Karlsruhe, Germany
Chicago, Illinois Nuremberg, Germany
Columbia, Maryland Warsaw, Poland
Cambridge, England Johannesburg, South Africa
Chelmsford, England Barcelona, Spain
Leicester, England Madrid, Spain
Southampton, England Stockholm, Sweden
Environmental Sciences Group
- ----------------------------
Arlington, Virginia (2) Houston, Texas
Princeton, New Jersey London, England
Emeryville, California Liverpool, England
Irvine, California Edinburgh, Scotland
Novato, California
- --------------
(1) In November 1995, the Company entered into a sale-leaseback transaction
related to its Austin, Texas, facilities. See Note 10 of Notes to
Consolidated Financial Statements.
(2) ENVIRON has an option to lease additional space in this building in 1998.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, the Company is a party to various
claims and legal proceedings. Although the ultimate outcome of these matters is
presently not determined, management of the Company, after consultation with
legal counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
17
<PAGE> 19
EXECUTIVE OFFICERS
The executive officers of the Company as of December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Fredric N. Eshelman, Pharm.D. 48 Vice Chairman and Chief Executive Officer
Thomas D'Alonzo 53 President and Chief Operating Officer
Rudy C. Howard 39 Chief Financial Officer, Vice President of Finance, Treasurer
and Secretary
Joshua S. Baker 41 Senior Vice President, Operations, PPD Pharmaco, Inc.
Joseph H. Highland 52 Chief Executive Officer, APBI Environmental Sciences
Group, Inc.
Fred B. Davenport, Jr. 45 General Counsel
</TABLE>
Fredric N. Eshelman, Pharm.D. has served as Chief Executive Officer and
as a director of the Company since July 1990. Dr. Eshelman founded the Company
in 1989. Prior to rejoining the Company in 1990, Dr. Eshelman served as Senior
Vice President, Development and as a director of Glaxo Inc., a subsidiary of
Glaxo Holdings plc.
Thomas D'Alonzo is President and Chief Operating Officer of the Company
and of its contract research organization subsidiary, PPD Pharmaco, Inc. Mr.
D'Alonzo served as General Counsel of Adria Laboratories, a pharmaceutical
company, from 1977 to 1983 and was employed from 1983 to 1993, in various
capacities, including as President, by Glaxo Inc., a subsidiary of Glaxo
Holdings plc. Mr. D'Alonzo was President of GenVec, Inc., a gene therapy
biotechnology company, from 1993 until his employment by the Company in October
1996.
Rudy C. Howard is Chief Financial Officer, Vice President Finance and
Treasurer of the Company. Prior to joining the Company in October 1995, Mr.
Howard worked with Coopers & Lybrand L.L.P., an accounting firm, since 1990 and
had been a Partner at Coopers & Lybrand L.L.P. since 1993.
Joshua S. Baker, Ph.D. is Senior Vice President, Operations of PPD
Pharmaco, Inc., the Company's contract research organization subsidiary. Prior
to holding this position, Dr. Baker served as Vice President, Biostatistics and
Data Management of the Company. Prior to joining the Company in May 1994, Dr.
Baker served as Director of Biostatistics of Glaxo Research Institute, the
research and development division of Glaxo Inc., a position he had held since
September 1987.
Joseph H. Highland co-founded ENVIRON in 1982. He is currently the
Chief Executive Officer of ENVIRON and has served as such since February 1992.
Dr. Highland also served as a director of APBI from 1990 to 1995. Dr. Highland,
who holds a Ph.D. in Biochemistry from the University of Minnesota's School of
Medicine, served as co-director for the Hazardous Waste Research Program at
Princeton University before joining ENVIRON.
Fred B. Davenport, Jr. is General Counsel, Vice President Legal Affairs
and Secretary of the Company. Prior to his employment by the Company in December
1996, Mr. Davenport was a Partner in the Wilmington, North Carolina law firm of
Murchison, Taylor, Kendrick and Gibson, L.L.P., which he joined in 1977. Mr.
Davenport was also a member of the faculty of the University of North Carolina
at Wilmington's Cameron School of Business Administration from 1982 to 1991.
18
<PAGE> 20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company, par value $0.10 per share (the "Common
Stock"), is traded under the symbol "PPDI" in the over-the-counter market and is
quoted on the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). The following table sets forth
the high and low prices for shares of the Common Stock subsequent to the
Company's initial public offering, as reported by the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
1996
---------------------
High Low
---- ---
<S> <C> <C> <C>
First Quarter (1) $37.25 $22.75
Second Quarter 47.75 33.25
Third Quarter 34.50 26.50
Fourth Quarter 27.50 14.50
</TABLE>
- ----------
(1) From January 23, 1996, the effective date of PPD's initial public
offering
As of March 10, 1997, there were approximately 3,371 record holders
of the Company's Common Stock.
Since its conversion from an S corporation, the Company has not paid
any cash dividends on its Common Stock. The Company has no present plans to pay
cash dividends to its stockholders and, for the foreseeable future, intends to
retain all of its earnings for use in its business. The declaration of any
future dividends by the Company is within the discretion of its Board of
Directors and is dependent upon the earnings, financial condition and capital
requirements of the Company, as well as any other factors deemed relevant by the
Board of Directors.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data presented below for the year
ended December 31, 1996, have been derived from the audited consolidated
financial statements of the Company, which have been audited by Coopers &
Lybrand L.L.P., independent public accountants. The data presented below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Company's consolidated
financial statements and related notes thereto included elsewhere in this
Report.
On September 26, 1996, a wholly owned subsidiary of the Company was
merged with and into APBI, pursuant to which APBI became a wholly owned
subsidiary of the Company. The transaction was accounted for as a pooling of
interests. The Company's financial results for each of the years ended December
31, 1992 through December 31, 1995 have been restated to reflect the transaction
as if it had occurred at the beginning of the periods being presented. The
financial results of PPD for each of the years ended December 31, 1992 through
December 31, 1995 have been audited by Coopers & Lybrand L.L.P., independent
public accountants. The financial results of APBI for each of the years ended
December 31, 1992 through December 31, 1995 have been audited by Arthur Andersen
LLP, independent public accountants. The combination of the selected
consolidated financial data for each of the years ended December 31, 1992
through December 31, 1995, after restatement for the pooling of interests, has
been audited by Coopers & Lybrand L.L.P., independent public accountants.
The Company's consolidated financial data reflects certain of its
former Environmental Sciences Group divisions as discontinued operations. See
Note 4 of Notes to Consolidated Financial Statements.
19
<PAGE> 21
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1996 (4) 1995 (4) 1994 1993 1992 (4)
----------- ----------- ---------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenue (8) $ 197,796 $ 209,778 $ 192,105 $ 165,815 $ 162,330
--------- --------- --------- --------- ---------
Operating expenses 182,859 200,022 181,120 169,014 135,984
Loss on sale of business, special charges,
restructuring costs and merger costs 16,114 24,290 -- 9,365 7,623
--------- --------- --------- --------- ---------
198,973 224,312 181,120 178,379 143,607
--------- --------- --------- --------- ---------
Income (loss) from operations (1,177) (14,534) 10,985 (12,564) 18,723
Other income (expense), net 1,804 (2,616) (2,728) (1,183) (3,622)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before provision for income taxes 627 (17,150) 8,257 (13,747) 15,101
--------- --------- --------- ---------
Provision for income taxes 4,134
---------
Net loss (7) (3,507)
---------
Weighted average number of shares
outstanding 21,168
---------
Net loss per share $ (0.17)
---------
Pro Forma Data (1):
Income (loss) from continuing operations
before provision for income taxes (17,150) 8,257 (13,747) 15,101
Pro forma income tax expense (benefit) (14,359) 3,371 (2,001) 6,936
--------- --------- --------- ---------
Pro forma net income (loss) from
continuing operations (3)(5)(6) (2,791) 4,886 (11,746) 8,165
Discontinued operations (1,716) (12,873) (12,133) (521)
Extraordinary loss from early
extinguishment of debt (897) -- -- --
--------- --------- --------- ---------
Pro forma net income (loss) $ (5,404) $ (7,987) $ (23,879) $ 7,644
--------- --------- --------- ---------
Pro forma weighted average number of
shares outstanding (2) 18,815 18,671 18,409 18,919
--------- --------- --------- ---------
Pro forma net income (loss) per share:
Continuing $ (0.15) $ 0.26 $ (0.64) $ 0.43
Discontinued (0.09) (0.69) (0.66) (0.03)
Extraordinary (0.05) -- -- --
--------- --------- --------- ---------
Net income (loss) $ (0.29) $ (0.43) $ (1.30) $ 0.40
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------
1996 (4) 1995 (4) 1994 1993 1992 (3)(4)
----------- ----------- ---------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 21,838 $ 13,565 $ 9,804 $ 14,854 $ 15,700
Marketable securities 14,210 242 203 -- --
Working capital 66,603 37,320 27,795 (565) 37,320
Total assets 181,457 142,661 202,773 195,492 198,801
Long-term debt 1,428 3,471 47,620 15,411 15,137
Long-term debt including current portion 5,649 5,672 51,170 19,943 15,888
Shareholders' equity 115,306 77,300 74,198 79,065 112,294
</TABLE>
- ----------
(1) Following termination of its status as an S corporation prior to
completion of its initial public offering in January 1996, PPD became
subject to federal and state income taxes. The pro forma data reflect
the application of corporate income taxes to PPD's net income at the
statutory combined federal and state tax rate as if the termination of
PPD's S corporation status had occurred on January 1, 1992.
(2) Pro forma weighted average shares outstanding assumes the occurrence of
events pursuant to PPD's initial public offering and the issuance of
sufficient shares at $18.00 per share to provide net proceeds, after
aggregate offering expenses and underwriting discounts, to repay the
$5.5 million debt incurred by PPD in making the final S corporation
distribution.
20
<PAGE> 22
(3) The pro forma income from continuing operations for 1992 was affected
by (i) a charge against operating income of $7,623,000 in connection
with the restructuring of APBI's business following the acquisition of
Pharmaco, (ii) the incurrence of $4,296,000 of merger costs in
connection with the acquisition of Pharmaco, (iii) a gain of $338,000
constituting a discount for early payment of a mortgage, (iv) the
acquisition of certain assets of EDI in July 1992, which was accounted
for as a purchase transaction and (v) an increase in APBI's effective
tax rate as a result of the fact that certain merger costs incurred in
connection with the acquisition of Pharmaco were not deductible for tax
purposes.
(4) The acquisitions of Trilife, Medisys, Q&Q, DAR and EAG in 1996; Gabbay
and CCCR in 1995 and the acquisition by ETC of certain assets of
Southeastern Capital Corporation in June 1992 were accounted for as
purchase transactions.
(5) The pro forma loss from continuing operations for 1993 was affected by
(i) a charge against operating income of $9,365,000 in connection with
restructuring APBI's former toxicology services division and planned
improvements in APBI's corporate management information systems and
(ii) an increase in reserves for accounts receivable of $5,857,000.
(6) The pro forma loss from continuing operations for 1995 was affected by
(i) the sale of APBI's toxicology business which resulted in a pre-tax
loss of $19,308,000 charged against operating income, (ii) a special
charge against operating income of $4,982,000 primarily related to the
impairment of APBI's available for sale investment (see Note 1 of Notes
to Consolidated Financial Statements) and (iii) an increase in APBI's
tax benefit as a result of the reversal of certain tax liabilities
recorded in prior years for which APBI will not be liable for payment.
See Note 3 of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(7) The net loss for 1996 was affected by the incurrence of $16,114,000 of
merger costs in connection with the acquisition of APBI. After
associated tax benefits, the impact on net income of such merger costs
was $13,568,000.
(8) Net of subcontractor costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Management's Discussion and Analysis that are not
descriptions of historical facts are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 reflecting
management's current view with respect to certain future events and financial
performance that are subject to risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including those set forth herein and in the Company's other SEC filings, and
including, in particular, risks relating to government regulation; dependence on
certain industries; fixed price nature of contracts; the commencement,
completion or cancellation of large contracts; progress of ongoing contracts;
potential liability associated with the Company's lines of business; dependence
on personnel; management of growth and competition. Since a large percentage of
the Company's operating costs are relatively fixed, variations in the timing and
progress of large contracts can materially affect results.
GENERAL
During 1996, the Company reported a net loss of $3.5 million, or $0.17
per share, compared to a pro forma net loss of $5.4 million, or $0.29 per share,
during 1995. The Company's loss in 1996 is attributable to the $16.1 million of
costs recorded that were associated with the Company's acquisition of APBI.
Excluding merger costs, the Company's net income of $10.1 million, or $0.48 per
share, was 102.6% higher than pro forma net income (before the impact of 1995
special charges and excluding the Company's former toxicology operations) last
year of $5.0 million.
In September 1996, a wholly-owned subsidiary of the Company was merged
with and into APBI in a pooling-of-interests transaction. As a result, APBI
became a wholly-owned subsidiary of the Company. Under the terms of the merger
agreement, APBI stockholders received 0.4054 of a share of the Company's Common
Stock for each APBI share, which resulted in the Company issuing 12,063,860
shares of its Common Stock in exchange for all of the outstanding shares of
Common Stock of APBI. The Company's financial results have been restated to
reflect the transaction as if it had occurred at the beginning of the periods
presented.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, amounts for
certain items in the Company's consolidated financial statements expressed as a
percentage of net revenue from continuing operations and the percentage changes
in dollar amounts of certain items compared with the prior period:
21
<PAGE> 23
PERCENTAGE OF NET REVENUE FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
----------------------- ----------------------- -------------------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenue (4):
Life sciences $ 152,304 77.0% $ 160,495 76.5% $ 146,342 76.2%
Environmental sciences 45,492 23.0 49,283 23.5 45,763 23.8
--------- ----- --------- ----- --------- -----
197,796 100.0 209,778 100.0 192,105 100.0
Direct costs:
Life sciences 79,108 90,315 86,647
Environmental sciences 31,744 32,442 28,670
--------- --------- ---------
110,852 56.0 122,757 58.5 115,317 60.0
Selling, general, and
administrative expenses 61,571 31.1 64,014 30.5 55,428 28.9
Depreciation and amortization 10,436 5.3 13,251 6.3 10,375 5.4
Loss on sale of business -- -- 19,308 9.2 -- --
Merger costs and special charges 16,114 8.1 4,982 2.4 -- --
--------- ----- --------- ----- --------- -----
Operating income (loss) (2)(3) (1,177) (0.6) (14,534) (6.9) 10,985 5.7
--------- ----- --------- ----- --------- -----
Net loss $ (3,507) (1.8)%
--------- -----
Pro forma income (loss) from (1):
Continuing operations (2,791) (1.3) 4,886 2.5
Discontinued operations (1,716) (0.8) (12,873) (6.7)
Extraordinary loss (897) (0.4) -- --
--------- ----- --------- -----
Pro forma net loss $ (5,404) (2.6)% $ (7,987) (4.2)%
--------- ----- --------- -----
</TABLE>
<TABLE>
<CAPTION>
Percentage of Increase (Decrease)
For the Year Ended December 31,
-----------------------------------
1996 vs. 1995 (5) 1995 vs. 1994
----------------- -------------
<S> <C> <C>
Net revenue (4):
Life sciences (5.1)% 9.7%
Environmental sciences (7.7) 7.7
Direct costs:
Life sciences (12.4) 4.2
Environmental sciences (2.2) 13.2
Selling, general and administrative expenses (3.8) 15.5
Depreciation and amortization (21.2) 27.7
Operating income (loss) (6) N/A N/A
</TABLE>
(1) Following termination of its status as an S corporation prior to
completion of its initial public offering in January 1996, PPD became
subject to federal and state income taxes. The pro forma data reflect
the application of corporate income taxes to PPD's net income at the
statutory combined federal and state tax rate as if the termination of
PPD's S corporation status had occurred on January 1, 1994.
(2) The operating loss for 1995 was affected by (i) the sale of APBI's
toxicology operations which resulted in a pre-tax loss of $19,308,000
and (ii) a special charge against operating income of $4,982,000
primarily related to the impairment of APBI's available for sale
investment. See Note 1 of Notes to Consolidated Financial Statements.
(3) The operating loss for 1996 was affected by the incurrence of
$16,114,000 of merger costs in connection with the acquisition of APBI.
(4) Net of subcontractor costs.
(5) The results from 1995 include the activity of APBI's toxicology
operations which were sold in November 1995. See Note 3 of Notes to
Consolidated Financial Statements.
(6) N/A - Change not meaningful.
22
<PAGE> 24
Below is a comparison of 1996 and 1995 operating statements which
reflects only on-going operations and excludes 1996 merger costs and 1995
non-recurring charges.
STATEMENT OF OPERATIONS DATA
EXCLUDES APBI/PPDI MERGER COSTS IN 1996 AND
SPECIAL CHARGES, TOXICOLOGY OPERATIONS (SOLD 11/95), DISCONTINUED
OPERATIONS AND EXTRAORDINARY LOSS IN 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED PERCENTAGE CHANGE
DECEMBER 31, -----------------
1996 1995
---- ----
<S> <C> <C> <C>
Net revenue:
Life sciences $152,304 $122,049 24.8%
Environmental sciences 45,492 49,283 (7.7)
-------- --------
Total net revenue 197,796 171,332 15.4
Direct costs:
Life sciences 79,108 62,839 25.9
Environmental sciences 31,744 32,442 2.1
-------- --------
Total direct costs 110,852 95,281 16.3
-------- --------
Gross margin 86,944 76,051 14.3
Selling, general and administrative expenses 61,571 56,391 9.2
Depreciation and amortization 10,436 8,768 19.0
-------- --------
Income from operations 14,937 10,892 37.1
Other income (expense), net 1,804 (2,616) N/A
-------- --------
Income before taxes 16,741 8,276 102.3
Income tax provision 6,680 3,310 101.8
-------- --------
Net income $ 10,061 $ 4,966 102.6%
======== ======== =======
Net income per share $ 0.48 $ 0.26
======== ========
Weighted average number of common shares outstanding 21,168 18,815
======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Net revenue decreased $12.0 million, or 5.7%, to $197.8 million in 1996
from $209.8 million last year. PPD Pharmaco's operations account for 77.0% of
the Company's net revenue for 1996. PPD Pharmaco generated net revenue of $152.3
million, down $8.2 million, or 5.1%, from last year. After elimination of the
net revenue from APBI's former toxicology operations, which were sold in
November 1995 ($38.4 million in 1995), net revenue increased 15.4% as compared
to 1995. Results of operations which exclude the results of the divested
businesses are considered the results of the Company's ongoing operations.
Net revenue for the year ended December 31, 1996, from the ongoing PPD
Pharmaco operations of $152.3 million reflects an increase of $30.2 million, or
24.8%, from 1995. The growth in ongoing PPD Pharmaco operations was
23
<PAGE> 25
due in part to an increase in the size, scope and number of contracts in the
North America clinical development and biostatistics business. The acquisitions
of CCCR and the Phase I facility in Leicester, England, both completed in the
second half of 1995, contributed net revenue of $10.8 million for the year,
representing an increase over 1995 of $8.5 million.
Net revenue from ENVIRON, the Company's environmental consulting
organization, representing 23.0% of the Company's net revenue for 1996, was
$45.4 million, compared with $49.3 million in 1995, a decrease of 7.7%, or $3.8
million. The Company believes that the decrease in net revenue at ENVIRON, the
Company's environmental consulting business and the sole ongoing operation in
the Environmental Sciences Group, is due principally to an overall weakness in
the environmental services market.
Total direct costs decreased 9.7% to $110.9 million from $122.8 million
last year and declined as a percentage of net revenue to 56.0% from 58.5% last
year. PPD Pharmaco direct costs decreased as a percentage of related net revenue
to 51.9% from 56.3%. The decrease in direct costs is principally due to the
divestiture of APBI's toxicology business in the fourth quarter of 1995. During
1995, the worldwide toxicology business reported direct costs of $27.5 million,
or 71.5%, of related net revenue. ENVIRON's direct costs as a percentage of
related net revenue increased to 69.8% from 65.8% last year. The increase in
direct costs as a percentage of related net revenue is attributable to lower
consultant utilization. ENVIRON's 1996 consultant utilization of 71.0% was 5.0
percentage points below the 76.0% utilization during the prior year.
Selling, general and administrative ("SG&A") expenses decreased 3.8% to
$61.6 million from $64.0 million in 1995. As a percentage of net revenue, SG&A
expenses increased to 31.1% from 30.5% last year. After factoring out the SG&A
expenses associated with the divested toxicology business last year ($7.6
million), consolidated SG&A expenses increased approximately 9.2%, or $5.2
million, for this year as compared to 1995. SG&A expenses from CCCR and the
Leicester Phase I laboratory comprise $2.0 million of the increase, and the
Company has incurred incremental rent expense of $1.2 million associated with
the sale-leaseback of its real estate in Austin, Texas (this increase is
partially offset by lower interest expense). The remaining increase of $2.0
million is primarily attributable to the investment in the Company's business
development and marketing organization and in the area of information
technology, as well as higher litigation costs incurred associated with
ENVIRON's air quality practice. As a percentage of ongoing net revenue, SG&A
expenses decreased to 31.1% from 32.9% last year.
Total depreciation and amortization expense of $10.4 million was $2.8
million, or 21.2%, lower than last year. After adjusting out the depreciation
for the divested toxicology business ($4.5 million), total depreciation and
amortization increased $1.7 million, or 19.0%, versus last year. The increase
was related to the Company's growth as well as the ongoing capital investment in
the Company's base business.
The Company recorded one-time merger costs of $16.9 million in the
third quarter of 1996. These costs are primarily current and future cash
expenses, such as investment banking fees and legal and accounting fees, as well
as severance provisions as a result of the integration of the administrative
functions of PPD and APBI. During the fourth quarter, approximately $0.8 million
of these costs were reversed, primarily relating to severance costs that were
avoided and reductions in net losses on leases for duplicate facilities.
APBI recorded a charge of $19.3 million in 1995 relating to the book
loss on the sale of the toxicology business in the fourth quarter of last year.
Of that amount, $17.0 million represents a non-cash write off of the net assets
of the divested businesses in excess of the proceeds received from Huntingdon.
The remaining $2.3 million charge recorded consists of $1.2 million of
transaction costs, $1.3 million of severance costs and relocation costs
associated with moving the European headquarters from Suffolk, England, to
Cambridge, England, and $0.6 million to be incurred in connection with changing
the name of Pharmaco to Pharmaco International Inc., net of a $0.8 million gain
recorded as a result of the settlement of the Company's defined benefit pension
plan.
APBI also recorded special charges of $5.0 million in the fourth
quarter of 1995. Included in this charge was a $3.4 million non-cash expense to
write down to market APBI's EnSys investment and the write-off of other
nonproductive assets. In addition, APBI recorded severance charges totaling $1.2
million relating to the downsizing of its corporate overhead structure. The
remaining $0.4 million relates primarily to accrued lease loss reserves related
to under-utilization of the Richmond laboratory facility.
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<PAGE> 26
Operating income improved $13.3 million to an operating loss of
$1.2 million for the year ended December 31, 1996, as compared to an operating
loss of $14.5 million for the year 1995. As a percentage of net revenue, the
yearly operating loss of 0.6% represents a dramatic improvement from the
operating loss of 6.9% of net revenue last year.
Other income (expense) improved by $4.4 million, increasing to $1.8
million in income for the year as compared to $2.6 million in expense last year.
The favorable change is attributable to funds received in connection with the
PPD initial public offering and the significant change in the Company's debt
structure this year versus last year. See "Liquidity and Capital Resources."
The net loss of $3.5 million represents an improvement of $1.9 million.
The net loss per share of $0.17 compares to pro forma net loss per share of
$0.29 last year. Excluding the results of the divested businesses and the impact
of the merger costs and special charges on both years, the Company's net income
of $10.1 million is 102.6% higher than last year's pro forma net income of $5.0
million. On an equivalent earnings-per-share basis the net income per share of
$0.48 compares to $0.26 for the same period last year computed on 2.4 million
less shares outstanding.
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
Net revenue for 1995 increased $17.7 million, or 9.2%, to $209.8
million in 1995 from $192.1 million in 1994. The Company's CRO divisions
generated 76.5% of the Company's net revenue in the year, which equated to net
revenue of $160.5 million, up $14.2 million, or 9.7%, from the previous year.
Net revenue from ENVIRON, representing 23.5% of the Company's net revenue in
1995, was $49.3 million, compared with $45.8 million in 1994, an increase of
7.7%, or $3.5 million.
After elimination of the net revenue from APBI's former toxicology
operations ($38.4 million for 1995 and $46.4 million in 1994), in 1995 net
revenue increased 17.6% as compared to 1994.
For the year ended December 31, 1995, net revenue from PPD Pharmaco was
$160.5 million, an increase of 9.7% from 1994. The growth in this business unit
was due in part to an increase in the size, scope and number of contracts in the
North America clinical development and biostatistics business. The acquisitions
of CCCR and the Phase I facility in Leicester, England, both completed in the
second half of 1995, contributed net revenue of $2.3 million for the last half
of 1995.
Total direct costs increased 6.5% in 1995 to $122.8 million from $115.3
million in 1994 but decreased as a percentage of net revenue to 58.5% from
60.0%. In PPD Pharmaco, direct costs decreased as a percentage of related net
revenue to 56.3% from 59.2%. The decrease in direct costs was principally due to
the divestiture of APBI's toxicology business in the fourth quarter of 1995.
During 1995, the toxicology business reported direct costs of $27.5 million, or
71.5% of related net revenue, as compared to $33.3 million, or 71.8% of related
net revenue, in 1994. ENVIRON's direct costs as a percentage of related net
revenue increased to 65.8% from 62.6% in the prior year. The increase in direct
costs as a percentage of related net revenue was primarily attributable to the
start-up of the new Marin County office in California.
1995's SG&A expenses increased 15.5% to $64.0 million from $55.4
million in 1994. As a percentage of net revenue, SG&A expenses increased to
30.5% from 28.9% the preceding year. Incremental SG&A expenses from CCCR and the
Leicester Phase I laboratory comprised $0.9 million of the increase. The
remaining increase of $7.7 million was primarily attributable to increases in
business development expenses in Austin and Wilmington, administrative staffing
at the executive and middle-management levels and the number of employees in
finance, human resources and other administrative areas, reflecting the
continued growth of the Company.
Total depreciation and amortization expense of $13.3 million was $2.9
million, or 27.7%, higher than in the previous year. After adjusting out the
depreciation for the divested toxicology business ($4.5 million in 1995 and $3.3
million in 1994), total depreciation and amortization increased $1.7 million, or
23.6%, versus in 1994. The increase was related to the significant increases in
the Company's operations and amortization of goodwill related to acquisitions.
The operating loss of $14.5 million in 1995, 6.9% of net revenue, was
adversely impacted by a $24.3 million charge relating to the book loss on the
sale of the toxicology business ($19.3 million) in the fourth quarter and other
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<PAGE> 27
special charges ($5.0 million). Included in this charge was a $3.4 million
non-cash expense to write down to market the Company's EnSys investment and the
write-off of other non-productive assets. In addition, the Company recorded
severance charges totaling $1.2 million relating to the downsizing of its
corporate overhead structure. The remaining $0.4 million relates primarily to
accrued lease loss reserves related to underutilization of the Richmond
laboratory facility. After adjusting for the one-time charges in 1995, operating
income of $9.8 million, 4.7% of net revenue, was $1.2 million less than the
comparable operating income of $11.0 million, 5.7% of net revenue, in 1994.
The pro forma net loss in 1995 of $5.4 million represents a favorable
change of $2.6 million as compared to 1994's pro forma net loss. The 1995 pro
forma net loss per share of $0.29 compares to pro forma net loss per share of
$0.43 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $21.8 million of cash and cash
equivalents on hand and $14.2 million invested in marketable securities. The
Company has historically funded its operations and growth, including
acquisitions, with cash flow from operations and borrowings. In January 1996,
PPD completed an initial public offering of its common stock. Proceeds of the
offering, after expenses, were approximately $37.2 million and a portion thereof
was used to repay a $5.5 million loan.
For the year ended December 31, 1996, the Company experienced a net
increase in cash from operating activities of $0.3 million. Capital expenditures
totaled $11.2 million. Net proceeds from the Company's initial public offering,
combined with proceeds from stock option exercises, totaled $42.9 million. The
Company used $5.9 million in cash to pay dividends declared in connection with
the Company's revocation of its S corporation election, effective January 1,
1996, and used $13.8 million of cash to increase its holdings of marketable
securities.
In February 1996, the Company renegotiated a new credit facility with
Wachovia Bank of North Carolina, N.A. The new facility consists of a $10.0
million line of credit with an additional discretionary line of credit for $20
million. Terms on the $10.0 million line are for one year, with interest at
LIBOR plus 120 basis points, or the Bank's Prime rate, at the Company's option,
with interest payable quarterly. Indebtedness under the line is unsecured and
subject to certain covenants relating to financial ratios and tangible net
worth. As of December 31, 1996, the Company owed $3.3 million under this
facility.
In February 1995, APBI arranged a $3.0 million master-lease agreement
to provide a means to lease, rather than acquire, certain equipment for use in
the United States without drawing on its principal credit facility.
The Company completed a sale-leaseback transaction involving owned real
estate in Austin, Texas, in November 1995. Total gross proceeds from the
transaction were $12.0 million. The facilities are leased to the Company as a
bond-type net lease with all responsibility of operations and maintenance
residing with the Company. The initial term of the operating lease is 15 years
followed by four five-year renewal options. The future minimum annual rent is
$1.3 million with renewals at the then current market value. The net proceeds
from the sale-leaseback transaction were used to repay the remaining mortgage
balance on the referenced properties and the remaining cash was applied to
APBI's revolving line of credit (which has since been terminated).
The Company expects to continue expanding its operations through
internal growth and strategic acquisitions. The Company expects such activities
will be funded from existing cash and marketable securities, cash flow from
operations and borrowings under its credit facility. The Company believes that
such sources of cash will be sufficient to fund the Company's current operations
for the foreseeable future. The Company is currently evaluating a number of
acquisition and other growth opportunities which may require additional external
financing, and the Company may from time to time seek to obtain funds from
public or private issuances of equity or debt securities.
EXCHANGE RATE FLUCTUATIONS AND EXCHANGE CONTROLS
The vast majority of the Company's contracts are entered into by the
Company's United States or United Kingdom subsidiaries. The contracts entered
into by the United States subsidiaries are almost always denominated in United
States dollars.
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<PAGE> 28
Contracts between the Company's United Kingdom subsidiaries and their
clients are generally denominated in pounds sterling. Because substantially all
of the United Kingdom subsidiaries' expenses, such as salaries, services,
materials and supplies, are paid in pounds sterling, such subsidiaries' earnings
are not materially affected by fluctuations in exchange rates. However, the
Company's consolidated financial statements are denominated in dollars and,
accordingly, changes in the exchange rate between the pound sterling and the
dollar will affect the translation of such subsidiaries' financial results into
dollars for purposes of reporting the Company's consolidated financial results,
and also affect the dollar amounts actually received by the Company from such
subsidiaries.
Approximately 11.4% of the Company's net revenue was generated by its
European, South African and South American clinical development services
businesses, primarily in the United Kingdom, Belgium, France and Germany. As a
result of the Company's sale of its toxicology operations, the percentage of the
Company's revenue recorded in currencies other than United States dollars was
significantly lower in 1996 than in 1995. However, because the Company is
currently expanding its foreign operations, it is anticipated that the
percentage of the Company's net revenue denominated in foreign currencies may
increase in the future.
There are no exchange controls currently in effect in any country in
which the Company's subsidiaries conduct operations on the payment of dividends
or otherwise restricting the transfer of funds outside such countries by a
company resident in such countries. Although the Company performs services for
clients located in a number of foreign jurisdictions, to date, the Company has
not experienced any difficulties in receiving funds remitted from foreign
countries. However, if any such jurisdictions were to impose or modify existing
exchange control restrictions on the remittance of funds to the Company, such
restrictions could have an adverse effect on the Company's business.
POTENTIAL VOLATILITY OF QUARTERLY OPERATING RESULTS AND STOCK PRICE
The Company's quarterly operating results are subject to volatility due
to such factors as the commencement, completion or cancellation of large
contracts, progress of ongoing contracts, acquisitions, the timing of start-up
expenses for new offices, management of growth and changes in the mix of
services. Since a large percentage of the Company's operating costs are
relatively fixed, variations in the timing and progress of large contracts can
materially affect quarterly results. To the extent the Company's international
business increases, exchange rate fluctuations may also influence these results.
The Company believes that comparisons of its quarterly financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. However, fluctuations in quarterly results or other factors beyond
the Company's control, such as changes in earnings estimates by analysts, market
conditions in the CRO, environmental, pharmaceutical and biotechnology
industries and general economic conditions, could affect the market price of the
Common Stock in a manner unrelated to the longer-term operating performance of
the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item is set forth herein
commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE> 29
PART III
Certain information required by Part III is omitted from this report,
because the Registrant will file a definitive proxy statement for its 1997
Annual Meeting of Stockholders (the "Proxy Statement") within 120 days after the
end of its fiscal year pursuant to Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, and the information included
therein is incorporated herein by reference to the extent provided below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K concerning the
Registrant's executive officers is set forth under the heading "Executive
Officers" located at the end of Part I of this Form 10-K.
The other information required by Item 10 of Form 10-K is incorporated
by reference to the information under the headings "Proposal No. 1 - Election of
Directors" and "Other Information-Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated by
reference to the information under the heading "Proposal No. 1 - Election of
Directors - Information Concerning the Board of Directors and Its Committees,"
"Other Information - Executive Compensation," "--Director Compensation,"
"--Report of the Compensation Committee on Executive Compensation,"
"--Compensation Committee Interlocks and Insider Participation," and
"--Performance Graph" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Principal
Shareholders" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K is incorporated by
reference to the information under the heading "Other Information - Certain
Transactions" in the Proxy Statement.
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<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules
1. The consolidated financial statements of the Company and its
subsidiaries filed as part of this Report are listed in the
attached Index to Consolidated Financial Statements and
Financial Statement Schedule.
2. The schedule to the consolidated financial statements of the
Company and its subsidiaries filed as part of this Report is
listed in the attached Index to Consolidated Financial
Statements and Financial Statement Schedule.
3. The exhibits filed as part of this Report are listed in Item
14c below.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission on October 10, 1996, relating to the Company's acquisition
of Applied Bioscience International Inc. The financial statements required by
Item 7 of Form 8-K were incorporated therein by reference to prior Company
filings.
On November 19, 1996, the Company filed a Current Report on Form 8-K
with the Securities and Exchange Commission reporting the Company's results for
the month of October 1996.
(c) Exhibits
Exhibit No. Description
----------- -----------
2.1** --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
Pharmaceutical Product Development Clinical Research Unit,
Inc. ("PPD-CRU").
2.2** --Plan of Merger to Merge PPD-Europe, Inc. ("PPD Europe") with
and into the Registrant.
2.3* --Agreement and Plan of Reorganization, dated as of June 20,
1996, among the Registrant, Wilmington Merger Corp. and
Applied Bioscience International Inc.
2.4 --Stock and Asset Master Purchase Agreement by and among
Huntingdon International Holdings plc, Huntingdon Life
Sciences Inc., Applied Bioscience International Inc. and
Pharmaco LSR International Inc., dated as of November 1, 1995,
incorporated by reference to Exhibit 2 to Applied Bioscience
International Inc.'s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 6, 1996.
3.1* --Restated Articles of Incorporation.
3.2 --Amended and Restated Bylaws.
10.1** --Employment Agreement, dated July 1, 1995, by and between the
Registrant and Fredric N. Eshelman.
10.2** --Employment Agreement, dated July 1, 1995, by and between the
Registrant and Peter J. Wise.
10.3** --Employment Agreement, dated October 1, 1995, by and between
the Registrant and Rudy C. Howard.
10.4** --Plan of Merger to Merge PPD Subsidiary, Inc. with and into
PPD-CRU (see Exhibit 2.1).
10.5** --Plan of Merger to Merge PPD-Europe with and into the
Registrant (see Exhibit 2.2).
10.6** --Agreement for the Sale and Purchase of the Whole of the
Issued Share Capital of Gabbay Group Limited, dated August 1,
1995, by and among Dr. Felicity Jane Gabbay, Professor John
Gabbay, Leslie Grant Marshall, Mrs. Elizabeth MacKenzie
Marshall, the Registrant, PPD-Europe and Gabbay Group
Limited.
10.7** --Stock Purchase Agreement, dated May 16, 1994, by and among
the Registrant, Wisconsin Analytical and Research Services,
Ltd. ("WARS"), Richard Johnson and Richard Charles.
10.8** --Pharmaceutical Product Development, Inc. Equity Compensation
Plan, effective as of October 30, 1995.
10.9** --Pharmaceutical Product Development, Inc. Stock Option Plan
for Non-Employee Directors, effective as of October 31, 1995.
10.10** --Registration Rights Agreement, dated January 24, 1995, by
and among the Registrant and certain of its shareholders.
10.11** --Term Loan Agreement, dated July 14, 1995, among the
Registrant, PPD-CRU, Pharmaceutical
29
<PAGE> 31
Research Plus, Inc. and Wachovia Bank of North Carolina, N.A.
("Wachovia").
10.12** --Note and Security Agreement, dated November 15, 1993, made
by the Registrant for the benefit of Wachovia, as amended on
July 19, 1995.
10.13** --Note and Security Agreement, dated May 16, 1994, made by the
Registrant for the benefit of Wachovia, as amended on July 19,
1995.
10.14** --Note and Security Agreement, dated June 28, 1994, made by
PPD-CRU for the benefit of Wachovia, as amended on July 19,
1995.
10.15** --General Security Agreement, dated January 29, 1991, made by
the Registrant for the benefit of Wachovia Bank and Trust
Company, N.A.
10.16** --Note and Security Agreement, dated May 12, 1994, made by
PPD-CRU for the benefit of Wachovia.
10.17** --General Security Agreement, dated June 28, 1994, made by
PPD-CRU for the benefit of Wachovia.
10.18** --General Security Agreement, dated March 5, 1991, made by
PPD-CRU for the benefit of Wachovia Bank and Trust Company,
N.A.
10.19** --Loan Agreement, dated August 11, 1995, among Dr. Felicity
Jane Gabbay, Professor John Gabbay and Gabbay Limited.
10.20** --Promissory Note, dated August 1, 1995, made by the
Registrant and PPD-Europe for the benefit of Felicity Jane
Gabbay, John Gabbay, Leslie Grant Marshall and Mrs. E.M.
Marshall.
10.21** --Lease, dated August 18, 1995, by and between LOI Building,
Inc. and the Registrant.
10.22** --Lease, dated August 18, 1995, by and between LOI Building,
Inc. and the Registrant.
10.23** --Sublease Agreement, dated July 6, 1993, by and between
United Carolina Bank and the Registrant.
10.24** --Sublease Agreement, dated April 14, 1993, by and between
United Carolina Bank and the Company.
10.25** --Lease, dated June 7, 1993, by and between LOI Building, Inc.
and the Registrant, as amended on August 18, 1995.
10.26** --Lease, dated May 1, 1994, by and between LOI Building, Inc.
and the Registrant, as amended on August 18, 1995.
10.27** --Lease, dated November 1, 1990, by and between LOI Building,
Inc. and the Registrant, as previously amended and as amended
on August 18, 1995.
10.28** --Lease, dated February 9, 1993, by and between LOI Building,
Inc. and the Registrant, as amended on January 23, 1995 and on
August 18, 1995.
10.29** --Lease Agreement, dated August 17, 1995, by and between the
Registrant and Pinehurst National Development Corporation, as
amended on September 29, 1995.
10.30** --Lease, dated March 7, 1994, by and among John C. Bullock,
Jr. and Jean H. Bullock and the Registrant, as supplemented by
the Letter dated April 20, 1995 between John C. Bullock and
the Registrant.
10.31** --Lease Agreement, dated as of August 1, 1991, by and between
Connecticut General Life Insurance Company and the Registrant,
as amended on January 5, 1993 and on August 18, 1995.
10.32** --Lease Agreement, dated as of February 22, 1995, by and
between Perimeter Park West Associates Limited Partnership and
the Registrant.
10.33** --Lease, dated October 15, 1995, by and between John T.
Talbert, Jr., Gary M. Garlow and John T. Talbert, III, d/b/a
Tagata Properties and the Registrant.
10.34** --Assignment and Assumption of Lease, dated May 17, 1994, by
and between WARS and PPD-CRU, with respect to a Lease, dated
July 1, 1987, by and between The LAB Associates and WARS.
10.35** --Lease, dated January 26, 1994, by and between Michael James
Lawton, Jeffrey William Ware, Prudential Nominees Limited and
Gabbay Group Limited.
10.36** --Lease on Offices, dated October 19, 1993, by and between
Eucro European Contract Research GmbH and Gabbay Group Ltd.
10.37** --Employment Agreement, dated October 18, 1995, by and between
the Registrant and Terrence W. Mischler.
10.38** --Lease Agreement, dated as of October 25, 1995, by and
between the Registrant and Perimeter Park West Associates
Limited Partnership.
10.39** --Lease Agreement, dated as of October 25, 1995, by and
between PPD-CRU and Perimeter Park West Associates Limited
Partnership.
10.40** --Note and Security Agreement, dated June 1, 1995 made by the
Registrant for the benefit of Wachovia.
10.41** --Guaranty Agreement, dated June 10, 1994, made by Ronald B.
McNeill for the benefit of Wachovia.
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<PAGE> 32
10.42** --Guaranty Agreement, dated June 10, 1994, made by Ernest
Mario for the benefit of Wachovia.
10.43** --Guaranty Agreement, dated June 10, 1994, made by John A.
McNeill, Jr. for the benefit of Wachovia.
10.44** --Guaranty Agreement, dated May 12, 1994, made by Ernest Mario
for the benefit of Wachovia.
10.45** --Guaranty Agreement, dated May 12, 1994, made by Fred
Eshelman for the benefit of Wachovia.
10.46** --Guaranty Agreement, dated May 12, 1994, made by Ronald B.
McNeill for the benefit of Wachovia.
10.47** --Guaranty Agreement, dated May 12, 1994, made by Peter J.
Wise for the benefit of Wachovia.
10.48** --Guaranty Agreement, dated May 12, 1994, made by John A.
McNeill, Jr. for the benefit of Wachovia.
10.49** --First Amendment to Lease Agreement, dated October 25, 1995,
with respect to Lease Agreement dated February 22, 1993, by
and between the Registrant and Perimeter Park West Associates
Limited Partnership.
10.50** --First Amendment to Lease, dated as of September 20, 1995,
with respect to Lease dated April 14, 1993, by and between
United Carolina Bank and the Registrant.
10.51** --First Amendment to Lease, dated as of September 20, 1995,
with respect to Lease dated July 6, 1993, by and between
United Carolina Bank and the Registrant.
10.52** --Assignment of Sublease, dated September 21, 1995 with
respect to Sublease dated July 6, 1993, by and among United
Carolina Bank, the Registrant and Clinical Investigation
Review Board.
10.53** --Guaranty Agreement, dated June 10, 1994, made by Fred
Eshelman for the benefit of Wachovia.
10.54** --Guaranty Agreement, dated June 10, 1994, made by Peter J.
Wise for the benefit of Wachovia.
10.55** --Lease made January 23, 1996 between PPD-CRU and Western
Center Properties, Inc.
10.56** --Note dated January 23, 1996, made by the Registrant for the
benefit of Wachovia.
10.57* --First Amendment to Registration Rights Agreement.
10.58* --Shareholder Voting Agreement, dated June 7, 1996.
10.59* --First Amendment to Lease Agreement, dated October 25, 1995,
between PPD and Perimeter Park West Associates Limited
Partnership.
10.60* --First, Second and Third Amendments to Lease Agreement, dated
March 25, 1996, between PPD and BBC Family Limited
Partnership.
10.61* --Lease Agreement, dated March 25, 1996, between PPD and BBC
Family Limited Partnership.
10.62 --Applied Bioscience International Inc. Employee Stock
Purchase Program (1988), incorporated by reference to Exhibit
10.1 to Applied Bioscience International Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1993.
10.63 --Pharmaco International Limited Retirement Benefits Scheme
and Trust Deed, incorporated by reference to Exhibit 10.2 to
Applied Bioscience International Inc.'s Registration Statement
on Form S-1 (No. 33-11953).
10.64 --Applied Bioscience International Inc. Stock Incentive
Program (1990), incorporated by reference to Exhibit 10.34 to
Applied Bioscience International Inc.'s Annual Report on Form
10-K for the year ended December 31, 1990.
10.65 --APBI Retirement Savings Plan, incorporated by reference to
Exhibit 4 to Applied Bioscience International Inc.'s
Registration Statement on Form S-8 (No. 33-56678).
10.66 --Letter Agreement dated September 3, 1993, between Applied
Bioscience International Inc. and Stephen L. Waechter,
incorporated by reference to Exhibit 10.32 to Applied
Bioscience International Inc.'s Amended Annual Report on Form
10-K/A for the year ended December 31, 1994.
10.67 --Letter Agreement dated September 14, 1993, between Applied
Bioscience International Inc. and Stephen L. Waechter,
incorporated by reference to Exhibit 10.44 to Applied
Bioscience International Inc.'s Amended Annual Report on Form
10-K/A for the year ended December 31, 1994.
10.68 --Change of Control Agreement by and between Applied
Bioscience International Inc. and Stephen L. Waechter dated as
of June 14, 1995, incorporated by reference to Exhibit 10.35
to Applied Bioscience International Inc.'s Quarterly Report on
Form 10-Q for the period ended September 30, 1995.
10.69a-69f --Non-statutory Stock Option Agreements by and between
Applied Bioscience International Inc. and Grover C. Wrenn
dated as of September 19, 1995, incorporated by reference to
Exhibits 10.40a-10.40f to Applied Bioscience International
Inc.'s Quarterly Report on Form 10-Q for the period ended
September 30, 1995.
10.70 --Purchase Agreement by and between ABI (TX) QRS 12-11, Inc.
and Applied Bioscience International Inc., incorporated by
reference to Exhibit 10.42 to Applied Bioscience
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<PAGE> 33
International Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995.
10.71 --Lease Agreement by and between ABI (TX) QRS 12-11, Inc. and
Pharmaco LSR International Inc., incorporated by reference to
Exhibit 10.43 to Applied Bioscience International Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1995.
10.72 --Employment Agreement by and between Applied Bioscience
International Inc. and Carol P. Hanna dated January 2, 1996,
incorporated by reference to Exhibit 10.45 to Applied
Bioscience International Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1995.
10.73 --Change of Control Agreement between Applied Bioscience
International Inc. and Stephen L. Waechter, dated as of June
18, 1996, incorporated by reference to Exhibit 10.46 to
Applied Bioscience International Inc.'s Amended Quarterly
Report on Form 10-Q/A for the period ended June 30, 1996.
10.74 --Change of Control Agreement between Applied Bioscience
International Inc. and Carol P. Hanna, dated as of June 18,
1996, incorporated by reference to Exhibit 10.47 to Applied
Bioscience International Inc.'s Amended Quarterly Report on
Form 10-Q/A for the period ended June 30, 1996.
10.75 --Form of Agreement, dated as of June 20, 1996, by and between
Applied Bioscience International Inc. and each of Joseph H.
Highland, Robert M. Wenger, Robert H. Harris and Joseph V.
Rodricks, incorporated by reference to Exhibit 10.62 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
10.76 --Agreement, dated as of September 6, 1996, by and between
Applied Bioscience International Inc. and John H. Timoney,
incorporated by reference to Exhibit 10.63 to the Registrant's
Quarterly Report on Form 10-Q for the period ended September
30, 1996.
10.77 --Agreement, dated as of September 25, 1996, by and between
Applied Bioscience International Inc. and Kenneth H. Harper,
incorporated by reference to Exhibit 10.64 to the Registrant's
Quarterly Report on Form 10-Q for the period ended September
30, 1996.
10.78 --Severance Compensation Agreement, dated as of September 25,
1996, by and between Applied Bioscience International Inc. and
John D. Bryer, incorporated by reference to Exhibit 10.65 to
the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
10.79 --Consulting Agreement, dated as of October 1, 1996, by and
between Applied Bioscience International Inc., and John D.
Bryer, incorporated by reference to Exhibit 10.66 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
10.80 --Employment Agreement, dated as of October 5, 1996, by and
between Pharmaceutical Product Development, Inc., and Thomas
D'Alonzo, incorporated by reference to Exhibit 10.67 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1996.
10.81 --Employment Agreement, dated as of September 26, 1996, by and
between Pharmaceutical Product Development, Inc., and Fred B.
Davenport, Jr.
10.82 --Employment Agreement, dated as of September 25, 1996, by and
between Pharmaceutical Product Development, Inc. and Joshua S.
Baker.
10.83a-83f --Substitute Non-Statutory Stock Option Agreements by and
between Pharmaceutical Product Development, Inc. and Grover C.
Wrenn, dated as of September 26, 1996.
21 --Subsidiaries of the Registrant
23.1 --Consent of Coopers & Lybrand L.L.P.
23.2 --Consent of Arthur Andersen LLP
27 --Financial Data Schedule (for SEC use only)
99 --Report of Arthur Andersen LLP
- ------------
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (File No. 33-98996).
32
<PAGE> 34
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
----
Report of Independent Accountants F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-27
F-1
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Pharmaceutical Product Development, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Pharmaceutical
Product Development, Inc. and its subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year 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 audit.
We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pharmaceutical
Product Development, Inc. and its subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
We previously audited and reported on the combined balance sheet of
Pharmaceutical Product Development, Inc., its affiliates and its consolidated
subsidiaries as of December 31, 1995 and the related combined statements of
operations, shareholders' equity and cash flows for the two years in the period
then ended, prior to their restatement for the 1996 pooling of interests. The
contribution of Pharmaceutical Product Development, Inc., its affiliates and its
consolidated subsidiaries to total assets represented 19 percent of the restated
total assets as of December 31, 1995. The contribution of Pharmaceutical Product
Development, Inc., its affiliates and its consolidated subsidiaries to net
revenue represented 17 percent and 14 percent of the restated total for 1995 and
1994, respectively. The contribution (in thousands) of Pharmaceutical Product
Development, Inc., its affiliates and its consolidated subsidiaries represented
$2,537 of net income compared to a restated consolidated net loss of $5,404 in
1995 and represented $2,021 of net income compared to a restated consolidated
net loss of $7,987 in 1994. Separate financial statements of the other company
included in the restated consolidated balance sheet as of December 31, 1995 and
in the 1995 and 1994 restated consolidated statements of operations,
shareholders' equity and cash flows were audited and reported on separately by
other auditors. We also audited the combination of the accompanying consolidated
balance sheet as of December 31, 1995 and the consolidated statements of
operations, shareholders' equity and cash flows for the two years in the period
then ended, after restatement for the 1996 pooling of interests; in our opinion,
such consolidated statements have been properly combined on the basis described
in Note 2 of notes to consolidated financial statements.
/s/COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
February 11, 1997
F-2
<PAGE> 36
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Life sciences revenues, net of subcontractor costs of $47,933,
$52,066 and $44,864, respectively $ 152,304 $ 160,495 $ 146,342
Environmental sciences revenues, net of subcontractor costs
of $4,752, $7,230 and $4,564, respectively 45,492 49,283 45,763
--------- --------- ---------
Net revenue 197,796 209,778 192,105
--------- --------- ---------
Direct costs - Life sciences 79,108 90,315 86,647
Direct costs - Environmental sciences 31,744 32,442 28,670
Selling, general and administrative expenses 61,571 64,014 55,428
Depreciation and amortization 10,436 13,251 10,375
Loss on sale of business -- 19,308 --
Merger costs and special charges 16,114 4,982 --
--------- --------- ---------
198,973 224,312 181,120
--------- --------- ---------
Operating income (loss) (1,177) (14,534) 10,985
Interest:
Expense (420) (3,304) (3,190)
Income 1,919 263 508
Other income (expense), net 305 425 (46)
--------- --------- ---------
Income (loss) from continuing operations before provision
for income taxes 627 (17,150) 8,257
--------- ---------
Provision for income taxes 4,134
---------
Net loss (3,507)
---------
Weighted average number of common shares outstanding 21,168
=========
Net loss per common share $ (0.17)
=========
Pro Forma Data (Note 1):
Income (loss) from continuing operations before provision for
income taxes (17,150) 8,257
Pro forma provision (benefit) for income taxes (14,359) 3,371
--------- ---------
Pro forma income (loss) from continuing operations (2,791) 4,886
--------- ---------
Discontinued operations:
Loss from discontinued operations, net of income tax benefit
of $128 -- (285)
Estimated loss on disposal of discontinued operations, net of
income tax benefit of $2,036 and $227, respectively (1,716) (12,588)
--------- ---------
Loss from discontinued operations (1,716) (12,873)
--------- ---------
Pro forma net loss before extraordinary item (4,507) (7,987)
Extraordinary loss on early extinguishment of debt, net of
income tax benefit of $475 (897) --
--------- ---------
Pro forma net loss $ (5,404) $ (7,987)
========= =========
Pro forma weighted average number of common shares
outstanding 18,815 18,671
========= =========
Pro forma earnings (loss) per common share:
Income (loss) from continuing operations $ (0.15) $ 0.26
Loss from discontinued operations (0.09) (0.69)
Extraordinary loss (0.05) --
--------- ---------
Pro forma loss per common share $ (0.29) $ (0.43)
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
<PAGE> 37
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 21,838 $ 13,565
Marketable securities 14,210 242
Accounts receivable and unbilled services, net 76,237 70,263
Investigator advances 5,280 2,960
Prepaid expenses and other current assets 5,752 4,414
Deferred tax asset 4,955 4,756
--------- ---------
Total current assets 128,272 96,200
Property and equipment, net 31,479 28,782
Goodwill, net 18,397 12,990
Other assets 3,309 4,689
--------- ---------
Total assets $ 181,457 $ 142,661
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 4,221 $ 2,201
Accounts payable 7,051 9,080
Payables to investigators 5,429 8,428
Other accrued expenses 26,263 24,289
Unearned income 18,705 14,882
--------- ---------
Total current liabilities 61,669 58,880
Long-term debt, less current maturities 1,428 3,471
Deferred rent and other 3,054 3,010
--------- ---------
Total liabilities 66,151 65,361
--------- ---------
Commitments and contingencies (Notes 10 and 14)
Shareholders' equity:
Common stock, $0.10 par value, 95,000,000 shares authorized;
21,624,000 and 18,677,000 shares issued and outstanding,
respectively 2,163 1,870
Paid-in capital 112,606 65,701
Retained earnings (accumulated deficit) (363) 10,621
Unrealized gain on investments 232 6
Cumulative translation adjustment 668 (425)
Unearned compensation -- (473)
--------- ---------
Total shareholders' equity 115,306 77,300
--------- ---------
Total liabilities and shareholders' equity $ 181,457 $ 142,661
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE> 38
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION> Common Stock Retained
----------------- Earnings Unrealized Cumulative
Par Paid-in (Accumulated Gain (Loss) on Translation Unearned
Shares Value Capital Deficit) Investments Adjustment Compensation
------ ----- ------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993,
as previously reported 6,913 $ 692 $ 444 $ 1,607 $ (268)
Pooling of interests with APBI (Note 2) 11,365 1,137 58,299 22,070 $ (3,567) (1,404)
------ ------- -------- -------- -------- -------
Balance, December 31, 1993, as restated 18,278 1,829 58,743 23,677 (3,567) (1,672)
Adjustment to beginning balance for
change in accounting method $ 16
Unrealized loss on investments (763)
Amortization of unearned compensation 671
Issuance of 26 common shares in
connection with an acquisition
accounted for under the purchase
method 26 2 798
Minority interest of 26 common shares
of affiliated company (2) (144)
Income tax provision from exercise of
stock options and unearned
compensation amortization (249)
Translation adjustment 2,006
Net loss (6,489)
Dividends (1,237)
Other 30 5 518
------ ------- -------- ------- ----- -------- -------
Balance, December 31, 1994 18,334 1,834 59,666 15,951 (747) (1,561) (1,001)
Change in unrealized loss on investments 753
Amortization of unearned compensation 539
Transfer of minority interest to
affiliated group 2 168
Issuance of 72 common shares 72 7 708
Issuance of 257 common shares in
connection with an acquisition
accounted for under the purchase method 257 26 5,020 (977)
Income tax benefit from exercise of stock
options and unearned compensation
amortization 53
Sale of business 1,699
Translation adjustments (563)
Net loss (3,630)
Dividends (723)
Other 12 3 86 (11)
------ ------- -------- -------- ----- -------- -------
Balance, December 31, 1995 18,677 1,870 65,701 10,621 6 (425) (473)
Public offering, net of cash
offering costs 2,300 230 36,952
Shareholder S-Corp distributions 1,595 (7,532)
Unrealized gain on investments 226
Issuance of 242 common shares 242 24 622
Stock issued for exercise of 365 options 365 37 5,058
Income tax benefit from exercise of
stock options and unearned
compensation amortization 1,990
Translation adjustments 1,093
Net loss (3,507)
Other 40 2 688 55 473
------ ------- -------- -------- ----- -------- -------
Balance, December 31, 1996 21,624 $ 2,163 $112,606 $ (363) $ 232 $ 668 $ --
====== ======= ======== ======== ===== ======== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE> 39
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,507) $ (3,630) $ (6,489)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 10,436 13,232 11,961
Deferred income taxes 1,375 (18,204) 3,235
Stock compensation amortization 668 539 671
Loss on sale of toxicology operations -- 16,991 --
Provision for loss on disposal of discontinued operations -- 3,752 12,815
(Gain) loss on disposition of property and equipment 6 (2,741) 113
Gain on sale of investments (8) -- --
Impairment of investment in EnSys -- 2,638 --
Early extinguishment of debt -- 955 --
Change in assets and liabilities:
Accounts receivable and unbilled services, net (2,043) 108 (15,126)
Prepaid expenses and other current assets (4,317) 2,076 (4,242)
Current income taxes 1,354 1,472 5,115
Goodwill and other assets 1,068 (1,968) (4,015)
Assets and liabilities of discontinued operations, net -- (1,593) (2,009)
Accounts payable and accrued liabilities (6,872) 9,301 (1,961)
Unearned income 2,569 (7,011) 1,401
Other (411) 6 (249)
-------- -------- --------
Net cash provided by operating activities 318 15,923 1,220
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (11,176) (10,117) (16,089)
Proceeds from sale of toxicology operations -- 32,500 --
Proceeds from sale of property and equipment 74 14,158 69
Purchase of marketable securities (13,799) (14) (13)
Sale of investments 244 -- --
Net cash paid for acquisitions (3,867) (741) (1,881)
-------- -------- --------
Net cash (used in) provided by investing activities (28,524) 35,786 (17,914)
-------- -------- --------
Cash flows from financing activities:
Short-term bank (repayments) borrowings, net -- (1,687) (16,929)
Line of credit (repayments) borrowings, net 669 (12,892) 12,973
Proceeds from long-term debt 167 -- 2,771
Principal repayments on long-term debt (2,415) (32,897) (13,224)
Other long-term borrowings -- -- 26,903
Cash dividends paid (5,937) (723) (1,237)
Proceeds from issuance of common stock 42,902 761 524
-------- -------- --------
Net cash provided by (used in) financing activities 35,386 (47,438) 11,781
-------- -------- --------
Effect of exchange rate changes on cash 1,093 (510) (137)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 8,273 3,761 (5,050)
Cash and cash equivalents, beginning of the year 13,565 9,804 14,854
-------- -------- --------
Cash and cash equivalents, end of the year $ 21,838 $ 13,565 $ 9,804
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE> 40
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Pharmaceutical Product Development, Inc. and its subsidiaries ("PPD"),
collectively (the "Company"), provide a broad range of research and consulting
services in two business segments: life sciences and environmental sciences.
Services provided in the life sciences segment include worldwide clinical
research and development of pharmaceutical products and medical devices,
biostatistical analysis and analytical laboratory services. Environmental
sciences services include assessment and management of chemical and
environmental health risk, site investigation and remediation planning and
litigation support. Such services are provided through both segments under
contract to clients in the pharmaceutical, general chemical, agrochemical,
biotechnology and other industries. The environmental sciences segment also
markets services to clients in the industrial, manufacturing and oil and gas
industries. The Company's life sciences services, which represented 77% of the
Company's business in 1996 based on net revenue, are marketed primarily in the
United States and Europe. The remaining 23% of the Company's 1996 net revenue
was derived from its environmental sciences segment which is primarily domestic.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
and operations of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
MERGER COSTS AND SPECIAL CHARGES
In connection with the acquisition of Applied Bioscience International
Inc. ("APBI"), the Company implemented a reorganization plan under which the
Company would eliminate certain positions and close a facility. The Company
recorded merger and reorganization costs of $17.0 million in the third quarter
of 1996. Included in these costs were transaction costs of $7.1 million, related
primarily to investment banking, legal and accounting fees. In addition, the
Company recorded $9.9 million in accruals for severance, lease termination and
certain other costs. The Company reversed $0.8 million of these accruals in the
fourth quarter due to changes in estimates. Of the amounts accrued above, $3.2
million is for severance payments for approximately 40 individuals consisting
mainly of administrative personnel. In the fourth quarter of 1996, $1.1 million
in severance was paid and charged against the reserve. Approximately $7.5
million of accrued merger and reorganization costs were accrued as of December
31, 1996 and included in Other accrued expenses. (See Note 2.)
In the fourth quarter of 1995, the Company recorded special charges of
$5.0 million, primarily related to the impairment of certain investments and
assets and the decision to reduce costs and improve efficiencies. These charges
included approximately $3.4 million associated with the impairment of the
Company's available-for-sale investment (see Note 8) and other assets, $1.2
million related primarily to severance costs associated with the Company's
efforts to reduce future costs and $0.4 million related to accrued lease losses
and other miscellaneous costs.
REVENUE RECOGNITION
The Company records revenues from fixed-price contracts extending over
more than one accounting period on a percentage-of-completion basis. Revenues
from time-and-material contracts are recognized as billable rates multiplied by
hours delivered, plus pass-through expenses incurred. Pass-through expenses
generally include subcontractor costs which consist of investigator fees, travel
and certain other contract costs that are reimbursed by the client. Accordingly,
such subcontractor costs are deducted in determining net revenues.
F-7
<PAGE> 41
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
If it is determined that a loss will result from the performance of a
contract, the entire amount of the estimated loss is charged against income in
the period in which the determination is made. Clients generally may terminate a
study at any time, which may cause unplanned periods of excess capacity and
reduced revenues and earnings. To offset the effects of early terminations, with
respect to contracts of significant size the Company attempts to negotiate the
payment of an early termination fee.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of unrestricted cash accounts,
including commercial paper, which are not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments with a maturity of three
months or less at the date of purchase.
Supplemental cash flow information and non-cash investing activities
were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Cash paid (received):
Interest $ 326 $ 3,707 $ 3,800
====== ======= =======
Income taxes, net $1,594 $(2,299) $(6,355)
====== ======= =======
</TABLE>
The non-cash assets and liabilities acquired, including the acquisition
of Environmental Assessment Group, Ltd.; Data Acquisition and Research (DAR)
Limited; Medisys S.L.; Trilife GmbH; and Q&Q Suporte A Pesquisa Clinica Ltda. in
1996 and Gabbay Limited and the Chicago Center for Clinical Research in 1995
(see Note 2) and the Phase I clinical center received as consideration for the
sale of the toxicology operations in 1995 (see Note 3) were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Acquisitions:
Fair value of assets acquired $4,841 $7,633
Liabilities assumed 5,242 3,416
Non-cash consideration received:
Fair value of assets acquired $ -- $5,098
Liabilities assumed -- 598
</TABLE>
MARKETABLE SECURITIES
The Company records its investment in marketable securities in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." The classification of
securities is generally determined at the date of purchase. All marketable
securities of the Company have been classified as available for sale and have
been reported at fair value with unrealized gains and losses reported as a
separate component of shareholders' equity. The Company intends to hold these
securities for an indefinite period of time. Gains and losses on sales of
investment securities, computed based on specific identification of adjusted
cost of each security, are included in other income at the time of the sales.
(See Notes 5 and 8.)
F-8
<PAGE> 42
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTIGATOR PAYMENTS
Investigator payments are recognized based upon the status of the work
completed as a percentage of the total procedures required under the contract or
based on patient enrollment over the term of the contract. Billings and payments
are based on predetermined contractual agreements which may differ from the
accrual of the expense. Payments made in excess of the accrued expenses are
classified as investigator advances and accrued expenses in excess of amounts
paid are classified as payables to investigators. Contracted physician costs are
included as a reduction to revenues in the consolidated statements of
operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is recorded using the straight-line method, based
on estimated useful lives of 20 to 50 years for buildings, five to 12 years for
laboratory equipment, three to five years for computers and related equipment,
and four to 10 years for furniture and equipment. Leasehold improvements are
amortized over the shorter of the respective lives of the leases or the useful
lives of the improvements. Property under capital leases is amortized over the
life of the lease or the service life, whichever is shorter. The Company
evaluates impairment of its property and equipment based on whether it is
probable that undiscounted future cash flows from operations are expected to be
less than the asset's carrying value.
GOODWILL
The excess of the purchase price of the businesses acquired over the
fair value of net tangible assets and identifiable intangibles at the date of
the acquisitions has been assigned to goodwill. Goodwill is being amortized over
periods of 15 to 40 years. As of December 31, 1996 and 1995, accumulated
amortization was $3,036,000 and $2,014,000 respectively. The amortization
charges for each of the three years ended December 31, 1996, 1995 and 1994 were
$950,000, $715,000 and $485,000, respectively. The Company evaluates impairment
of goodwill based on whether it is probable that undiscounted future cash flows
from operations are expected to be less than the asset's carrying value.
OTHER ASSETS
Other intangible assets, which are included in other assets, are being
amortized over periods of three to five years. (See Note 8.)
UNBILLED SERVICES AND UNEARNED INCOME
In general, prerequisites for billings are established by contractual
provisions including predetermined payment schedules, the achievement of
contract milestones or submission of appropriate billing detail. Unbilled
services arise when services have been rendered but clients have not been
billed. Similarly, unearned income represents amounts billed in excess of
revenue recognized.
INCOME TAXES
The financial statements of the Company for periods prior to its
initial public offering in January 1996 ("the IPO") do not include a provision
for income taxes, because the taxable income or loss of the Company through
December 31, 1995 (excluding the results of APBI - see Note 2) was included in
the income tax returns of the individual shareholders under the S corporation
election. For informational purposes, the statements of operations include a pro
forma income tax provision on taxable income for financial reporting purposes,
which combines income taxes on PPD's results, excluding APBI, using statutory
federal and state rates that would have resulted if the Company had filed
corporate tax returns during these periods and APBI's previously reported
provision for income taxes.
F-9
<PAGE> 43
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In January 1996, prior to the effectiveness of the IPO, the Company
elected to no longer be treated as an S corporation for tax purposes.
Accordingly, the Company is now subject to federal and state income taxes and
recognizes deferred taxes in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
requires companies subject to income taxes to adjust their deferred tax assets
and liabilities based on temporary differences between financial statement and
tax basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse.
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of foreign operations, where the functional
currency is the local currency, are translated into U.S. dollars at the year-end
rate of exchange. Income and expenses are translated at the average rates of
exchange prevailing during the year. Gains or losses from translating foreign
currency financial statements are accumulated in a separate component of
shareholders' equity. Foreign currency transaction gains and losses are included
in other income.
Funds generated by each subsidiary of the Company are generally
reinvested in the country where they are earned.
PER SHARE INFORMATION
The computation of income (loss) per share information is based on
the weighted average number of common shares outstanding during the year.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share." SFAS No. 128 is designed to improve the earnings per share
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
comparability of earnings per share data on an international basis. This
pronouncement is effective for periods beginning after December 15, 1997, and is
not expected to have a material impact on the Company's financial statements.
PERVASIVENESS 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 reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1996 presentation.
2. ACQUISITIONS:
POOLING
On September 26, 1996, a wholly-owned subsidiary of the Company was
merged with and into APBI in a transaction accounted for as a pooling of
interests. As a result of the merger, APBI became a wholly-owned subsidiary of
the Company. Under the terms of the merger agreement, APBI shareholders received
0.4054 of a share of the Company's common stock for each APBI share. As a result
of the merger, the Company issued 12,063,860 shares of its common stock in
exchange for all the outstanding shares of common stock of APBI.
F-10
<PAGE> 44
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS (CONTINUED)
Holders of options to acquire APBI stock had the choice to receive
either shares of Company stock for the value of the options, or substituted
options to acquire Company common stock. As a result of the APBI option holders'
choices, 202,967 additional shares of Company common stock were issued, and
options to purchase 600,513 shares of Company common stock were issued.
In accordance with the pooling of interests method of accounting, the
consolidated financial statements are based on the assumption that the companies
were combined for the full year and financial statements of prior years have
been restated to give effect to the combination. Net revenue and net income
(loss) as previously reported for 1995 and for the six months ended June 30,
1996, and as restated for the pooling of interests follow (in thousands):
<TABLE>
<CAPTION>
PPD APBI ADJUSTMENT RESTATED
--- ---- ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Net revenue $38,263 $183,253 $(11,738) $209,778
Pro forma income (loss) from
continuing operations 2,537 (5,328) -- (2,791)
Loss from discontinued operations
and extraordinary items -- (2,613) -- (2,613)
------- -------- -------- --------
Pro forma net income (loss) 2,537 (7,941) -- (5,404)
------- -------- -------- --------
Six months ended June 30, 1996
Net revenue $25,041 $ 77,011 $ (5,506) $ 96,546
Net income 2,126 2,444 -- 4,570
</TABLE>
Prior to the merger, APBI reported certain items as direct expenses,
while PPD reported those items as a deduction to arrive at net revenue. APBI's
results prior to the pooling have been restated to be presented on a basis
consistent with PPD's results. The impact of the restatement on APBI's net
revenue is presented above in the column labeled "Adjustment."
PURCHASES
The Company's Life Sciences Group furthered its expansion outside of
the U.S. in 1996 through the acquisition of Trilife Gesellschaft Fur
Medizinische Entwicklung Verwaltungs GmbH ("Trilife") in Germany, Medisys S.L.
("Medisys") in Spain and Q&Q Suporte A Pesquisa Clinica Ltda. ("Q&Q") in Brazil.
The consideration for Trilife consisted of approximately $567,000 paid at
closing. In addition, the Company may pay up to $135,000 as additional purchase
price, dependent upon the performance of Trilife for a certain period after the
acquisition. The consideration for Medisys consisted of $400,000 paid at
closing, plus an additional $300,000 due on each of the first and second
anniversaries of the acquisition. The consideration for Q&Q consisted of
$500,000 paid at closing, plus an additional $100,000 due on each of the first
three anniversaries. The Company also acquired Data Acquisition and Research
(DAR) Limited ("DAR") in Scotland in 1996, which allowed it to expand its
biostatistics and data analysis capabilities in Europe. The consideration for
DAR consisted of cash paid at closing of $992,000, plus an additional $348,000
to be paid in 10 installments between June 1997 and December 2001. The
Company's Environmental Sciences Group also expanded its operations in 1996
with the acquisition of Environmental Assessment Group Limited ("EAG") in
England. The consideration for EAG consisted of $1.9 million cash, a note for
approximately $350,000 and the potential to earn up to an additional $500,000
depending on the profits of EAG during the two years after the acquisition. In
connection with these acquisitions, the Company recorded $6,278,000 in
goodwill. Pro forma information is not presented as the results of operations
prior to the dates of the acquisitions are not material individually or
collectively to the Company.
F-11
<PAGE> 45
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS (CONTINUED)
On August 1, 1995, PPD and PPD-Europe (an S corporation formed in
connection with this transaction), completed the acquisition of Gabbay Group
Limited for $306,000 in cash and $241,000 in assumed debt. Gabbay Group Limited,
a clinical research organization, is located in Southampton, England. The
purchase price resulted in goodwill of $444,000. Pro forma information is not
presented as the results of operations prior to the date of the acquisition are
not material to the Company.
On August 18, 1995, the Company, through its subsidiary Clinix
International Inc., acquired the business and assets of the Chicago Center for
Clinical Research ("CCCR"), a nationally recognized organization conducting
clinical trials in pharmaceuticals, food and nutrition. The consideration
consisted of 634,188 shares of APBI's common stock valued at $4,043,000,
together with the assumption or retirement of substantially all of CCCR's
outstanding indebtedness and other related liabilities. As a result of this
transaction, the Company recorded $4,517,000 in goodwill. Pro forma information
is not presented, as the results of operations prior to the date of acquisition
are not material to the Company.
3. SALE OF BUSINESS:
On November 21, 1995, the Company sold its toxicology laboratories
located in New Jersey and Suffolk, England, to Huntingdon International Holdings
plc ("Huntingdon"). In connection with the sale of the New Jersey toxicology
laboratory, which operated as a division of PPD Pharmaco (formerly Pharmaco LSR
International Inc., "Pharmaco"), a wholly-owned subsidiary of the Company,
Huntingdon acquired substantially all of the assets of such laboratory and
assumed substantially all related liabilities. In connection with the sale of
the toxicology laboratory located in Suffolk, England, Huntingdon acquired all
of the capital stock of Pharmaco LSR Ltd., a wholly-owned subsidiary of the
Company. The Company received as consideration cash proceeds of $32,500,000,
plus an additional $6,000,000 for an equal amount of cash conveyed to Huntingdon
as part of the sale. The consideration also included the Company's acquisition
of Huntingdon's Phase I clinical center located in Leicester, England, at an
agreed upon value of $4,500,000.
As a result of the disposition, the Company recorded a pre-tax loss on
sale of business of $19,308,000 which is reflected in the accompanying
consolidated statement of operations for the year ended December 31, 1995. The
loss reflected the net book value of the net assets sold in excess of
consideration received of $16,991,000, $1,178,000 of transaction costs,
$1,338,000 of severance and relocation costs, and $581,000 of other costs
primarily related to the required name change of the remaining business, net of
a $780,000 gain recorded as a result of the settlement of the Company's U.K.
pension plan. (See Note 13.)
The assets and liabilities sold to Huntingdon are not included in the
accompanying consolidated balance sheet as of December 31, 1995. The results of
operations (excluding the effect of the loss on the sale of the business) for
the years ended December 31, 1995 and 1994 included the following for the
disposed business (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net revenues $38,446 $46,387
Operating (loss) income (1,136) 2,409
</TABLE>
4. DISCONTINUED OPERATIONS:
In June 1994, the Company sold Paragon, a division of its wholly owned
subsidiary APBI Environmental Sciences Group, Inc., for cash and a note totaling
$525,000. The sale resulted in a loss on disposal before income tax benefits of
$732,000.
In December 1993, the Company adopted a formal plan to sell its
environmental testing laboratory division, Environmental Testing and
Certification Corp. ("ETC"). Accordingly, in 1993 the Company's results
reflected charges necessary to reduce the carrying value of its investment in
ETC to its estimated realizable value.
F-12
<PAGE> 46
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DISCONTINUED OPERATIONS (CONTINUED)
Although it was the Company's desire to exit the environmental
analytical laboratory business completely, it became apparent during 1994 that
the Company would not be able to dispose of its interest in ETC on terms that it
deemed attractive, in part because of the ongoing consolidation within the
environmental analytical laboratory industry. Based on the Company's belief that
a larger network of analytical laboratories could compete more effectively, and
that a minority interest in a larger laboratory business might provide a better
means to pursue divestiture opportunities, in August 1994, the ETC division of
APBI Environmental Sciences Group, including substantially all of its assets and
liabilities, was consolidated with the business operations of PACE Inc. (an
unrelated analytical laboratory) and Coast-to-Coast Analytical Services, Inc.
(another unrelated analytical laboratory). The combined business operations were
operated within PACE Incorporated ("PACE"), a newly formed entity. As a result
of the combination, the Company, through APBI Environmental Sciences Group,
owned preferred and common stock of PACE representing approximately 36% of the
weighted average preferred and common stock outstanding. Due to the additional
time required to divest ETC and after assessment of the estimated fair value of
APBI's investment in PACE, the Company recorded an additional write down of
$2,533,000 in the third quarter of 1994. In the fourth quarter of 1994, the
Company recorded $9,550,000 in additional writedowns to reduce the carrying
value of the investment to its then estimated net realizable value.
During the fourth quarter of 1995, PACE sold substantially all of its
laboratories in a series of transactions. Net proceeds from such transactions
were used to retire PACE's outstanding bank loan and to partially repay certain
other secured indebtedness. PACE, which is currently winding up its remaining
business operations, does not have sufficient assets to repay its outstanding
liabilities. Accordingly, it is anticipated that equity holders will not receive
any distributions upon completion of PACE's winding up and dissolution.
Effective December 29, 1995, the Company's voting interest was reduced to below
20%, and the Company changed its accounting for the investment from the equity
method to the cost method in accordance with Accounting Principles Board Opinion
No. 18, "The Equity Method of Accounting for Investments in Common Stock."
In the fourth quarter of 1995, the Company wrote off its remaining
investment in PACE of approximately $3,600,000, and accrued its estimated
exposure for guarantees on leases. PACE, which is currently winding up its
remaining business operations, does not have sufficient assets to repay its
outstanding liabilities and was involuntarily placed in bankruptcy under Chapter
7 of the Bankruptcy Code during 1996. The Company does not believe that any
further charges will be taken with respect to this investment.
The operating results of the discontinued operations include net
revenues of $12,045,000 for the year ended December 31, 1994. Assets and
liabilities of the discontinued operations were as follows as of December 31,
1994 (in thousands):
<TABLE>
<S> <C>
Accounts receivable, net $ 317
Property and equipment, net 1,542
Other assets 12,959
Other liabilities (12,382)
--------
Net assets of discontinued operations $ 2,436
========
</TABLE>
5. MARKETABLE SECURITIES:
The estimated market value and aggregate cost of current marketable
securities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
Estimated market value $14,210 $242
Aggregate cost 14,210 236
------- ----
Gross unrealized gains $ -- $ 6
======= ====
</TABLE>
F-13
<PAGE> 47
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------ ------
<S> <C> <C>
Trade:
Billed $45,419 $39,257
Unbilled 30,404 33,509
Reserve for doubtful accounts (1,511) (3,319)
------- -------
74,312 69,447
Officers and employees 363 395
Other 1,562 421
------- -------
$76,237 $70,263
======= =======
</TABLE>
7. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------ ------
<S> <C> <C>
Land $ 593 $ 543
Buildings and leasehold improvements 13,049 10,692
Construction in progress 167 230
Furniture and equipment 28,062 23,879
Computer equipment 27,868 22,410
------- -------
69,739 57,754
Less- Accumulated depreciation and amortization 38,260 28,972
------- -------
$31,479 $28,782
======= =======
</TABLE>
The annual depreciation and amortization charges on property and
equipment for each of the three years ended December 31, were (in thousands):
<TABLE>
<S> <C> <C>
1994 $10,453
1995 12,015
1996 9,399
</TABLE>
8. OTHER ASSETS:
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------ ------
<S> <C> <C>
Investment in SDI $1,240 $1,008
Intangible and other assets, net of accumulated
amortization of $1,024 and $2,183, respectively 2,069 3,039
Net non-current assets of discontinued operations -- 642
------ ------
$3,309 $4,689
====== ======
</TABLE>
The annual amortization charges on intangible assets for each of the
three years ended December 31, 1996, 1995 and 1994 were $87,000, $602,000 and
$700,000, respectively.
F-14
<PAGE> 48
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER ASSETS (CONTINUED)
The Company owns 729,600 shares of Strategic Diagnostics Inc. ("SDI"),
formerly EnSys Environmental Products Inc. ("EnSys") common stock. Warrants to
acquire up to an additional 866,667 shares of EnSys common stock at $7.50 per
share expired in October 1996. The trading price per share was $2.00 and $1.63
as of December 31, 1996 and 1995, respectively.
The Company owns approximately 4.4% of the SDI common stock at
December 31, 1996.
The Company's investment in SDI is carried at its fair value. In 1996,
the difference between the fair value and the carrying value of $232,000 is
reported as a separate component of shareholders' equity. In 1995, the
difference between the fair value and the carrying value of $2,638,000 was
reported as a loss in the consolidated statement of operations as the decline
was considered other than temporary.
9. OTHER ACCRUED EXPENSES:
Other accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Accrued salaries, wages, benefits and related costs $10,976 $11,457
Accrued merger costs 7,513 --
Accrued loss on sale of business -- 2,395
Accrued special charges and restructuring costs -- 2,223
Other 7,774 8,214
------- -------
$26,263 $24,289
======= =======
</TABLE>
10. LONG-TERM DEBT AND LEASE OBLIGATIONS:
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
LIBOR (5.72% at December 31, 1996) plus 1.2%
unsecured line of credit due February 19, 1997 $ 3,300 $ --
Prime (8.5% at December 31, 1995) less 0.5% line of credit
reducing $520 annually and expiring January 1, 2000 -- 2,210
Equipment leases 689 894
Various notes at interest rates up to 8.5% 1,660 2,568
------- -------
5,649 5,672
Less current maturities (4,221) (2,201)
------- -------
$ 1,428 $ 3,471
======= =======
</TABLE>
As of December 31, 1996, the Company had $6,700,000 in unused line of
credit borrowings available, as well as an additional $20,000,000 discretionary
line of credit. On February 19, 1997, the Company modified the line of credit to
mature on May 1, 1997.
F-15
<PAGE> 49
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
For the years subsequent to December 31, 1996, annual maturities of
long-term debt outstanding are (in thousands):
<TABLE>
<S> <C>
1997 $4,221
1998 1,013
1999 175
2000 161
2001 79
------
$5,649
======
</TABLE>
OPERATING LEASES
The Company is obligated under noncancellable leases expiring at
various dates through 2010 relating to its operating facilities and certain
equipment. Rental expense for all operating leases, net of sublease income, was
$10,334,000, $8,200,000 and $6,034,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company completed a sale-leaseback transaction involving owned real
estate in Austin, Texas, on November 13, 1995. Total gross proceeds in the
transaction were $12,000,000 resulting in a pre-tax gain of approximately
$2,100,000. The gain, which has been deferred, is classified as deferred rent
and other in the accompanying consolidated balance sheet and is being amortized
on a straight-line basis over the fifteen year lease term. The facilities are
leased to the Company with all responsibility of operations and maintenance
residing with the Company.
Certain facility leases entered into in 1992 and prior years provided
for concessions by the landlords, including payments for leasehold improvements,
moving expenses, and free rent periods. These concessions have been reflected as
deferred rent and other in the accompanying consolidated financial statements.
The Company is recording rent expense on a straight-line basis for these leases.
Future minimum payments for all operating lease obligations for years
subsequent to December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997 $12,422
1998 11,362
1999 8,701
2000 6,867
2001 6,146
2002 and thereafter 31,519
</TABLE>
11. STOCK PLANS:
STOCK INCENTIVE PROGRAM
The Company has a stock option plan (the "Plan") under which the
Company may grant options to its employees and directors for up to 1,500,000
shares of common stock. Under the Plan, the exercise price of each option equals
the market price of the Company's stock on the date of grant and an option's
maximum term is ten years. Options are granted upon approval of the Board of
Directors and vest over various periods.
F-16
<PAGE> 50
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK PLANS (CONTINUED)
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based
Compensation". As permitted by SFAS No. 123, the Company has chosen to apply
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
Plans. Accordingly, no compensation cost has been recognized for options
granted under the Plan. Had compensation cost for the Company's Plan been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method of SFAS No. 123, the Company's net loss and net loss
per share would have been increased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
------------------- --------------------
AS AS
REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net loss (in thousands) $3,507 $7,670 $5,404 $5,637
Net loss per share $ 0.17 $ 0.36 $ 0.29 $ 0.30
</TABLE>
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 grants in 1996 and 1995: expected volatility of 49.9%,
risk-free interest of 6.25% and expected lives of five years. The weighted
average fair value of options granted during 1996 and 1995 was $11.48 and $6.55
per share, respectively.
A summary of the status of the Company's Plan as of December 31, 1996,
1995 and 1994, and changes during the years ending on those dates, is presented
below:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,180,809 $16.29 1,240,682 $17.07 1,358,518 $23.07
Granted 1,056,539 22.57 191,837 12.38 347,959 15.64
Exercised (858,800) 15.10 (63,547) 9.82 (25,549) 8.55
Forfeited (137,406) 17.96 (188,163) 19.63 (440,246) 35.05
--------- --------- ---------
Outstanding at end of year 1,241,142 $22.28 1,180,809 $16.29 1,240,682 17.07
========= ====== ========= ====== ========= ======
Options exercisable at year-end 771,069 $19.85 766,895 $17.31 734,217 $17.56
========= ====== ========= ====== ========= ======
</TABLE>
The following table summarizes information about the Plan's stock options
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$10.01-$20.00 530,832 8.2 years $16.12 530,832 $16.12
$20.01-$30.00 611,605 9.6 years $25.44 141,532 $22.72
$30.01-$40.00 87,241 4.8 years $35.20 87,241 $35.20
$40.01-$40.55 11,464 5.1 years $40.55 11,464 $40.55
--------- -------
1,241,142 771,069
========= =======
</TABLE>
F-17
<PAGE> 51
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK PLANS (CONTINUED)
OTHER STOCK PROGRAMS
On August 15, 1995, APBI granted a total of 60,000 restricted stock
units ("RSUs") to two executive officers of APBI. The RSUs vested at the time
the average closing price for APBI's common stock equaled or exceeded $10.00 per
share for a period of 10 consecutive trading days. The RSUs vested on July 5,
1996. The executives were not required to pay any consideration in exchange for
the RSUs. Unearned compensation was amortized to expense over the vesting period
of the RSUs. Compensation expense related to these RSUs of $534,000 and $66,000
has been recorded in the accompanying statement of operations for the years
ended December 31, 1996 and 1995, respectively.
On September 19, 1995, APBI entered into a Separation Agreement with a
former senior executive officer of APBI. In connection therewith, APBI canceled
the former executive's unexercised options granted under APBI's stock option
plan and provided the officer with options granted outside of APBI's plan to
purchase up to 147,428 shares of APBI's common stock. Of the options granted,
92,761 were fully vested at the grant date. The remaining options vest at
various dates through September 13, 1997, and expire on the earlier of February
11, 2001, or the day immediately following any period of 20 consecutive
trading days in which the last sale for shares of the Company's common stock for
each of such trading days equaled or exceeded $49.33, as adjusted, per share.
The options were granted at the exercise prices established at the original
option grant dates and vary from $13.88 to $39.16, as adjusted. At the grant
date of the new options, 102,000 of the options were priced below fair market
value. Accordingly, in 1995, the Company recorded compensation expense of
$112,000 for the difference between the fair market value and the exercise
price. These options to acquire shares of APBI stock were converted into options
to acquire Company stock, in connection with the merger. The terms and
conditions of the options remained the same, except that the number of options
and their exercise price were adjusted in accordance with the exchange ratio
provided for in the merger agreement.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan under which options are
granted to employees who elect to purchase shares of common stock at the end of
a five- or seven-year savings period. Savings are accumulated through voluntary
payroll deductions. The Company contributes a bonus to each participant's
savings account equal to nine monthly contributions at the end of the five-year
period and 18 monthly contributions at the end of the seven-year period.
When the savings period ends, the employee may elect to purchase the shares
using the savings balance, including the bonus; purchase some of the shares and
receive the savings balance in cash; or receive the savings and bonus in cash.
Those employees electing the five-year savings period may also elect to leave
the savings in their accounts for another two years and forfeit the option to
purchase the shares. The United Kingdom Plan, as approved by the shareholders,
was implemented by Pharmaco LSR Ltd. during 1988. Currently, employees of the
Company's United Kingdom subsidiary, Pharmaco International Ltd., participate in
this plan. The United States Plan has not been implemented. Outstanding options
at the time of the merger were converted in accordance with the exchange ratio
provided for in the merger agreement.
In connection with the sale of the toxicology operations, options
equivalent in value to the savings balance in the terminated employees' accounts
became immediately exercisable. Options in excess of the savings balance were
forfeited. The exercise period for the vested options extended through April
1996.
At December 31, 1996, there were 4,225 options outstanding at an
average exercise price of $20.33. Of those, 2,425 options were exercisable at
December 31, 1996, at an average exercise price of $21.62.
F-18
<PAGE> 52
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES:
The components of income (loss) before provision for income taxes were
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Domestic $1,228 $(16,778) $ 7,847
Foreign (601) (372) 410
------ -------- --------
Income (loss) from continuing operations 627 (17,150) 8,257
Loss from discontinued operations -- (3,752) (13,228)
Extraordinary loss -- (1,372) --
------ -------- --------
Total $ 627 $(22,274) $ (4,971)
====== ======== ========
</TABLE>
The components of the provision (benefit) for income taxes were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
State income taxes:
Current $ 330 $ (63) $ (372)
Deferred 90 (166) 182
Federal income taxes:
Current 2,130 (1,021) (1,922)
Deferred 1,285 (4,716) 2,925
Foreign income taxes:
Current 299 109 --
Deferred -- (12,788) 705
------ -------- -------
Provision (benefit) for income taxes $4,134 $(18,645) $ 1,518
======
PPD's pro forma income tax provision (see Note 1) 1,775 1,498
-------- -------
Pro forma provision (benefit) for income taxes $(16,870) $ 3,016
======== =======
</TABLE>
The income tax provision (benefit) is included in the financial
statements as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Continuing operations $4,134 $(14,359) $3,371
Discontinued operations -- (2,036) (355)
Extraordinary loss -- (475) --
------ -------- ------
Total $4,134 $(16,870) $3,016
====== ======== ======
</TABLE>
The 1996 current federal and state income tax expense primarily relates
to costs associated with the acquisition of APBI which are not deductible for
federal and state income tax purposes. The 1996 deferred federal and state
income tax expense relates to the utilization of net operating losses and tax
credits generated in prior years. In 1995, federal and state income tax benefits
were recorded which related to the federal and state income tax losses and
credits available for carryforward, discontinued operations reserves and
restructuring reserves established for financial reporting purposes which were
not currently deductible for income tax purposes. In 1994, federal and state
deferred income tax expense resulted primarily from utilization of restructuring
reserves and discontinued operations reserves established in years prior to 1994
for financial reporting purposes which resulted in 1994 deductions for income
tax purposes.
F-19
<PAGE> 53
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES (CONTINUED)
The 1996 current foreign income tax expense represents the foreign
income tax liabilities associated with the Company's foreign operations. In
1995, a foreign deferred income tax benefit was recorded to reflect the reversal
of previously recorded foreign deferred income tax expense associated with the
United Kingdom ("U.K.") toxicology operations which were sold during 1995. The
1994 foreign income tax expense resulted primarily from temporary differences
related to the excess of U.K. capital allowances for tax purposes over
financial reporting depreciation.
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision (benefit) for income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Effective tax rate 660.2% 83.7% (30.5%)
======= ======== =======
United States federal statutory rate $ 213 $ (7,574) $(1,690)
Differential on rates applied to foreign earnings (72) 30 (96)
State taxes (net of federal benefit) 277 47 51
Write-down of investment in PACE Incorporated
and EnSys -- (40) 3,774
Sale of toxicology operations -- (10,370) --
Allowance for limitation of foreign tax losses 299 841 674
Merger costs not deductible for income tax purposes 2,751 -- --
Goodwill and other items not deductible for income
tax purposes 435 -- --
Other 231 196 303
Taxes on PPD's subchapter S earnings -- (1,775) (1,498)
------- -------- -------
Provision (benefit) for income taxes $ 4,134 $(18,645) $ 1,518
======= ======== =======
</TABLE>
During 1996, significant costs were incurred related to the acquisition
of APBI which were not deductible for income tax purposes. Accordingly, no tax
benefit was recorded on these expenses. As a result of the 1995 sale of the
Company's toxicology operations, the Company will not be liable for the payment
of certain tax liabilities recorded in prior years. These previously recorded
liabilities were reversed in 1995. In 1994, a write-down was recorded of the
Company's investment in PACE Incorporated. No tax benefit was recorded in
connection with this write-down as it was characterized as a write-down giving
rise to a capital loss for income tax purposes. Capital losses can only be
deducted for income tax purposes to the extent of capital gains incurred during
the three prior years and five subsequent years. As the Company's ability to
generate capital gains is uncertain, no benefit was recorded. At December 31,
1994, a deferred tax asset was recorded for the future benefit of U.S. loss
carryforwards. However, a valuation allowance was established as a reserve
against this asset, as the Company only recognized benefits of U.S. losses which
could be realized through a net operating loss carryback. Based on projected
future profits, at December 31, 1996 and 1995, the Company recognized a deferred
tax asset for the future benefit of U.S. loss carryforwards, and the valuation
allowance was reduced to zero.
F-20
<PAGE> 54
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. INCOME TAXES (CONTINUED)
Components of the net current deferred tax asset were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Future benefit of foreign net operating losses $ 92 --
Provision for business restructuring -- $1,060
Allowance for doubtful accounts 733 314
Accruals 3,263 524
Future benefit of U.S. and state net operating losses 1,051 2,680
Other (184) 178
------ ------
Net current deferred tax asset $4,955 $4,756
====== ======
</TABLE>
Components of the net long-term deferred tax asset, included in other
assets, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Depreciation and amortization $ (836) $(1,068)
Provision for discontinued operations -- 242
Deferred rent 1,228 1,414
Future benefit of U.S. tax credits 391 613
Other 179 290
------ -------
Net long-term deferred tax asset $ 962 $ 1,491
====== =======
</TABLE>
The cumulative amount of undistributed earnings of foreign subsidiaries
for which the Company has not provided U.S. income taxes at December 31, 1996
was $794,000. No provision has been made for the additional taxes that would
result from the distribution of earnings of foreign subsidiaries since such
earnings have been permanently reinvested in the foreign operations.
As of December 31, 1996, the Company had approximately $2,900,000 of
net operating losses available for carryforward to future years which will
expire in 2010. The Company also had approximately $391,000 of alternative
minimum tax credits available for carryforward which never expire.
13. EMPLOYEE SAVINGS AND PENSION PLANS:
SAVINGS PLANS
Prior to the merger, PPD maintained the PPD 401(k) Retirement Savings
Plan (the "PPD 401(k) Plan") under which all U.S. employees of PPD were eligible
to participate. PPD matched 50% of an employee's savings up to 5% of pay.
Employer matching contributions vested ratably over a period of six years. APBI
maintained the Applied Bioscience International Inc. 401(k) Retirement Savings
Plan (the "APBI 401(k) Plan"), under which all U.S. employees were eligible to
participate from their date of employment. APBI matched 50% of an employee's
savings up to 6% of pay. All participants were 100% vested in Company
contributions. Effective January 1, 1997, the two 401 (k) plans have been merged
into one plan. Under the new plan, the Company will match 50% of an employee's
savings up to 6% of pay, and employer matching contributions will vest ratably
over a four-year period.
Company contributions for all employees for the three years ended
December 31, 1996, 1995 and 1994 were $1,483,000, $1,628,000 and $1,309,000,
respectively.
F-21
<PAGE> 55
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED)
PENSION PLANS
Pension costs and related disclosures are determined under the
provisions of Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions" and Statement of Financial Accounting Standards
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits."
The Company has a separate contributory defined benefit plan (the "U.K.
Plan") for its qualifying United Kingdom employees and directors employed by
APBI's U.K. subsidiaries. The benefits for this plan are based primarily on
years of service and average pay at retirement. Plan assets consist principally
of investments managed in a mixed fund. The sale of the toxicology business
discussed in Note 3 resulted in the termination of employment for the majority
of United Kingdom employees who participated in the U.K. Plan. The projected
settlement gain of $780,000 was reflected as a reduction of the loss on the sale
of business in the accompanying consolidated statement of operations for the
year ended December 31, 1995.
Pension costs for the United Kingdom plan included the following
components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 553 $ 1,311 $ 1,461
Interest cost on projected
benefit obligation 394 1,361 1,349
Actual return on plan assets (500) (1,566) 706
Net amortization and deferral (9) (38) (2,315)
----- ------- -------
Net pension cost $ 438 $ 1,068 $ 1,201
===== ======= =======
</TABLE>
The funded status of the defined benefit plan was as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(5,033) $(4,361)
======= =======
Accumulated benefit obligation $(5,249) $(4,403)
======= =======
Projected benefit obligation $(5,459) $(4,765)
Plan assets at fair value 6,497 6,133
------- -------
Plan assets in excess of projected
benefit obligation 1,038 1,368
Remaining unrecognized net asset arising
from initial application of SFAS 87 (67) (59)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 558 183
------- -------
Prepaid pension cost $ 1,529 $ 1,492
======= =======
</TABLE>
F-22
<PAGE> 56
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED)
Assumptions used to determine pension costs and projected benefit
obligations were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate 8.5% 8.5%
Rate of compensation increase 6.5% 5.5%
Long-term rate of return on plan assets 8.5% 8.5%
</TABLE>
The Company maintains the APBI Environmental Sciences Group, Inc.
Pension Plan (the "Pension Plan"), a tax-qualified, defined-contribution
money-purchase pension plan, for the benefit of its eligible ENVIRON division
employees. ENVIRON is required to make annual contributions to the Pension Plan
in an amount equal to the sum of 3.75% of each eligible employee's total
compensation, plus 3.75% of the portion of such employee's compensation in
excess of the Social Security wage base. Participants vest in 20% of their
account balances after two years of service and 20% per year until they are
fully vested. The annual pension expense of the Pension Plan for the three years
ended December 31, 1996, 1995 and 1994 was $620,000, $645,000 and $633,000,
respectively.
Effective January 1, 1994, APBI Environmental Sciences Group, Inc.
established the ENVIRON Supplemental Executive Retirement Plan. This plan is
nonqualified and provides certain key employees defined-contribution benefits
that supplement those provided by the Pension Plan. Company contributions to
this plan in 1996, 1995 and 1994 were $39,000, $44,000 and $32,000,
respectively.
14. COMMITMENTS AND CONTINGENCIES:
The Company currently maintains liability insurance on a "claims made"
basis for professional acts, errors and omissions. As of December 31, 1996, this
insurance policy included a $500,000 self-insurance retention for each of the
Company's Life Sciences Group and Environmental Sciences Group.
In the normal course of business, the Company is a party to various
claims and legal proceedings. Although the ultimate outcome of these matters is
presently not determinable, management of the Company, after consultation with
legal counsel, does not believe that the resolution of these matters will have a
material effect upon the Company's financial condition or results of operations.
15. RELATED PARTY TRANSACTIONS:
The Company is related through common ownership with E.M. Associates,
Inc. which provides investigative review board services to the Company. The
Company had transactions with E.M. Associates, Inc. of $65,900, $102,000 and
$191,000 in expenses for the years ended December 31, 1996, 1995 and 1994,
respectively.
Several of the Company's shareholders collectively own 14.6% of LOI
Building, Inc. ("LOI"), which leased operating facilities to the Company through
November 1996. Rent paid to LOI for the years ended December 31, 1996, 1995 and
1994, totaled $402,300, $341,000 and $430,000, respectively.
One of the members of the Company's Board of Directors (who was a
member of APBI's Board of Directors prior to the Company's acquisition of APBI)
is Vice Chairman at Lehman Brothers. Lehman Brothers acted as APBI's investment
banker for APBI's acquisition by the Company and for APBI's sale of its
toxicology laboratories in 1995. For those investment banking services, Lehman
Brothers earned $3,058,718 in 1996 and $500,000 in 1995.
Until December 1996, PPD-CRU rented a building from Laboratory
Associated Business, Ltd. ("LAB"), a company owned by certain employees of the
Company. Rent paid to LAB for the years ended December 31, 1996, 1995 and 1994,
totaled $230,200, $186,000 and $112,000, respectively.
F-23
<PAGE> 57
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company paid legal fees in 1996 of approximately $333,000 to a firm
which had a partner who became General Counsel of the Company in 1996. At the
time he became the Company's General Counsel he disposed of all of his interest
in the law firm.
The Company paid legal fees of approximately $39,400, $19,640 and
$79,300 in the years ended December 31, 1996, 1995 and 1994, respectively, to a
firm having a partner who was also a director of APBI until the date of the
merger.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CURRENT ASSETS AND CURRENT LIABILITIES
The carrying amount approximates fair value because of the short
maturity of those instruments.
INVESTMENT IN SDI
The Company's investment in SDI is recorded at $1,240,300 which
represents the market price of $1,459,200 as quoted on the National Market
System of the National Association of Securities Dealers Automated Quotation
System at December 31, 1996, less a discount of $218,900 representing the
relatively illiquid nature of the investment.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. Fair value
approximates the carrying amount as most debt instruments bear interest based on
variable rates.
LETTERS OF CREDIT
The Company utilizes letters of credit to back certain guarantees and
insurance policies. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined in the
market place.
17. BUSINESS SEGMENT DATA:
The Company operates in two business segments - life sciences and
environmental sciences.
Revenues by principal business segment are separately stated in the
consolidated financial statements. Merger costs incurred in 1996 of $16.1
million were not allocated to the Company's business segments and are shown
separately for purposes of business segment analysis. Loss from operations,
depreciation and amortization, identifiable assets and capital expenditures by
principal business segment were as follows (in thousands):
F-24
<PAGE> 58
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. BUSINESS SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Income (loss) from operations:
Life sciences $ 9,580 $ (18,657)
Environmental sciences 5,357 4,123
Merger costs (16,114) --
--------- ---------
Operating loss $ (1,177) $ (14,534)
========= =========
Depreciation and amortization:
Life sciences $ 8,766 $ 11,601
Environmental sciences 1,670 1,650
--------- ---------
Total $ 10,436 $ 13,251
========= =========
Identifiable assets:
Life sciences $ 159,394 $ 117,292
Environmental sciences 22,063 25,369
--------- ---------
Total $ 181,457 $ 142,661
========= =========
Capital expenditures:
Life sciences $ 9,895 $ 8,853
Environmental sciences 1,281 1,264
--------- ---------
Total $ 11,176 $ 10,117
========= =========
</TABLE>
18. OPERATIONS BY GEOGRAPHIC AREA:
The following table presents information about the Company's operations
by geographic area (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenue:
United States $175,173 $170,465 $153,991
Europe and other 22,623 39,313 38,114
-------- -------- --------
Total $197,796 $209,778 $192,105
======== ======== ========
Operating income (loss):
United States $ 14,731 $(14,834) $ 8,734
Europe and other 206 300 2,251
Merger costs (16,114) -- --
-------- -------- --------
Operating income (loss) $ (1,177) $(14,534) $ 10,985
======== ======== ========
Identifiable assets:
United States $142,464 $118,310 $133,506
Europe and other 38,993 24,351 69,267
-------- -------- --------
Total $181,457 $142,661 $202,773
======== ======== ========
</TABLE>
F-25
<PAGE> 59
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD FOURTH TOTAL
---- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Net revenue $ 47,075 $ 49,471 $ 49,503 $ 51,747 $ 197,796
Operating income (loss) 3,214 3,713 (13,987) 5,883 (1,177)
Net income (loss) 2,147 2,424 (11,957) 3,879 (3,507)
Earnings (loss) per common share $ 0.10 $ 0.11 $ (0.56) $ 0.18 $ (0.17)
1995
----
Net revenue $ 51,772 $ 53,507 $ 53,127 $ 51,372 $ 209,778
Operating income (loss) 2,763 2,762 3,168 (23,227) (14,534)
Income (loss) from continuing
operations 1,138 1,236 1,455 (6,620) (2,791)
Loss from discontinued operations -- -- -- (1,716) (1,716)
Extraordinary loss -- -- -- (897) (897)
Net income (loss) 1,138 1,236 1,455 (9,233) (5,404)
Earnings (loss) per common share:
Continuing operations $ 0.06 $ 0.07 $ 0.08 $ (0.35) $ (0.15)
Discontinued operations -- -- -- (0.09) (0.09)
Extraordinary loss -- -- -- (0.05) (0.05)
-------- -------- -------- -------- ---------
Total $ 0.06 $ 0.07 $ 0.08 $ (0.49) $ (0.29)
======== ======== ======== ======== =========
</TABLE>
20. SUBSEQUENT EVENTS:
ACQUISITIONS
In February 1997, the Company agreed to acquire Belmont Research, Inc.
("Belmont") in a transaction to be accounted for as a pooling of interests. The
consideration for Belmont consisted of 502,384 shares of the Company's common
stock plus the issuance of approximately 115,000 options to acquire Company
stock.
In January 1997, the Company acquired Technical Assessment Systems,
Inc. for $490,000 cash, a note for approximately $300,000 and the potential to
earn an additional amount depending on their profitability for a certain period
after the acquisition.
F-26
<PAGE> 60
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED OTHER
BALANCE AT TO CHANGES BALANCE
BEGINNING COSTS AND ADD AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (DEDUCT) PERIOD
- ----------- --------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996
Reserve for doubtful accounts $3,319 $1,715 $(3,497) $(26) $1,511
====== ====== ======= ==== ======
For the year ended December 31, 1995
Reserve for doubtful accounts $3,773 $1,689 $(2,113) $(30) $3,319
====== ====== ======= ==== ======
For the year ended December 31, 1994
Reserve for doubtful accounts $5,421 $2,594 $(4,305) $ 63 $3,773
====== ====== ======= ==== ======
</TABLE>
F-27
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
Date: March ___, 1997 By: /s/ Fredric N. Eshelman, Pharm.D.
-----------------------------------
Name: Fredric N. Eshelman, Pharm.D.
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Fredric N. Eshelman, Pharm.D. Director and Chief Executive Officer March ___, 1997
- --------------------------------- (Principal Executive Officer)
Fredric N. Eshelman, Pharm.D.
/s/ Rudy C. Howard Chief Financial Officer and Vice March ___, 1997
- --------------------------------- President, Finance and Treasurer
Rudy C. Howard (Principal Financial and Accounting
Officer)
/s/ Ernest Mario, Ph.D. Director March ___, 1997
- ---------------------------------
Ernest Mario, Ph.D.
/s/ Stuart Bondurant, M.D. Director March ___, 1997
- ---------------------------------
Stuart Bondurant, M.D.
/s/ Kirby L. Cramer Director March ___, 1997
- ---------------------------------
Kirby L. Cramer
/s/ Thomas D'Alonzo Director March ___, 1997
- ---------------------------------
Thomas D'Alonzo
/s/ Frederick Frank Director March ___, 1997
- ---------------------------------
Frederick Frank
/s/ Frank E. Loy Director March ___, 1997
- ---------------------------------
Frank E. Loy
/s/ John A. McNeill, Jr. Director March ___, 1997
- ---------------------------------
John A. McNeill, Jr.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
EFFECTIVE AS OF SEPTEMBER 25, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
OFFICES
1. Principal Office ........................... 1
2. Registered Office .......................... 1
3. Other Offices .............................. 1
ARTICLE II
MEETINGS OF SHAREHOLDERS
1. Place of Meetings .......................... 1
2. Annual Meeting ............................. 1
3. Substitute Annual Meeting .................. 1
4. Special Meetings ........................... 1
5. Notice of Meetings ......................... 2
6. Shareholders List .......................... 3
7. Quorum ..................................... 3
8. Voting of Shares and Voting Groups ......... 3
9. Proxies .................................... 4
10. Inspectors of Election ..................... 4
11. Informal Action by Shareholders ............ 5
12. Shareholder Proposals ...................... 5
ARTICLE III
DIRECTORS
1. General Powers ............................. 6
2. Number, Term and Qualification ............. 6
3A. Nominations ................................ 7
3B. Election of Directors ...................... 8
4. Removal .................................... 8
5. Vacancies .................................. 8
6. Chairman ................................... 9
7. Compensation ............................... 9
8. Executive and Other Committees ............. 9
9. Directors Emeritus ......................... 10
ARTICLE IV
MEETINGS OF DIRECTORS
1. Regular Meetings ........................... 10
2. Special Meetings ........................... 10
3. Notice of Meetings ......................... 11
4. Quorum ..................................... 11
5. Manner of Acting ........................... 11
6. Informal Action by Directors ............... 12
7. Attendance by Telephone .................... 12
<PAGE> 3
ARTICLE V
OFFICERS
1. Number ..................................... 12
2. Appointment and Term ....................... 12
3. Removal .................................... 12
4. Compensation ............................... 13
5. Chairman of the Board ...................... 13
6. Chief Executive Officer .................... 13
7. President .................................. 13
8. Vice Presidents ............................ 13
9. Secretary .................................. 13
10. Treasurer .................................. 14
11. Assistant Secretaries and Treasurers ....... 14
12. Controller and Assistant Controllers ....... 14
13. Bonds ...................................... 15
14. Voting Upon Stock .......................... 15
ARTICLE VI
CONTRACTS, LOANS AND DEPOSITS
1. Contracts .................................. 15
2. Loans ...................................... 15
3. Checks and Drafts .......................... 15
4. Deposits ................................... 15
ARTICLE VII
CERTIFICATES FOR SHARES AND OTHER TRANSFER
1. Certificates for Shares .................... 15
2. Transfer of Shares ......................... 16
3. Transfer Agent and Registrar ............... 16
4. Record Date ................................ 16
5. Lost Certificates .......................... 16
6. Holder of Record ........................... 17
7. Shares held by Nominees .................... 17
8. Acquisition by Corporation of its Own Shares 18
ARTICLE VIII
INDEMNIFICATION AND REIMBURSEMENT
OF DIRECTORS AND OFFICERS
1. Indemnification for Expenses and Liabilities 18
2. Advance Payment of Expenses ................ 19
3. Insurance .................................. 19
4. Definitions ................................ 19
<PAGE> 4
ARTICLE IX
GENERAL PROVISIONS
1. Distributions .............................. 19
2. Seal ....................................... 19
3. Fiscal Year ................................ 19
4. Effective Date of Notice ................... 19
5. Corporate Records .......................... 20
6. Bylaw Amendments ........................... 20
7. Amendments to Articles of Incorporation .... 21
8. Stockholder Protection Statutes ............ 21
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
ARTICLE I
OFFICES
1. Principal Office. The principal office of the Corporation shall be
located in New Hanover County, North Carolina, or such other place as is
designated by the Board of Directors.
2. Registered Office. The registered office of the Corporation required
by law to be maintained in the State of North Carolina may be, but need not be,
identical with the principal office.
3. Other Offices. The Corporation may have offices at such other
places, either within or without the State of North Carolina, as the Board of
Directors may from time to time determine or as the affairs of the Corporation
may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
1. Place of Meetings. All meetings of shareholders shall be held at the
principal office of the Corporation or at such other place, either within or
without the State of North Carolina, as shall be designated in the notice of the
meeting or agreed upon by the Board of Directors.
2. Annual Meeting. The annual meeting of the shareholders shall be held
at the principal office of the Corporation or at such other place, either within
or without the State of North Carolina, on such day and at such time during the
month of April or May for the purpose of electing Directors of the Corporation
and for the transaction of such other business as may be properly brought before
the meeting.
3. Substitute Annual Meeting. If the annual meeting shall not be held
on the day designated by these Bylaws, a substitute annual meeting may be called
in accordance with the provisions of Paragraph 4 of this Article II. A meeting
so called shall be designated and treated for all purposes as the annual
meeting.
4. Special Meetings.
(a) Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the
President, the Chief Executive Officer, the Chairman of the Board, a majority of
the Board of Directors then in office or the holders of not
1
<PAGE> 6
less than seventy-five percent (75%) of all the outstanding shares of the
Corporation entitled to vote at the meeting.
(b) Any person or persons entitled to call a special meeting of
shareholders shall do so by delivering written notice to the Secretary stating
that a special meeting has been called and certifying to facts establishing that
the person or persons delivering the notice are entitled to call a special
meeting. Any such written notice delivered by a shareholder or shareholders
(acting in such capacity) entitled to call a special meeting of shareholders
shall state the purpose or purposes of the proposed meeting and shall state the
information which would be required in a notice by the shareholder described in
Section 12 of this Article II with respect to the business proposed to be
transacted at the special meeting.
5. Notice of Meetings.
(a) Written or printed notice stating the time and place of the meeting
shall be delivered not less than ten (10) nor more than sixty (60) days before
the date thereof, either personally or by telegraph, teletype or other form of
wire or wireless communication, or by facsimile transmission, mail or by private
carrier, or by any other means permitted by law, by or at the direction of the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President, the Secretary or other person calling the meeting, to each
shareholder of record entitled to vote at such meeting, provided that such
notice must be given to all shareholders, including nonvoting shareholders, with
respect to any meeting at which a merger, share exchange, sale of assets other
than in the regular course of business, or voluntary dissolution is to be
considered and in such other instances as required by law. If a new record date
for the adjourned meeting is fixed pursuant to Section 4 of Article VII, notice
of the adjourned meeting shall be given to persons who are shareholders as of
the new record date. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the record of shareholders of the Corporation, with postage
thereon prepaid.
(b) In the case of an annual or substitute annual meeting, the notice
of meeting need not specifically state the business to be transacted thereat
unless it is a matter, other than election of Directors, on which the vote of
the shareholders is expressly required by the provisions of the North Carolina
Business Corporation Act or notice of such purpose is otherwise required by law
to be provided. In the case of a special meeting, the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called.
(c) When a meeting is adjourned for more than one hundred twenty (120)
days, or a new record date is or must be fixed as required by law, notice of the
adjourned meeting shall be given as in the case of an original meeting. When a
meeting is adjourned for one hundred twenty (120) days or less in any one
adjournment, it shall not be necessary to give any notice of the new date, time
and place of the adjourned meeting or of the business to be transacted thereat
other than by announcement at the meeting at which the adjournment is taken.
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(d) A shareholder in a signed writing may waive notice of any meeting
before or after the date and time stated in the notice by delivering such waiver
to the Corporation for inclusion in the minutes. Attendance by a shareholder at
a meeting constitutes a waiver of notice of such meeting, unless at the
beginning of the meeting the shareholder objects to holding the meeting or
transacting business at the meeting, or objects to considering a matter not
within the purpose or purposes described in the meeting notice before a vote is
taken on it.
6. Shareholders List. After fixing the record date for a meeting, the
Secretary of the Corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting or any adjournment thereof,
arranged by voting group, class and series, with the address of and number of
shares held by each. Such list shall be kept on file at the principal office of
the Corporation, or at a place identified in the meeting notice in the city
where the meeting will be held, beginning two (2) business days after notice of
such meeting is given and continuing through the meeting, and on written demand
shall be subject to inspection or copying by any shareholder, or his agent or
attorney, at any time during regular business hours. This list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to inspection by any shareholder, or his agent or attorney, during the entire
time of the meeting or any adjournment.
7. Quorum.
(a) Unless otherwise provided by law, a majority of the votes entitled
to be cast on a matter by a separate voting group shall constitute a quorum of
such voting group on that matter at a meeting of shareholders. A separate voting
group may only take action on a matter at a meeting if a quorum of those shares
are present with respect to that matter. In the absence of a quorum at the
opening of any meeting of shareholders, such meeting may be adjourned from time
to time by the vote of a majority of the shares voting on the motion to adjourn,
but no other business may be transacted until and unless a quorum is present.
When a quorum is present at any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting. If a quorum
is present at the original meeting, a quorum need not be present at an adjourned
meeting to transact business.
(b) At a meeting at which a quorum is present, a separate voting group
may continue to do business until adjournment, notwithstanding the withdrawal of
sufficient shareholders to leave less than a quorum of the separate voting
group.
8. Voting of Shares and Voting Groups.
(a) Except as otherwise provided by the Articles of Incorporation or by
law, each outstanding share having voting rights shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders. All shares
entitled to vote and be counted together collectively on a matter as provided by
the Articles of Incorporation or by the North Carolina Business Corporation Act
shall constitute a single voting group. Additional required voting
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groups shall be determined in accordance with the Articles of Incorporation, the
Bylaws and the North Carolina Business Corporation Act.
(b) Except in the election of Directors, at a shareholder meeting duly
held and at which a quorum is present, action on a matter by a voting group
shall be approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless the vote by a greater number
is required by law or by the Articles of Incorporation or Bylaws of the
Corporation. For such actions, abstentions shall not be treated as negative
votes. Corporate action on such matters shall be taken only when approved by
each and every voting group entitled to vote as a separate voting group on such
matter as provided by the Articles of Incorporation or Bylaws or by the North
Carolina Business Corporation Act.
(c) Voting on all matters except the election of Directors shall be by
voice vote or by a show of hands unless the Chairman of the meeting directs that
voting on such matter shall be by ballot.
(d) Absent special circumstances, shares of the Corporation shall not
be entitled to vote if they are owned, directly or indirectly, by another
corporation in which the Corporation owns, directly or indirectly, a majority of
the shares entitled to vote for directors of the second corporation; provided
that this provision does not limit the power of the Corporation to vote its own
shares held by it in a fiduciary capacity.
9. Proxies. Shares may be voted either in person or by one or more
agents authorized by a written proxy executed by the shareholder or by his duly
authorized attorney-in-fact. A proxy shall not be valid after the expiration of
eleven (11) months from the date of its execution, unless the person executing
it specifies therein the length of time for which it is to continue in force, or
limits its use to a particular meeting. Any proxy shall be revocable by the
shareholder unless the written appointment expressly and conspicuously provides
that it is irrevocable and the appointment is coupled with an interest as
required by law. The shareholder may revoke the proxy by filing with the
Secretary of the Corporation either a written instrument of revocation or a duly
executed proxy bearing a later date or by attending the meeting and voting his
shares in person.
10. Inspectors of Election.
(a) Appointment of Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. If inspectors of election are not so appointed, the
Chairman of any such meeting may appoint inspectors of election at the meeting.
The number of inspectors shall be either one or three. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the meeting
or at the meeting by the person acting as the Chairman.
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(b) Duties of Inspectors. The inspectors of election shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes, ballots or consents, hear and
determine all challenges and questions in any way arising in connection with the
right to vote, count and tabulate all votes or consents, determine the result
and do such acts as may be proper to conduct the election or vote with fairness
to all shareholders. The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical.
(c) Vote of Inspectors. If there are three or more inspectors of
election, the decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
(d) Report of Inspectors. On request of the Chairman of the meeting,
the inspectors shall make a report in writing of any challenge or question or
matter determined by them and shall execute a certificate of any fact found by
them. Any report or certificate made by them shall be prima facie evidence of
the facts stated therein.
11. Informal Action by Shareholders. Any action which is required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the persons who would be entitled to vote upon such action at a
meeting and filed with the Secretary of the Corporation to be kept in the
corporate minute book, whether done before or after the action so taken. Such
consent shall have the same force and effect as a unanimous vote of
shareholders. Any shareholder may retract his consent until the last shareholder
entitled to vote has signed the appropriate written consent and all consents
have been delivered to the Secretary of the Corporation. When notice of a
proposed action is required to be given to nonvoting shareholders as provided in
Section 5(a) of this Article II, the Corporation shall give the nonvoting
shareholders notice at least ten (10) days before action is taken in lieu of a
meeting by unanimous consent of the voting shareholders. Such notice to
nonvoting shareholders shall contain or be accompanied by any material that
would have been required to be sent to the nonvoting shareholders in a notice of
meeting at which the proposed action would have been submitted to the
shareholders for action.
12. Shareholder Proposals. Any shareholder wishing to bring any other
business before a meeting of shareholders must provide notice to the Corporation
not more than ninety (90) and not less than fifty (50) days before the meeting
in writing by registered mail, return receipt requested, of the business to be
presented by him at the shareholders' meeting. Any such notice shall set forth
the following as to each matter the shareholder proposes to bring before the
meeting: (A) a brief description of the business desired to be brought before
the meeting and the reasons for conducting such business at the meeting and, if
such business includes a proposal to amend the Bylaws of the Corporation, the
language of the proposed amendment; (B) the name and address, as they appear on
the Corporation's books, of the shareholder proposing such business; (C) the
class and number of shares of the Corporation which are beneficially owned by
such shareholder; (D) a representation that the shareholder is a holder of
record of stock of the
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Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to propose such business; and (E) any material interest
of the shareholder in such business. Notwithstanding the foregoing provisions of
this Section, a shareholder shall also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this Section. In
the absence of such notice to the Corporation meeting the above requirements, a
shareholder shall not be entitled to present any business at any meeting of
shareholders.
Note: The provisions of this Article II, Section 12 have been adopted
by the shareholders of the Corporation and may not be amended except by
the shareholders in accordance with the provisions of Article IX,
Section 6(a) hereof.
ARTICLE III
DIRECTORS
1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors or by such committees as the Board of
Directors may establish pursuant to these Bylaws.
2. Number, Term and Qualification.
(a) The number of Directors of the Corporation shall be not less than
eight (8) nor more than twelve (12). Such number may not be changed by the Board
of Directors, but only, within the minimum and maximum, by the affirmative vote
of seventy-five percent (75%) of all eligible votes present in person or in
proxy at a meeting of shareholders at which a quorum is present. Such number may
not be changed at a meeting of shareholders unless the notice of the meeting
states that the purpose, or one of the purposes, of the meeting is to change the
number of Directors of the Corporation.
Note: The provisions of this Article III, Section 2(a) have been
adopted by the shareholders of the Corporation and may not be amended
except by the shareholders in accordance with the provisions of Article
IX, Section 6(a) hereof.
(b) Each Director shall hold office until his death, resignation,
retirement, removal, disqualification or his successor is elected and qualifies.
Directors need not be residents of the State of North Carolina or shareholders
of the Corporation.
3A. Nominations. Nominations for the election of Directors may only be
made by the Board of Directors, by the Nominating Committee of the Board of
Directors (or, if none, any other committee serving a similar function) or by
any shareholder entitled to vote generally in elections of Directors where the
shareholder complies with the requirements of this Section. Any shareholder of
record entitled to vote generally in elections of Directors may nominate one or
more persons for election as Directors at a meeting of shareholders only if
written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal
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delivery or by United States certified mail, postage prepaid, to the Secretary
of the Corporation (i) with respect to an election to be held at an annual
meeting of shareholders, not more than ninety (90) days nor less than fifty (50)
days in advance of such meeting and (ii) with respect to an election to be held
at a special meeting of shareholders called for the purpose of the election of
Directors, not later than the close of business on the tenth business day
following the date on which notice of such meeting is first given to
shareholders. Each such notice of a shareholder's intent to nominate a Director
or Directors at an annual or special meeting shall set forth the following: (A)
the name and address, as they appear on the Corporation's books, of the
shareholder who intends to make the nomination and the name and residence
address of the person or persons to be nominated; (B) the class and number of
shares of the Corporation which are beneficially owned by the shareholder; (C) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meting to nominate the person or persons specified in the
notice; (D) a description of all arrangements or understandings between the
shareholder and each nominee and any other persons or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (E) such other information regarding each nominee
proposed by such shareholder as would be required to be disclosed in
solicitations of proxies for election of Directors, or as would otherwise be
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, including any information that would be required to be
included in a proxy statement filed pursuant to Regulation 14A had the nominee
been nominated by the Board of Directors; and (F) the written consent of each
nominee to be named in a proxy statement and to serve as Director of the
Corporation if so elected. No person shall be eligible to serve as a Director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section. If the Chairman of the shareholders meeting shall determine that a
nomination was not made in accordance with the procedures described by the
Bylaws, he shall so declare to the meeting, and the defective nomination shall
be disregarded. Notwithstanding the foregoing provisions of this Section, a
shareholder shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section.
Note: The provisions of this Article III, Section 3A have been adopted
by the shareholders of the Corporation and may not be amended except by
the shareholders in accordance with the provisions of Article IX,
Section 6(a) hereof.
3B. Election of Directors. Except as provided in Section 5 of this
Article III, Directors shall be elected at the annual meeting of shareholders;
and those persons who receive the highest number of votes at a meeting at which
a quorum is present shall be deemed to have been elected. If any shareholder so
demands, election of Directors shall be by ballot.
4. Removal.
(a) A Director may be removed from office with cause by the affirmative
vote of seventy-five percent (75%) of all eligible votes present at a meeting of
shareholders at which a
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quorum is present. A Director may be removed from office without cause by the
affirmative vote of seventy-five percent (75%) of all eligible votes present at
a meeting of shareholders at which a quorum is present, provided that removal
without cause is recommended to the shareholders by the Board of Directors
pursuant to a vote of not less than seventy-five percent (75%) of the Directors
then in office. If a Director is elected by a separate voting group, only the
members of that voting group may participate in the vote to remove him. For
purposes of this Section, "cause" is defined as personal dishonesty,
incompetence, mental or physical incapacity, breach of fiduciary duty involving
personal profit, a failure to perform stated duties, or a violation of any law,
rule or regulation (other than a traffic violation or similar routine offense)
based on a conviction for such offense or an opinion of counsel to the
Corporation that such violation has occurred. The entire Board of Directors may
not be removed except pursuant to the removal of individual Directors in
accordance with the foregoing provisions.
Note: The provisions of this Article III, Section 4(a) are contained in
the Articles of Incorporation of the Corporation. These Bylaw
provisions have been adopted by the shareholders of the Corporation and
may not be amended except by the shareholders in accordance with the
provisions of Article IX, Section 6(a) hereof.
(b) No Director may be removed at a meeting of the shareholders unless
the notice of the meeting states that the purpose, or one of the purposes, of
the meeting is to remove that Director.
5. Vacancies. A vacancy occurring in the Board of Directors of the
Corporation, including, without limitation, a vacancy created by an increase in
the authorized number of Directors or resulting from the shareholders' failure
to elect the full authorized number of Directors, may only be filled by the
Directors remaining in office, or, if the Directors remaining in office
constitute less than a quorum of the Directors, by the affirmative vote of a
majority of all remaining Directors or by the sole remaining Director; provided
that if any Director was elected by a particular voting group, a vacancy in that
position may be filled only by any remaining Director or Directors elected by
that voting group, if any, and if there are none, by members of the related
voting group. A Director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
Note: The provision of this Article III, Section 5 are contained in the
Articles of Incorporation of the Corporation. These Bylaw provisions
have been adopted by the Shareholders and may not be amended except by
the shareholders of the Corporation in accordance with the provisions
of Article IX, Section 6(a) hereof.
6. Chairman. There may be a Chairman of the Board of Directors elected
by the Directors from their number at any meeting of the Board of Directors. The
Chairman shall preside at all meetings of the Board of Directors and of
shareholders and perform such other duties as may be directed by the Board of
Directors. Until a Chairman of the Board of Directors is elected, the President
of the Corporation shall preside at the meetings of the Board of Directors and
shareholders.
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7. Compensation. The Board of Directors may provide for the
compensation of Directors for their services as such and may provide for the
payment of any and all expenses incurred by the Directors in connection with
such services.
8. Executive and Other Committees.
(a) The Board of Directors, by resolution adopted by seventy-five
percent (75%) of the number of Directors then in office, may designate from
among its members an Executive Committee and one or more other committees, each
consisting of two or more Directors and each of which, to the extent authorized
by law or provided in the resolution, shall have and may exercise all of the
authority of the Board of Directors, except no such committee shall have
authority as to the following matters: (1) authorize distributions; (2) approve
or propose to shareholders action that is required to be approved by
shareholders under the North Carolina Business Corporation Act or any successor
to such statutes; (3) fill vacancies on the Board of Directors or on any of its
committees; (4) amend the Articles of Incorporation; (5) adopt, amend or repeal
these Bylaws; (6) approve a plan of merger not requiring shareholder approval;
(7) authorize or approve reacquisition of shares, except according to a formula
or method prescribed by the Board of Directors; or (8) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee (or senior
executive officer of the Corporation) to do so within limits specifically
prescribed by the Board of Directors.
(b) Any resolutions adopted or other action taken by any such committee
within the scope of the authority delegated to it by the Board of Directors
shall be deemed for all purposes to be adopted or taken by the Board of
Directors. The designation of any committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility or liability imposed upon it or him by law.
(c) Regular meetings of any such committee may be held without notice
at such time and place as such committee may fix from time to time by
resolution. Special meetings of any such committee may be called by any member
thereof upon not less than one day's notice stating the place, date and hour of
such meeting, which notice may be written or oral and if mailed, shall be deemed
to be delivered when deposited in the United States mail addressed to any member
of the committee at his business address. Any member of any committee may in a
signed writing waive notice of any meeting and no notice of any meeting need be
given to any member thereof who attends in person. The notice of a meeting of
any committee need not state the business proposed to be transacted at the
meeting.
(d) A majority of the members of any such committee shall constitute a
quorum for the transaction of business at any meeting thereof and actions of
such committee must be authorized by the affirmative vote of a majority of the
members of such committee.
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(e) Any member of any such committee may be removed at any time with or
without cause by resolution adopted by the affirmative vote of at least
seventy-five percent (75%) of the Directors then in office, and vacancies in the
membership of a committee resulting from death, resignation, disqualification,
or removal shall be filled by the Board of Directors pursuant to the affirmative
vote of a majority of the Directors then in office.
Note: The provisions of Sections 8(a) and 8(e) have been adopted by the
shareholders of the Corporation and may not be amended except by the
shareholders in accordance with the provisions of Article IX, Section
6(a) hereof.
(f) Any such committee shall elect a presiding officer from among its
members and may fix its own rules of procedure which shall not be inconsistent
with these Bylaws. It shall keep regular minutes of its proceedings and report
the same to the Board of Directors for its information at the meeting thereof
held next after the proceedings shall have been taken.
9. Directors Emeritus. The Board of Directors may, by resolution, duly
adopted, appoint Directors Emeritus of the Corporation for outstanding
contributions to the Corporation. Such Director Emeritus shall have no right to
vote on matters before the Board of Directors or to attend meetings of the Board
of Directors.
ARTICLE IV
MEETINGS OF DIRECTORS
1. Regular Meetings. A regular meeting of the Board of Directors shall
be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
2. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board (if one has been duly
elected), the Chief Executive Officer, the President or any two Directors. Such
meetings may be held either within or without the State of North Carolina.
3. Notice of Meetings.
(a) Any regular meetings of the Board of Directors may be held without
notice.
(b) The person or persons calling a special meeting of the Board of
Directors shall, at least two (2) days before the meeting, give notice thereof
either personally or by telephone, telegraph, teletype or other form of wire or
wireless communication or by facsimile transmission, mail or private carrier or
by any other means permitted by law. Such notice need not specify the business
to be transacted at, or the purpose of, the meeting that is called. Notice of an
adjourned meeting need not be given if the time and place are fixed at the
meeting
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adjourning and if the period of adjournment does not exceed ten (10) days in any
one adjournment.
(c) A Director, in a signed writing, may waive notice of any meeting
before or after the date and time stated in the notice. Attendance by a Director
at a meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened and does not vote for or assent to action taken at the meeting.
4. Quorum. A majority of the Directors in office immediately before the
meeting shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
5. Manner of Acting.
(a) Except as otherwise provided in this Section, the act of a majority
of the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless a greater number is required by law, the
Articles of Incorporation or a Bylaw adopted by the shareholders.
(b) A Director who is present at a meeting of the Board of Directors at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless his contrary vote is recorded or his dissent is
otherwise entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right of dissent shall not apply to a Director
who voted in favor of such action.
(c) The vote of a majority of the number of Directors then in office
shall be required to adopt a resolution constituting an Executive Committee or
other committee of the Board of Directors. The vote of a majority of the
Directors then holding office shall be required to adopt, amend or repeal a
Bylaw or to adopt a resolution dissolving the Corporation without action by the
shareholders in circumstances authorized by law. Vacancies in the Board of
Directors may be filled as provided in Section 5 of Article III of these Bylaws.
6. Informal Action by Directors. Action taken by the Directors or
members of a committee of the Board of Directors without a meeting is
nevertheless Board or committee action if written consent to the action in
question is signed by all of the Directors or members of the committee, as the
case may be, and filed with the minutes of the proceedings of the Board of
Directors or committee, whether done before or after the action so taken. Such
action will become effective when the last Director or committee member signs
the consent, unless the consent specifies a different date. Such consent will
have the same force and effect as a unanimous vote of the Board of Directors or
the committee, as the case may be.
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7. Attendance by Telephone. Any one or more Directors or members of a
committee may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications device which allows
all persons participating in the meeting to hear each other simultaneously, and
such participation in the meeting shall be deemed presence in person at such
meeting.
ARTICLE V
OFFICERS
1. Number. The officers of the Corporation shall consist of a Chairman,
a Chief Executive Officer, a President, a Secretary, a Treasurer and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time appoint. Any two or more offices,
other than that of President and Secretary, may be held by the same person. In
no event, however, may an officer act in more than one capacity where action of
two or more officers is required.
2. Appointment and Term. The officers of the Corporation shall be
appointed by the Board of Directors pursuant to the affirmative vote of at least
seventy-five percent (75%) of the Directors then in office. Such appointment may
be made at any regular or special meeting of the Board of Directors. Each
officer shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor is appointed and qualifies.
Note: The provisions of this Article V, Section 2 have been adopted by
the shareholders of the Corporation and may not be amended except by
the shareholders in accordance with the provisions of Article IX,
Section 6(a) hereof.
3. Removal. Any officer or agent appointed by the Board of Directors
may be removed by the Board with or without cause pursuant to the affirmative
vote of at least seventy-five percent (75%) of the Directors then in office; but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed.
Note: The provisions of this Article V, Section 3 have been adopted by
the shareholders of the Corporation and may not be amended except by
the shareholders in accordance with the provisions of Article IX,
Section 6(a) hereof.
4. Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors.
5. Chairman of the Board. The Chairman of the Board shall, subject to
the direction and control of the Board of Directors, provide strategic direction
to the Corporation.
6. Chief Executive Officer. The Chief Executive Officer of the
Corporation shall, subject to the control of the Board of Directors, supervise
and control the policy and general management of the Corporation. The Chief
Executive Officer shall have authority to sign all documents,
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instruments and certificates permitted or authorized to be signed by the
President pursuant to these Bylaws or as directed by the Board of Directors.
7. President. The President shall be the Chief Operating Officer of the
Corporation and, unless the Board of Directors has elected another, the Chief
Executive Officer of the Corporation. The President, subject to the control of
the Board of Directors, shall oversee the day to day operations of the
Corporation in accordance with these Bylaws. He shall, in the absence of the
Chairman of the Board of Directors and the Chief Executive Officer, preside at
all meetings of the Board of Directors and shareholders. He shall sign, with any
other proper officer, certificates for shares of the Corporation and any deeds,
mortgages, bonds, contracts, or other instruments which may be lawfully executed
on behalf of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be delegated by the Board of Directors to some other officer or agent;
and, in general, he shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors from time
to time.
8. Vice Presidents. The Vice Presidents, in the order of their
appointment, unless otherwise determined by the Board of Directors, shall, in
the absence or disability of the President, perform the duties and exercise the
powers of that office and shall have authority to sign, with any other proper
officer, certificates for shares of the Corporation and any deeds, mortgages,
bonds, contracts, or other instruments which may be lawfully executed on behalf
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
delegated by the Board of Directors to some other officer or agent. In addition,
they shall perform such other duties and have such other powers as the President
or the Board of Directors shall prescribe. The Board of Directors shall
designate one or more Vice Presidents to be responsible for Finance and may
designate one or more Vice Presidents to be responsible for certain other
functions.
9. Secretary. The Secretary shall keep accurate records of the acts and
proceedings of all meetings of shareholders, Directors and committees. He shall
give all notices required by law and by these Bylaws. He shall have general
charge of the corporate books and records and of the corporate seal, and he
shall affix the corporate seal to any lawfully executed instrument requiring it.
He shall have general charge of the stock transfer books of the Corporation and
shall keep, at the registered or principal office of the Corporation, a record
of shareholders showing the name and address of each shareholder and the number
and class of the shares held by each. He shall deliver to the Secretary of State
of North Carolina for filing annual reports as required under the provisions
contained in Section 55-16-22 of the North Carolina Business Corporation Act or
any successor to such statute. He shall sign such instruments as may require his
signature, and, in general, attest the signature or certify the incumbency or
signature of any other officer of the Corporation and shall perform all duties
incident to the office of Secretary and such other duties as may be assigned him
from time to time by the President or by the Board of Directors.
10. Treasurer. The Treasurer shall have custody of all funds and
securities belonging to the Corporation and shall receive, deposit or disburse
the same under the direction of the Board
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<PAGE> 18
of Directors. He shall supervise the accounting affairs of the Corporation and
keep full and accurate accounts of the finances of the Corporation in books
especially provided for that purpose, which may be consolidated or combined
statements of the Corporation and one or more of its subsidiaries as
appropriate, that include a balance sheet as of the end of the fiscal year, an
income statement for that year, and a statement of cash flows for the year
unless that information appears elsewhere in the financial statements. If
financial statements are prepared for the Corporation on the basis of generally
accepted accounting principles, the annual financial statements must also be
prepared on that basis. Subject to any contrary requirement of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, and
the rules and regulations of any stock exchange upon which the stock of the
Corporation is traded, the Corporation shall mail the annual financial
statements, or a written notice of their availability, to each shareholder
within one hundred eighty (180) days of the close of each fiscal year. The
Treasurer shall, in general, perform all duties incident to his office and such
other duties as may be assigned to him from time to time by the President or by
the Board of Directors.
11. Assistant Secretaries and Treasurers. The Assistant Secretaries and
Assistant Treasurers shall, in the absence or disability of the Secretary or the
Treasurer, perform the respective duties and exercise the respective powers of
those offices, and they shall, in general, perform such other duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
President or by the Board of Directors.
12. Controller and Assistant Controllers. The Controller, if one has
been appointed, shall, under the supervision of the Treasurer, have charge of
the accounting affairs of the Corporation and shall have such other powers and
perform such other duties as the Board of Directors shall designate. Each
Assistant Controller shall have such powers and perform such duties as may be
assigned by the Board of Directors, and the Assistant Controllers shall exercise
the powers of the Controller during that officer's absence or inability to act.
13. Bonds. The Board of Directors, by resolution, may require any or
all officers, agents and employees of the Corporation to give bond to the
Corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
14. Voting Upon Stock. Unless otherwise ordered by the Board of
Directors, the President shall have full power and authority on behalf of the
Corporation to attend, act and vote at meetings of the shareholders of any
Corporation in which this Corporation may hold stock, and at such meetings shall
possess and may exercise any and all rights and powers incident to the ownership
of such stock and which, as the owner, the Corporation might have possessed and
exercised if present. The Board of Directors may by resolution from time to time
confer such power and authority upon any other person or persons.
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<PAGE> 19
ARTICLE VI
CONTRACTS, LOANS AND DEPOSITS
1. Contracts. The Board of Directors may authorize any officer or
officers, or agent or agents, to enter into any contract or execute and deliver
any instrument on behalf of the Corporation, and such authority may be general
or confined to specific instances.
2. Loans. No loans shall be contracted on behalf of the Corporation and
no evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
3. Checks and Drafts. All checks, drafts or other orders for the
payment of money issued in the name of the Corporation shall be signed by such
officer or officers, or agent or agents, of the Corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
4. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such
depository or depositories as the Board of Directors shall direct.
ARTICLE VII
CERTIFICATES FOR SHARES AND OTHER TRANSFER
1. Certificates for Shares. Shares of the capital stock of the
Corporation shall be represented by certificates. Such certificates shall be in
such form as required by law and as determined by the Board of Directors and
such certificates shall be issued to every shareholder for the fully paid shares
owned by him. These certificates shall be signed by the President or any Vice
President or a person who has been designated as the Chief Executive Officer of
the Corporation and by the Vice President of Finance, the Secretary, Assistant
Secretary, Treasurer or Assistant Treasurer and may be sealed with the seal of
the Corporation or a facsimile thereof. The signatures of any such officers upon
a certificate may be facsimiles or may be engraved or printed. In case any
officer who has signed or whose facsimile or other signature has been placed
upon such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue. The certificates shall be
consecutively numbered or otherwise identified; and the name and address of the
persons to whom they are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation.
2. Transfer of Shares. Transfer of shares shall be made on the stock
transfer books of the Corporation only upon surrender of the certificates for
the shares sought to be transferred by the record holder thereof or by his duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued.
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<PAGE> 20
3. Transfer Agent and Registrar. The Board of Directors may appoint one
or more transfer agents and one or more registrars of transfer and may require
all stock certificates to be signed or countersigned by the transfer agent and
registered by the registrar of transfers.
4. Record Date.
(a) For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof or entitled
to receive payment of any dividend or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case not to be more than seventy (70) days before the meeting
or action requiring a determination of shareholders.
(b) If no record date is fixed by the Board of Directors for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders or of shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
(c) When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this paragraph, such
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it shall do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting.
5. Lost Certificates. The Board of Directors may authorize the issuance
of a new share certificate in place of a certificate claimed to have been lost
or destroyed, upon receipt of an affidavit of such fact from the person claiming
the loss or destruction. When authorizing such issuance of a new certificate,
the Board of Directors may require the claimant to give the Corporation a bond
in such sum as it may direct to indemnify the Corporation against loss from any
claim with respect to the certificate claimed to have been lost or destroyed; or
the Board of Directors may, by resolution reciting that the circumstances
justify such action, authorize the issuance of the new certificate without
requiring such a bond.
6. Holder of Record. Except as otherwise required by law, the
Corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
receive notification and distributions, to vote and to otherwise exercise the
rights, powers and privileges of ownership of such shares. The Corporation shall
be entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any
16
<PAGE> 21
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of North Carolina.
7. Shares held by Nominees.
(a) The Corporation shall recognize the beneficial owner of shares
registered in the name of a nominee as the owner and shareholder of such shares
for certain purposes if the nominee in whose name such shares are registered
files with the Secretary of the Corporation a written certificate in a form
prescribed by the Corporation, signed by the nominee and indicating the
following: (1) the name, address and taxpayer identification number of the
nominee; (2) the name, address and taxpayer identification number of the
beneficial owner; (3) the number and class or series of shares registered in the
name of the nominee as to which the beneficial owner shall be recognized as the
shareholder; and (4) the purposes for which the beneficial owner shall be
recognized as the shareholder.
(b) The purposes for which the Corporation shall recognize a beneficial
owner as the shareholder may include the following: (1) receiving notice of,
voting at and otherwise participating in shareholders' meetings; (2) executing
consents with respect to the shares; (3) exercising dissenters' rights under
Article 13 of the North Carolina Business Corporation Act; (4) receiving
distributions and share dividends with respect to the shares; (5) exercising
inspection rights; (6) receiving reports, financial statements, proxy statements
and other communications from the Corporation; (7) making any demand upon the
Corporation required or permitted by law; and (8) exercising any other rights or
receiving any other benefits of a shareholder with respect to the shares.
(c) The certificate shall be effective ten (10) business days after its
receipt by the Corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
(d) If the certificate affects less than all of the shares registered
in the name of the nominee, the Corporation may require the shares affected by
the certificate to be registered separately on the books of the Corporation and
be represented by a share certificate that bears a conspicuous legend stating
that there is a nominee certificate in effect with respect to the shares
represented by that share certificate.
8. Acquisition by Corporation of its Own Shares. The Corporation may
acquire its own shares and shares so acquired shall constitute authorized but
unissued shares. Unless otherwise prohibited by the Articles of Incorporation,
the Corporation may reissue such shares. If reissue is prohibited, the Articles
of Incorporation shall be amended to reduce the number of authorized shares by
the number of shares so acquired. Such required amendment may be adopted by the
Board of Directors without shareholder action.
ARTICLE VIII
INDEMNIFICATION AND REIMBURSEMENT
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<PAGE> 22
OF DIRECTORS AND OFFICERS
1. Indemnification for Expenses and Liabilities.
(a) Any person who at any time serves or has served: (1) as a director,
officer, employee or agent of the Corporation, (2) at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust, or
other enterprise, or (3) at the request of the Corporation as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the Corporation to the fullest extent from time to time permitted
by law against Liability and Expenses in any Proceeding (including without
limitation a Proceeding brought by or on behalf of the Corporation itself)
arising out of his status as such or activities in any of the foregoing
capacities or results from him being called as a witness at a time when he has
not been made a named defendant or respondent to any Proceeding.
(b) The Board of Directors of the Corporation shall take all such
action as may be necessary and appropriate to authorize the Corporation to pay
the indemnification required by this provision, including, without limitation,
to the extent needed, making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of indemnity due him.
(c) Any person who at any time serves or has served in any of the
aforesaid capacities for or on behalf of the Corporation shall be deemed to be
doing or to have done so in reliance upon, and as consideration for, the rights
provided for herein. Any repeal or modification of these indemnification
provisions shall not affect any rights or obligations existing at the time of
such repeal or modification. The rights provided for herein shall inure to the
benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart from
this provision.
(d) The rights granted herein shall not be limited by the provisions
contained in Sections 55-8-51 through 55-8-56 of the North Carolina Business
Corporation Act or any successor to such statutes.
2. Advance Payment of Expenses. The Corporation shall (upon receipt of
an undertaking by or on behalf of the Director, officer, employee or agent
involved to repay the Expenses described herein unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation against such
Expenses) pay Expenses incurred by such Director, officer, employee or agent in
defending a Proceeding or appearing as a witness at a time when he has not been
named as a defendant or a respondent with respect thereto in advance of the
final disposition of such Proceeding.
3. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another domestic or foreign corporation, partnership, joint venture, trust or
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<PAGE> 23
other enterprise or as a trustee or administrator under an employee benefit plan
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability.
4. Definitions. The following terms as used in this Article shall have
the following meanings. "Proceeding" means any threatened, pending or completed
action, suit, or proceeding and any appeal therein (and any inquiry or
investigation that could lead to such action, suit, or proceeding), whether
civil, criminal, administrative, investigative or arbitrative and whether formal
or informal. "Expenses" means expenses of every kind, including counsel fees.
"Liability" means the obligation to pay a judgment, settlement, penalty, fine
(including an excise tax assessed with respect to an employee benefit plan),
reasonable expenses incurred with respect to a Proceeding and all reasonable
expenses incurred in enforcing the indemnification rights provided herein.
"Director," "officer," "employee" and "agent" include the estate or personal
representative of a Director, officer, employee or agent. "Corporation" shall
include any domestic or foreign predecessor of this Corporation in a merger or
other transaction in which the predecessor's existence ceased upon consummation
of the transaction.
ARTICLE IX
GENERAL PROVISIONS
1. Distributions. The Board of Directors may from time to time declare,
and the Corporation may pay, distributions and share dividends on its
outstanding shares in the manner and upon the terms and conditions provided by
law and by its Articles of Incorporation.
2. Seal. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form of as may be approved from time to
time by the Board of Directors. Such seal may be an impression or stamp and may
be used by the officers of the Corporation by causing it, or a facsimile
thereof, to be impressed or affixed or in any other manner reproduced. In
addition to any form of seal adopted by the Board of Directors, the officers of
the Corporation may use as the corporate seal a seal in the form of a circle
containing the name of the Corporation and the state of its incorporation (or an
abbreviation thereof) on the circumference and the word "Seal" in the center.
3. Fiscal Year. The fiscal year of the Corporation shall be determined
by the Board of Directors.
4. Effective Date of Notice. Except as provided in Section 5(a) of
Article II, written notice shall be effective at the earliest of the following:
(1) when received; (2) five days after its deposit in the United States mail, as
evidenced by the postmark, if mailed with postage thereon prepaid and correctly
addressed; (3) upon confirmation of receipt by answer back code, if sent by
facsimile transmission; (4) upon transmission, if sent by telegraph or teletype;
or (5) on the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested and the receipt is signed by or on
behalf of the addressee.
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<PAGE> 24
5. Corporate Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account and
minute books, may be kept on or be in the form of punch cards, magnetic tape,
photographs, microphotographs or any other information storage device; provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same. The Corporation shall
maintain at its principal office the following records: (1) Articles of
Incorporation or Restated Articles of Incorporation and all amendments thereto;
(2) Bylaws or Restated Bylaws and all amendments thereto; (3) resolutions by the
Board of Directors creating classes or series of shares and affixing rights,
preferences or limitations to shares; (4) minutes of all shareholder meetings or
action taken without a meeting for the past three years; (5) all written
communications to shareholders for the past three years, including financial
statements; and (6) the Corporation's most recent annual report filed with the
North Carolina Secretary of State.
6. Bylaw Amendments.
(a) Except as otherwise provided herein, these Bylaws may be amended or
repealed and new Bylaws may be adopted by the affirmative vote of a majority of
the Directors present at any regular or special meeting of the Board of
Directors at which a quorum is present or by the shareholders at any regular or
special meeting of shareholders at which a quorum is present if the votes cast
favoring such action exceed the votes cast opposing such action. Notwithstanding
the foregoing, any provision hereof adopted, amended or repealed by the
shareholders may not be readopted, amended or repealed by the Directors, but
only by the affirmative vote of seventy-five percent (75%) of all eligible votes
present at a meeting of shareholders at which a quorum is present.
Note: The provisions of this Article IX, Section 6(a) have been adopted
by the shareholders of the Corporation and may not be amended except by
the shareholders in accordance with this provision.
(b) The Board of Directors shall have no power to adopt a Bylaw: (1)
changing the statutory requirement for a quorum of Directors or action by
Directors or changing the statutory requirement for a quorum of shareholders or
action by shareholders; (2) providing for the management of the Corporation
otherwise than by the Board of Directors or the committees thereof; (3) except
as may be otherwise provided in Article III, Section 2 of these Bylaws,
increasing or decreasing the fixed number for the size of the Board of Directors
or range of Directors, or changing from a fixed number to a range, or vice
versa; or (4) classifying and staggering the election of Directors.
(c) No Bylaw adopted, amended or repealed by the shareholders may be
readopted, amended or repealed by the Board of Directors, except to the extent
that the Articles of Incorporation or a Bylaw adopted by the shareholders
authorizes the Board of Directors to adopt, amend or repeal that particular
Bylaw or the Bylaws generally.
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<PAGE> 25
7. Amendments to Articles of Incorporation.
(a) To the extent permitted by law, the Board of Directors may amend
the Articles of Incorporation without shareholder approval to (1) delete the
initial directors' names and addresses; (2) change the initial registered agent
or office in any state in which it is qualified to do business, provided such
change is on file with the respective Secretary of State; (3) change each issued
and unissued share of an outstanding class into a greater number of whole
shares, provided that class is the Corporation's only outstanding share class;
(4) change the corporate name by substituting "corporation," "incorporated,"
"company," "limited" or the abbreviations therefor for a similar word or
abbreviation or by adding, deleting or changing a geographic designation in the
name; (5) make any other change expressly permitted by the North Carolina
Business Corporation Act to be made without shareholder action.
(b) All other amendments to the Articles of Incorporation must be
approved by the affirmative vote of seventy-five percent (75%) of the votes
present at a meeting of shareholders at which a quorum is present, in accordance
with Article XII of the Corporation's Articles of Incorporation unless the
provisions of North Carolina law otherwise apply in the circumstances specified
in Article XII. The notice of any such meeting must state that the purpose, or
one of the purposes, of the meeting is to consider the proposed amendment, and
the notice must be accompanied by a copy or summary of the amendment or
amendments. The Board of Directors must recommend any amendment to the Articles
to be considered by shareholders as set forth in, and subject to the terms of,
North Carolina General Statutes ss.55-10- 03(a).
Note: The provisions of this Article IX, Section 7(b) are contained in
the Articles of Incorporation. These Bylaw provisions have been adopted
by the by the shareholders and may not be amended except by the
shareholders of the Corporation in accordance with the provisions of
Article IX, Section 6(a) hereof.
8. Stockholder Protection Statutes. The Corporation elects not to be
subject to Article 9 or Article 9A of Chapter 55 of the North Carolina General
Statutes known, respectively, as the "Shareholder Protection Act" and the
"Control Share Acquisition Act", as such Articles may be amended from time to
time.
The foregoing Bylaws were adopted by the Board of Directors at a meeting held on
October 30, 1995 and were amended at a joint meeting of the shareholders and
Board of Directors held on December 4, 1995 and at a meeting of the shareholders
held on September 25, 1996.
------------------------------------------
Fred B. Davenport, Jr., Secretary
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<PAGE> 1
EXHIBIT 10.81
EMPLOYMENT AGREEMENT
THIS AGREEMENT (hereinafter the "Agreement"), made this 26th
day of September, 1996, by and between Pharmaceutical Product Development, Inc.,
a North Carolina corporation (hereinafter "PPD"), and Fred B. Davenport, Jr.
(hereinafter "Employee").
W I N E S S E T H:
WHEREAS, Employee desires employment upon the terms and
conditions herein stated; and
WHEREAS, PPD desires to employ Employee upon the terms and
conditions herein stated; and
WHEREAS, Employee and PPD desire to embody in writing the
terms and conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration for the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledge, the
parties hereby agree as follows:
1. Employment. PPD hereby employs Employee and Employee hereby
accepts such employment on a full time basis as General Counsel of PPD upon
terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for one year,
beginning December 1, 1996, and ending November 30, 1997, unless sooner
terminated as provided herein. Thereafter, this Agreement shall be automatically
renewed for successive one-year terms upon the terms and conditions herein set
forth and subject to salary adjustments as provided for in paragraphs 3 and 10
below, unless either party gives notice as herein provided to the other of said
party's intent not renew this Agreement not less than 75 days prior to the
expiration of the one-year term then in effect.
3. Salary. For all services rendered by Employee under this
Agreement, PPD shall pay to Employee an annual salary of $200,000 for the
initial one-year term hereof. Salary successive one-year terms shall be agreed
upon not less than 90 days before commencement of each one-year term unless such
a requirement is waived by the parties.
4. Stock Options. PPD has granted to Employee as of September
26, 1996 (the "Grant Date") options to purchase 55,000 shares of PPD's common
stock at a purchase price equal to the NASDAQ market close price on the Grant
Date. Said share options have been granted under the terms of PPD's Equity
Compensation Plan (the "Plan") and are subject to all of the terms and
conditions of the Plan as more specifically evidenced by that certain Stock
Award Agreement entered into by the parties as of the Grant Date, which Stock
Award Agreement is in a form substantially similar to that generally provided to
Plan participants except that (a) none of said share options can be exercised
until six months after the Grant Date, (b) 27,500 of said share options cannot
be exercised until the earlier of (i) one year after the Grant Date or (ii)
subject to item (a) immediately preceding, Employee's termination of employment
under any of paragraphs 8(a), 8(c)(i) and 19 hereof, and (c) all of the share
options shall be forfeited if Employee is not employed by PPD for any reason
before 120 days after the Grant Date.
5. Duties. Employee shall have overall responsibility for and
decision making authority necessary to fulfill PPD's legal needs and functions.
Employee's duties shall include but not be limited to (a) supervision of PPD's
in-house legal staff and (b) retention and supervision of
<PAGE> 2
PPD's outside legal counsel, in consultation with PPD's Chief Executive Officer
and Board of Directors. Employee also shall participate in policy decisions and
strategic planning as a member of PPD's executive management team. Employee
shall carry out his duties and responsibilities under the general supervision of
the Chief Executive Officer. Employee hereby agrees to undertake such travel as
may be required to perform the duties prescribed herein. During the term of this
Agreement, Employee shall devote substantially all of his working time,
attention and energies to the business of PPD.
6. Working Facilities. PPD shall furnish Employee with office
space, equipment, technical, secretarial and clerical assistance and such other
facilities, services, support and supplies as may be reasonably needed to
perform the duties herein prescribed in an efficient and professional manner.
7. Non-Compete. During the term of this Agreement, Employee
hereby agrees that he shall not (a) become an officer, employee, director,
agent, representative, member, associate or consultant of or to a corporation,
partnership or other business entity or person, (b) directly or indirectly
acquire a proprietary interest in a corporation, partnership or other business
entity or person, or (c) directly or indirectly own any stock in a corporation
(other than a publicly traded corporation of which Employee owns less than five
percent (5%) of the outstanding stock) which is engaged in the business of
managing clinical research programs for pharmaceutical and medical products or
any other business which is developed by PPD during the term of this Agreement
anywhere in the United States (whether or not such business is physically
located within the United States). The parties agree that the business and
operations of PPD are national in scope. For that reason, the parties agree that
a geographical limitation on the foregoing covenant is not appropriate.
8. Termination. Notwithstanding any other provision of this
Agreement, PPD may terminate Employee's employment hereunder upon the occurrence
of any of the following events.
a. Death of Employee.
b. A determination by the Board of Directors of PPD, acting in
good faith but made in the sole discretion of the Board of Directors, that
Employee has failed to substantially perform his duties under this Agreement.
c. A determination by the Board of Directors of PPD, acting in
good faith but made in the sole discretion of the Board of Directors, that
Employee (i) has become physically or mentally incapacitated and is unable to
perform his duties under this Agreement as a result of such disability, which
inability continues for a period of sixty (60) consecutive calendar days, (ii)
has breached any of the material terms of this Agreement, (iii) has demonstrated
gross negligence or willful misconduct in the execution of his duties, or (iv)
has been convicted of a felony.
9. Disclosure of Information: PPD's Property. Employee
recognizes and acknowledges that all of PPD's licenses, permits, data, affairs,
confidential information, trade secrets, inventions, know how, discoveries,
plans, development of work in progress, customer and supplier information, cost
information, contractual provisions, employee capabilities, business methods,
opportunities and the like (collectively, the "Proprietary Information"), are
valuable and unique assets of PPD's business, regardless of whether PPD has
obtained patents on patentable devices and techniques or copyrights on any
material subject to copyright. Employee covenants and agrees that during the
term of this Agreement and thereafter, he will not disclose the Proprietary
Information to any other corporation, partnership, business entity or person for
any reason (and without regard as to whether same shall have been originated,
discovered or developed by Employee); provided, however, that such Proprietary
Information which already is in the public domain shall not give rise to a
breach hereunder by Employee for his disclosure thereof.
10. Benefits. During the term hereof, Employee shall be
entitled to participate in all benefits provided by PPD to its employees
generally, including but not limited to health
<PAGE> 3
insurance, disability insurance and retirement plans, all of which are currently
provided to employees of PPD, subject to the eligibility requirements of any
plan(s) establishing same. Employee shall be subject to PPD's policies
applicable to other executive employees of PPD with respect to periodic reviews
and increases in salary, and shall be considered for and eligible to participate
in benefits, if any, provided generally by PPD to its executive employees,
including but not limited to issuance of stock options, cash bonuses, etc.
Employee shall be entitled to four weeks paid vacation during each one-year term
hereof.
11. Expenses. PPD shall pay all expenses of Employee which are
directly related to Employee's duties hereunder, including but not limited to
professional dues, continuing legal education required by the North Carolina
State Bar or appropriate for a general counsel position, required malpractice
insurance, if any, and other reasonable expenses routinely incurred in
performing his duties hereunder. In addition, PPD shall pay the cost of any
malpractice "tail" policy or coverage procured by Employee in connection with
his departure from the private practice of law and shall reimburse Employee in
the amount of $3,100 for all costs incurred by Employee prior to or after the
date of this Agreement in connection with the storage and disposal of office
furniture and related office equipment owned by Employee.
12. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 7 and/or 9 of this Agreement, PPD shall be
entitled to a temporary restraining order and/or permanent injunction
restraining Employee from such breach. Nothing herein shall be construed as
preventing PPD from pursuing any other available remedies for such breach or
threatened breach, including recovery of damages from Employee and from any
corporation, partnership or other business entity or person with which the
Employee has entered or attempted to enter into a relationship or to which
Employee has disclosed Proprietary Information.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and may
not be altered or amended except by agreement in writing signed by the parties.
14. Waiver or Breach. Waiver by either party of a breach of
any provision of this Agreement by the other party shall not operate as a waiver
of any subsequent breach by the other party. No waiver shall be valid unless in
writing and signed by the party against whom the waiver is sought.
15. Severability. If any portion of this Agreement shall be
declared invalid by a court of competent jurisdiction, the remaining portion
shall continue in full force and effect as if this Agreement has been executed
with the invalid portion eliminated and this Agreement shall be so construed.
16. Benefit. This Agreement shall inure to the benefit of and
be binding upon PPD, its successors and assigns, and Employee, his heirs,
successors, assigns and personal representatives.
17. Applicable Law. This Agreement shall be governed by the
laws of the State of North Carolina.
18. Assignment. Neither party hereto may assign said party's
rights or obligations hereunder without the prior written consent of the other.
19. Notice. Any notice required or permitted hereunder shall
be delivered in person or mailed certified mail, return receipt requested, to
either party at PPD's principal office in Wilmington, North Carolina, and shall
be deemed received when actually received. Any notice from Employee to PPD shall
be addressed to the Chief Executive Officer.
20. Severance. In the event PPD sustains a "Change of Control"
such that Employee's position of general counsel is eliminated or Employee's
duties are substantially diminished, or if Employee must relocate to retain the
position of general counsel, Employee shall have the right to terminate this
Agreement immediately and receive as severance pay a sum equal to two years of
Employee's W-2 compensation computed using Employee's W-2
<PAGE> 4
compensation for the twelve-month period immediately preceding the effective
date of Employee's termination of employment hereunder. Said sum shall be paid
on the effective date of termination. "Change of Control" as used herein shall
mean (a) any merger, sale of assets or other business reorganization after which
PPD is not surviving company (other than a reincorporation to change domicile of
PPD), or (b) a change of control of nature that would be required to be reported
in response to Item 5(e) of schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), provided that such
a change in control shall be deemed to have occurred if any "person" (as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes
the beneficial owner, directly or indirectly, of securities of PPD representing
fifty percent or more of the combined voting power of PPD's then outstanding
securities.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PPD PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
(CORPORATE SEAL) By: /s/ Fredric N. Eshelman
---------------------------------
Title: Chief Executive Officer
ATTEST:
- -------------------------------
Title:
------------------------
EMPLOYEE /s/ Fred B. Davenport, Jr. (SEAL)
----------------------------------------
Fred B. Davenport
WITNESS:
/s/ Marla S. Doster
- -------------------------------
<PAGE> 1
EXHIBIT 10.82
NORTH CAROLINA
NEW HANOVER COUNTY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") made this 25th day
of September, 1996, by and between Pharmaceutical Product Development, Inc., a
North Carolina corporation (hereinafter "Corporation") and Joshua S. Baker
(hereinafter "Employee").
WITNESSETH:
WHEREAS, the Employee desires employment upon the terms and conditions
here stated as an employee of the Corporation;
WHEREAS, the Corporation desires to employ the Employee upon the terms
and conditions here stated; and
WHEREAS, the Employee and Corporation desire to embody in writing the
terms and conditions of such employment here made and accepted, in this
Agreement;
NOW THEREFORE, in consideration of the premises, and mutual promises,
covenants and considerations hereinafter contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Employment. The Corporation hereby employs the Employee and the
Employee hereby accepts such employment on a full-time basis as Senior Vice
President of Operations of the Corporation upon the terms and conditions
hereinafter set forth.
2. Term. The term of this Agreement shall begin September 25, 1996 and
continue until September 24, 1997 unless sooner terminated as provided herein.
Upon the expiration of this Agreement, it shall thereafter be renewable on a
year to year basis upon mutual agreement of Corporation and Employee.
3. Compensation. For all services rendered by Employee under this
Agreement the Corporation shall pay to Employee $180,000 annually payable in
twenty-six (26) biweekly equal installments or other such pay periods
established from time to time by the Corporation, pursuant to its standard
employment practices.
4. Duties. Employee shall have the day to day responsibilities of
general decision making authority regarding all activities of the clinical
operations division of the Corporation. The Employee shall carry out his duties
under the general supervision of the Chief Operating Officer and the Board of
Directors of the Corporation. The Employee hereby agrees to undertake such
travel as may be required in the performance of his duties.
During the term of this Agreement, Employee shall devote substantially
all his working time, attention and energies to the business of the Corporation.
5. Working Facilities. The Corporation shall furnish Employee with the
office space, equipment, technical, secretarial and clerical assistance and such
other facilities, services and supplies as may be needed to enable him to
perform the duties required of him hereunder from time to time in an efficient
and professional manner.
<PAGE> 2
6. Noncompete. During the term of this Agreement Employee hereby
covenants and agrees that he shall not:
(1) become an officer, employee, director, agent, representative
or consultant of a corporation, or
(2) become an employee, agent, consultant, representative, member
or associate of a business, firm or partnership, or other
entity, or
(3) have, directly or indirectly, a proprietary interest in a
business, partnership, firm, or other entity, or
(4) own, directly or indirectly, any stock in a corporation (other
than a publicly traded corporation of which the Employee owns
less then 5% of the outstanding stock)
which is engaged in the business of managing clinical research programs
for pharmaceutical and medical products or otherwise engaged in any business
which is developed by the Corporation during the term of this Agreement anywhere
in the United States (whether or not such business is physically located within
the United States). The parties agree that the business and operations of the
Corporation are national in scope. For that reason, the parties agree that a
geographical limitation on the foregoing covenant not to compete would not be
appropriate.
7. Termination. Notwithstanding any provision of this Agreement to the
contrary, the following items shall constitute " just cause" for termination.
The employment of Employee pursuant to this Agreement shall be terminated
immediately upon (1) death of Employee; (2) a determination by the Board of
Directors of the Corporation, acting in good faith, but made in the sole
discretion of such Board, that Employee has failed to perform his duties under
this Agreement; (3) a determination by the Board of Directors of the
Corporation, acting in good faith, but made in the sole discretion of said
Board, that Employee (a) has become physically or mentally incapacitated, or is
unable to perform his duties under this Agreement as a result of such, continued
for a period of sixty consecutive calendar days, (b) has breached any of the
material terms of this Agreement, (c) has demonstrated gross negligence or
willful misconduct in the execution of his duties, or (d) has been convicted of
a Felony.
8. Disclosure of Information; Corporation's Property. The Employee
recognizes and acknowledges that all of the Corporation's licenses, permits,
data, affairs, confidential information, trade secrets, inventions, know how,
discoveries, plans, development work in progress, customer and supplier
information, cost information, contractual provisions, employee capabilities,
business methods and opportunities and the like (collectively "Proprietary
Information"), are valuable, special, and unique assets of the Corporation's
business regardless of whether the Corporation has taken all necessary steps to
obtain patents on patentable devices and techniques or copyrights on any
materials. Therefore the Employee expressly covenants and agrees that he will
not during the term of this Agreement and thereafter disclose the Corporation's
Proprietary Information to any other persons, form, corporation, association or
any other entity for any reason or purpose whatsoever, regardless of whether the
same shall or may have been originated, discovered or developed by Employee.
9. Fringe Benefits. During the period of employment, the Employee shall
be entitled to all benefits in effect from time to time which the Corporation
provides to its employees and for which Employee is eligible. Furthermore,
Employee shall be governed by the Corporation's policies applicable to other
executive employees of the Corporation with respect to periodic reviews and
increases in salary and fringe benefits provided for such executive employees.
Fringe benefits shall include participation in the Corporation's cash bonus and
stock option plans.
10. Remedies. In the event of the Employee's actual or threatened
breach of the provisions of paragraphs 6 and 8 of this Agreement, the
Corporation shall be entitled to a temporary restraining order and/or permanent
injunction restraining Employee therefrom. Nothing shall be construed as
preventing
<PAGE> 3
the Corporation from pursuing any other available remedies for such breach or
threatened breach, including the recovery of damages from the Employee and from
the corporation, business, firm, partnership or other entity with which Employee
may have entered into a relationship, or to which Employee may have disclosed
information, which is prohibited by this Agreement.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and may not be
altered or amended in any respect or to any extent whatsoever except by
agreement in writing executed by each of the parties hereto.
12. Waiver of Breach. Waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the other party. No waiver shall be
valid unless in writing and signed by the party against whom the waiver is
sought.
13. Severability. If any portion of this agreement shall be declared
invalid by a court of competent jurisdiction for any reason, the remaining
portion shall remain in force and effect as if this Agreement had been executed
with the invalid portion eliminated; provided however, that in the event of a
declaration of invalidity, the provision declared invalid shall not be
invalidated in its entirety but shall remain in effect and force to the extent
such provision is valid and enforceable. The parties agree that any provision
shall be deemed altered and amended to the extent necessary to effect such
validity and enforceability.
14. Benefit. This Agreement shall inure to the benefit of and be
binding upon the Corporation, its successors and assigns, and Employee, his
heirs, executors, administrators and legal representatives.
15. Applicable Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of North Carolina.
16. Assignment. The rights and obligations of the Corporation under
this Agreement may be assigned by the Corporation to the successors in interest
of the Corporation or of that part of the business of the Corporation to which
this Agreement applies. This Agreement may not be assigned by Employee, but any
amounts owing to Employee upon his death shall inure to the benefit of his
heirs, legatees, personal representative, executor or administrator.
IN WITNESS WHEREOF, the parties have executed this Agreement and set their hands
and seals the date first written above.
Pharmaceutical Product Development, Inc.
By: /s/ Fredric N. Eshelman
-------------------------------------
Fredric N. Eshelman,
Chief Executive Officer
Attest:
/s/ Rudy C. Howard
- -------------------------------
Secretary
- --------------------
(Corporate Seal)
/s/ Joshua S. Baker (SEAL)
----------------------------------------
Joshua S. Baker
<PAGE> 1
EXHIBIT 10.83a
SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT
THIS SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT ("Agreement")
entered into as of the 26th day of September, 1996 by and between Pharmaceutical
Product Development, Inc., a North Carolina corporation (the "Company") and
Grover C. Wrenn (the "Executive").
WITNESSETH:
WHEREAS, the Company has agreed, pursuant to the Agreement and Plan of
Reorganization by and among the Company, Wilmington Merger Corp., a North
Carolina corporation and wholly-owned subsidiary of the Company, and Applied
Bioscience International Inc., a Delaware corporation ("APBI") (the "Merger
Agreement"), to assume certain of the non-statutory stock options (the
"Options") granted to the Executive in connection with the Separation Agreement
dated August 25, 1995, entered into by and between the Executive and APBI (the
"Separation Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Executive
is entitled to receive substitute options denominated in shares of common stock
of the Company, in substitution for and cancellation of the Options, provided
that the substitute options shall be subject to the terms and conditions of this
agreement and the Pharmaceutical Product Development, Inc. Equity Compensation
Plan (the "Plan") except that the number of shares of the Company's common stock
and the exercise price of the option are to be adjusted in the manner set forth
in the Merger Agreement and the substitute options are to have substantially the
same restrictions, terms and conditions as the options for which they were
substituted,
NOW, THEREFORE, intending to be legally bound hereby, the Company and
the Executive do hereby covenant and agree as follows:
1. SUBSTITUTE OPTION. Pursuant to the terms of the Merger Agreement,
the Company does hereby issue to the Executive in substitution for the option
granted to the Executive on September 19, 1995, by APBI to replace the original
option granted to the Executive on June 25, 1993, the right and option to
purchase, under the terms and conditions hereinafter set forth, in whole or in
part, 15,820 shares of common stock of the Company, par value $.10 per share,
which right and option shall not constitute an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, (the
"Non-Statutory Stock Option"). The price at which the shares shall be purchased
shall be $13.88, which price is the adjusted exercise price of the Non-Statutory
Stock Option as determined under the Merger Agreement.
2. TERMS. The Non-Statutory Stock Option herein granted is fully vested
and shall expire at 12:00 midnight on the earlier of (a) February 11, 2001, or
(b) the day immediately following any period of twenty (20) consecutive trading
days in which the last sale for shares of the Company's Common Stock (as
adjusted for stock splits, dividends, and similar events) for each of such
trading days equaled or exceeded $49.33 per share as quoted on the NASDAQ
National Market System.
<PAGE> 2
3. EXERCISE. The Executive may exercise the Non-Statutory Stock Option
granted hereunder by giving written notice to the Compensation Committee of the
Company ("the Committee") at 3151 S. 17th Street Extension, Wilmington, North
Carolina 28412. Such notice, a form of which is attached hereto as Exhibit A and
incorporated by reference, shall state the number of full shares (no fractional
shares may be purchased) to which the election applies. Such notice shall be
accompanied by payment in an amount sufficient to purchase the number of shares
set forth in the notice at the per share price established by Section 1 hereof.
Payment shall be made in cash, or the Committee in its discretion may allow the
Executive to use shares of the Company's Common Stock having a fair market value
equal to the purchase price (as determined by the Committee), or the Committee
may allow the use of a combination of cash and such shares.
4. DEATH. In the event of death of the Executive, the Non-Statutory
Stock Option shall be exercisable by the person or persons who acquired the
option by bequest or inheritance or by reason of the death of the Executive, or
by the executor or administrator of the estate of the deceased Executive at any
time before the expiration date of the Non-Statutory Stock Option.
5. NO IMPLIED RIGHTS. Nothing contained in this Agreement, nor the
granting of any options hereunder, shall be construed as giving the Executive or
any other person any legal or equitable rights against the Company or any
subsidiary corporation or any director, officer, employee or agent thereof,
except for those rights as are herein provided.
6. NO ASSIGNMENT. Except as otherwise provided herein, the
Non-Statutory Stock Option and the rights and privileges conferred hereby may
not be transferred, assigned, pledged, hypothecated or encumbered, and shall not
be subject to execution, attachment, garnishment or other similar legal
processes. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Non-Statutory Stock Option, the
Non-Statutory Stock Option and the rights and privileges conferred hereunder
shall immediately become null and void. This option may be exercised during the
lifetime of the Executive only by the Executive; provided, however, that if the
Executive is declared legally incompetent, the Executive's duly appointed legal
representative may exercise the Non-Statutory Stock Option granted hereunder in
the manner and to the extent that the Executive is entitled to exercise the
option hereunder.
7. INCORPORATION OF THE PLAN. This Agreement incorporates the terms of
the Plan, and any modifications or amendments thereto. The Employee acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof that are not inconsistent with the terms of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the law of North
Carolina, without reference to the principles of conflicts of law thereof.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Grover C. Wrenn
------------------------------------
Executive
- 3 -
<PAGE> 1
EXHIBIT 10.83b
SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT
THIS SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT ("Agreement")
entered into as of the 26th day of September, 1996 by and between Pharmaceutical
Product Development, Inc., a North Carolina corporation (the "Company") and
Grover C. Wrenn (the "Executive").
WITNESSETH:
WHEREAS, the Company has agreed, pursuant to the Agreement and Plan of
Reorganization by and among the Company, Wilmington Merger Corp., a North
Carolina corporation and wholly-owned subsidiary of the Company, and Applied
Bioscience International Inc., a Delaware corporation ("APBI") (the "Merger
Agreement"), to assume certain of the non-statutory stock options (the
"Options") granted to the Executive in connection with the Separation Agreement
dated August 25, 1995, entered into by and between the Executive and APBI (the
"Separation Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Executive
is entitled to receive substitute options denominated in shares of common stock
of the Company, in substitution for and cancellation of the Options, provided
that the substitute options shall be subject to the terms and conditions of this
agreement and the Pharmaceutical Product Development, Inc. Equity Compensation
Plan (the "Plan") except that the number of shares of the Company's common stock
and the exercise price of the option are to be adjusted in the manner set forth
in the Merger Agreement and the substitute options are to have substantially the
same restrictions, terms and conditions as the options for which they were
substituted.
NOW, THEREFORE, intending to be legally bound hereby, the Company and
the Executive do hereby covenant and agree as follows:
1. SUBSTITUTE OPTION. Pursuant to the terms of the Merger Agreement,
the Company does hereby issue to the Executive in substitution for the option
granted to the Executive on September 19, 1995, by APBI to replace the original
option granted to the Executive on December 10, 1991, the right and option to
purchase, under the terms and conditions hereinafter set forth, in whole or in
part, 3,334 shares of common stock of the Company, par value $.10 per share,
which right and option shall not constitute an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, (the
"Non-Statutory Stock Option"). The price at which the shares shall be purchased
shall be $32.84, which price is the adjusted exercise price of the Non-Statutory
Stock Option as determined under the Merger Agreement.
2. TERMS. The Non-Statutory Stock Option herein granted is fully vested
and shall expire at 12:00 midnight on the earlier of (a) February 11, 2001, or
(b) the day immediately following any period of twenty (20) consecutive trading
days in which the last sale for shares of the Company's Common Stock (as
adjusted for stock splits, dividends, and similar events) for each of such
trading days equaled or exceeded $49.33 per share as quoted on the NASDAQ
National Market System.
<PAGE> 2
3. EXERCISE. The Executive may exercise the Non-Statutory Stock Option
granted hereunder by giving written notice to the Compensation Committee of the
Company ("the Committee") at 3151 S. 17th Street Extension, Wilmington, North
Carolina 28412. Such notice, a form of which is attached hereto as Exhibit A and
incorporated by reference, shall state the number of full shares (no fractional
shares may be purchased) to which the election applies. Such notice shall be
accompanied by payment in an amount sufficient to purchase the number of shares
set forth in the notice at the per share price established by Section 1 hereof.
Payment shall be made in cash, or the Committee in its discretion may allow the
Executive to use shares of the Company's Common Stock having a fair market value
equal to the purchase price (as determined by the Committee), or the Committee
may allow the use of a combination of cash and such shares.
4. DEATH. In the event of death of the Executive, the Non-Statutory
Stock Option shall be exercisable by the person or persons who acquired the
option by bequest or inheritance or by reason of the death of the Executive, or
by the executor or administrator of the estate of the deceased Executive at any
time before the expiration date of the Non-Statutory Stock Option.
5. NO IMPLIED RIGHTS. Nothing contained in this Agreement, nor the
granting of any options hereunder, shall be construed as giving the Executive or
any other person any legal or equitable rights against the Company or any
subsidiary corporation or any director, officer, employee or agent thereof,
except for those rights as are herein provided.
6. NO ASSIGNMENT. Except as otherwise provided herein, the
Non-Statutory Stock Option and the rights and privileges conferred hereby may
not be transferred, assigned, pledged, hypothecated or encumbered, and shall not
be subject to execution, attachment, garnishment or other similar legal
processes. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Non-Statutory Stock Option, the
Non-Statutory Stock Option and the rights and privileges conferred hereunder
shall immediately become null and void. This option may be exercised during the
lifetime of the Executive only by the Executive; provided, however, that if the
Executive is declared legally incompetent, the Executive's duly appointed legal
representative may exercise the Non-Statutory Stock Option granted hereunder in
the manner and to the extent that the Executive is entitled to exercise the
option hereunder.
7. INCORPORATION OF THE PLAN. This Agreement incorporates the terms of
the Plan, and any modifications or amendments thereto. The Employee acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof that are not inconsistent with the terms of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the law of North
Carolina, without reference to the principles of conflicts of law thereof.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Grover C. Wrenn
------------------------------------
Executive
- 3 -
<PAGE> 1
EXHIBIT 10.83c
SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT
THIS SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT ("Agreement")
entered into as of the 26th day of September, 1996 by and between Pharmaceutical
Product Development, Inc., a North Carolina corporation (the "Company") and
Grover C. Wrenn (the "Executive").
WITNESSETH:
WHEREAS, the Company has agreed, pursuant to the Agreement and Plan of
Reorganization by and among the Company, Wilmington Merger Corp., a North
Carolina corporation and wholly-owned subsidiary of the Company, and Applied
Bioscience International Inc., a Delaware corporation ("APBI") (the "Merger
Agreement"), to assume certain of the non-statutory stock options (the
"Options") granted to the Executive in connection with the Separation Agreement
dated August 25, 1995, entered into by and between the Executive and APBI (the
"Separation Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Executive
is entitled to receive substitute options denominated in shares of common stock
of the Company, in substitution for and cancellation of the Options, provided
that the substitute options shall be subject to the terms and conditions of this
agreement and the Pharmaceutical Product Development, Inc. Equity Compensation
Plan (the "Plan") except that the number of shares of the Company's common stock
and the exercise price of the option are to be adjusted in the manner set forth
in the Merger Agreement and the substitute options are to have substantially the
same restrictions, terms and conditions as the options for which they were
substituted.
NOW, THEREFORE, intending to be legally bound hereby, the Company and
the Executive do hereby covenant and agree as follows:
1. SUBSTITUTE OPTION. Pursuant to the terms of the Merger Agreement,
the Company does hereby issue to the Executive in substitution for the option
granted to the Executive on September 19, 1995, by APBI to replace the original
option granted to the Executive on December 10, 1991, the right and option to
purchase, under the terms and conditions hereinafter set forth, in whole or in
part, 6,975 shares of common stock of the Company, par value $.10 per share,
which right and option shall not constitute an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, (the
"Non-Statutory Stock Option"). The price at which the shares shall be purchased
shall be $32.84, which price is the adjusted exercise price of the Non-Statutory
Stock Option as determined under the Merger Agreement.
2. TERMS. The Non-Statutory Stock Option herein granted is fully vested
and shall expire at 12:00 midnight on the earlier of (a) February 11, 2001, or
(b) the day immediately following any period of twenty (20) consecutive trading
days in which the last sale for shares of the Company's Common Stock (as
adjusted for stock splits, dividends, and similar events) for each of such
trading days equaled or exceeded $49.33 per share as quoted on the NASDAQ
National Market System.
<PAGE> 2
3. EXERCISE. The Executive may exercise the Non-Statutory Stock Option
granted hereunder by giving written notice to the Compensation Committee of the
Company ("the Committee") at 3151 S. 17th Street Extension, Wilmington, North
Carolina 28412. Such notice, a form of which is attached hereto as Exhibit A and
incorporated by reference, shall state the number of full shares (no fractional
shares may be purchased) to which the election applies. Such notice shall be
accompanied by payment in an amount sufficient to purchase the number of shares
set forth in the notice at the per share price established by Section 1 hereof.
Payment shall be made in cash, or the Committee in its discretion may allow the
Executive to use shares of the Company's Common Stock having a fair market value
equal to the purchase price (as determined by the Committee), or the Committee
may allow the use of a combination of cash and such shares.
4. DEATH. In the event of death of the Executive, the Non-Statutory
Stock Option shall be exercisable by the person or persons who acquired the
option by bequest or inheritance or by reason of the death of the Executive, or
by the executor or administrator of the estate of the deceased Executive at any
time before the expiration date of the Non-Statutory Stock Option.
5. NO IMPLIED RIGHTS. Nothing contained in this Agreement, nor the
granting of any options hereunder, shall be construed as giving the Executive or
any other person any legal or equitable rights against the Company or any
subsidiary corporation or any director, officer, employee or agent thereof,
except for those rights as are herein provided.
6. NO ASSIGNMENT. Except as otherwise provided herein, the
Non-Statutory Stock Option and the rights and privileges conferred hereby may
not be transferred, assigned, pledged, hypothecated or encumbered, and shall not
be subject to execution, attachment, garnishment or other similar legal
processes. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Non-Statutory Stock Option, the
Non-Statutory Stock Option and the rights and privileges conferred hereunder
shall immediately become null and void. This option may be exercised during the
lifetime of the Executive only by the Executive; provided, however, that if the
Executive is declared legally incompetent, the Executive's duly appointed legal
representative may exercise the Non-Statutory Stock Option granted hereunder in
the manner and to the extent that the Executive is entitled to exercise the
option hereunder.
7. INCORPORATION OF THE PLAN. This Agreement incorporates the terms of
the Plan, and any modifications or amendments thereto. The Employee acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof that are not inconsistent with the terms of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the law of North
Carolina, without reference to the principles of conflicts of law thereof.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Grover C. Wrenn
------------------------------------
Executive
- 3 -
<PAGE> 1
EXHIBIT 10.83d
SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT
THIS SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT ("Agreement")
entered into as of the 26th day of September, 1996 by and between Pharmaceutical
Product Development, Inc., a North Carolina corporation (the "Company") and
Grover C. Wrenn (the "Executive").
WITNESSETH:
WHEREAS, the Company has agreed, pursuant to the Agreement and Plan of
Reorganization by and among the Company, Wilmington Merger Corp., a North
Carolina corporation and wholly-owned subsidiary of the Company, and Applied
Bioscience International Inc., a Delaware corporation ("APBI") (the "Merger
Agreement"), to assume certain of the non-statutory stock options (the
"Options") granted to the Executive in connection with the Separation Agreement
dated August 25, 1995, entered into by and between the Executive and APBI (the
"Separation Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Executive
is entitled to receive substitute options denominated in shares of common stock
of the Company, in substitution for and cancellation of the Options, provided
that the substitute options shall be subject to the terms and conditions of this
agreement and the Pharmaceutical Product Development, Inc. Equity Compensation
Plan (the "Plan") except that the number of shares of the Company's common stock
and the exercise price of the option are to be adjusted in the manner set forth
in the Merger Agreement and the substitute options are to have substantially the
same restrictions, terms and conditions as the options for which they were
substituted.
NOW, THEREFORE, intending to be legally bound hereby, the Company and
the Executive do hereby covenant and agree as follows:
1. SUBSTITUTE OPTION. Pursuant to the terms of the Merger Agreement,
the Company does hereby issue to the Executive in substitution for the option
granted to the Executive on September 19, 1995, by APBI to replace the original
option granted to the Executive on June 25, 1993, the right and option to
purchase, under the terms and conditions hereinafter set forth, in whole or in
part, 5,260 shares of common stock of the Company, par value $.10 per share,
which right and option shall not constitute an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, (the
"Non-Statutory Stock Option"). The price at which the shares shall be purchased
shall be $13.88, which price is the adjusted exercise price of the Non-Statutory
Stock Option as determined under the Merger Agreement.
2. TERMS. The Non-Statutory Stock Option herein granted is fully vested
and shall expire at 12:00 midnight on the earlier of (a) February 11, 2001, or
(b) the day immediately following any period of twenty (20) consecutive trading
days in which the last sale for shares of the Company's Common Stock (as
adjusted for stock splits, dividends, and similar events) for each of such
trading days equaled or exceeded $49.33 per share as quoted on the NASDAQ
National Market System.
<PAGE> 2
3. EXERCISE. The Executive may exercise the Non-Statutory Stock Option
granted hereunder by giving written notice to the Compensation Committee of the
Company ("the Committee") at 3151 S. 17th Street Extension, Wilmington, North
Carolina 28412. Such notice, a form of which is attached hereto as Exhibit A and
incorporated by reference, shall state the number of full shares (no fractional
shares may be purchased) to which the election applies. Such notice shall be
accompanied by payment in an amount sufficient to purchase the number of shares
set forth in the notice at the per share price established by Section 1 hereof.
Payment shall be made in cash, or the Committee in its discretion may allow the
Executive to use shares of the Company's Common Stock having a fair market value
equal to the purchase price (as determined by the Committee), or the Committee
may allow the use of a combination of cash and such shares.
4. DEATH. In the event of death of the Executive, the Non-Statutory
Stock Option shall be exercisable by the person or persons who acquired the
option by bequest or inheritance or by reason of the death of the Executive, or
by the executor or administrator of the estate of the deceased Executive at any
time before the expiration date of the Non-Statutory Stock Option.
5. NO IMPLIED RIGHTS. Nothing contained in this Agreement, nor the
granting of any options hereunder, shall be construed as giving the Executive or
any other person any legal or equitable rights against the Company or any
subsidiary corporation or any director, officer, employee or agent thereof,
except for those rights as are herein provided.
6. NO ASSIGNMENT. Except as otherwise provided herein, the
Non-Statutory Stock Option and the rights and privileges conferred hereby may
not be transferred, assigned, pledged, hypothecated or encumbered, and shall not
be subject to execution, attachment, garnishment or other similar legal
processes. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Non-Statutory Stock Option, the
Non-Statutory Stock Option and the rights and privileges conferred hereunder
shall immediately become null and void. This option may be exercised during the
lifetime of the Executive only by the Executive; provided, however, that if the
Executive is declared legally incompetent, the Executive's duly appointed legal
representative may exercise the Non-Statutory Stock Option granted hereunder in
the manner and to the extent that the Executive is entitled to exercise the
option hereunder.
7. INCORPORATION OF THE PLAN. This Agreement incorporates the terms of
the Plan, and any modifications or amendments thereto. The Employee acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof that are not inconsistent with the terms of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the law of North
Carolina, without reference to the principles of conflicts of law thereof.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Grover C. Wrenn
------------------------------------
Executive
- 3 -
<PAGE> 1
EXHIBIT 10.83e
SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT
THIS SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT ("Agreement")
entered into as of the 26th day of September, 1996 by and between Pharmaceutical
Product Development, Inc., a North Carolina corporation (the "Company") and
Grover C. Wrenn (the "Executive").
WITNESSETH:
WHEREAS, the Company has agreed, pursuant to the Agreement and Plan of
Reorganization by and among the Company, Wilmington Merger Corp., a North
Carolina corporation and wholly-owned subsidiary of the Company, and Applied
Bioscience International Inc., a Delaware corporation ("APBI") (the "Merger
Agreement"), to assume certain of the non-statutory stock options (the
"Options") granted to the Executive in connection with the Separation Agreement
dated August 25, 1995, entered into by and between the Executive and APBI (the
"Separation Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Executive
is entitled to receive substitute options denominated in shares of common stock
of the Company, in substitution for and cancellation of the Options, provided
that the substitute options shall be subject to the terms and conditions of this
agreement and the Pharmaceutical Product Development, Inc. Equity Compensation
Plan (the "Plan") except that the number of shares of the Company's common stock
and the exercise price of the option are to be adjusted in the manner set forth
in the Merger Agreement and the substitute options are to have substantially the
same restrictions, terms and conditions as the options for which they were
substituted,
NOW, THEREFORE, intending to be legally bound hereby, the Company and
the Executive do hereby covenant and agree as follows:
1. SUBSTITUTE OPTION. Pursuant to the terms of the Merger Agreement,
the Company does hereby issue to the Executive in substitution for the option
granted to the Executive on September 19, 1995, by APBI to replace the original
option granted to the Executive on June 25, 1993, the right and option to
purchase, under the terms and conditions hereinafter set forth, in whole or in
part, 15,820 shares of common stock of the Company, par value $.10 per share,
which right and option shall not constitute an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, (the
"Non-Statutory Stock Option"). The price at which the shares shall be purchased
shall be $13.88, which price is the adjusted exercise price of the Non-Statutory
Stock Option as determined under the Merger Agreement.
2. TERMS. The Non-Statutory Stock Option herein granted is fully vested
and shall expire at 12:00 midnight on the earlier of (a) February 11, 2001, or
(b) the day immediately following any period of twenty (20) consecutive trading
days in which the last sale for shares of the Company's Common Stock (as
adjusted for stock splits, dividends, and similar events) for each of such
trading days equaled or exceeded $49.33 per share as quoted on the NASDAQ
National Market System.
<PAGE> 2
3. EXERCISE. The Executive may exercise the Non-Statutory Stock Option
granted hereunder by giving written notice to the Compensation Committee of the
Company ("the Committee") at 3151 S. 17th Street Extension, Wilmington, North
Carolina 28412. Such notice, a form of which is attached hereto as Exhibit A and
incorporated by reference, shall state the number of full shares (no fractional
shares may be purchased) to which the election applies. Such notice shall be
accompanied by payment in an amount sufficient to purchase the number of shares
set forth in the notice at the per share price established by Section 1 hereof.
Payment shall be made in cash, or the Committee in its discretion may allow the
Executive to use shares of the Company's Common Stock having a fair market value
equal to the purchase price (as determined by the Committee), or the Committee
may allow the use of a combination of cash and such shares.
4. DEATH. In the event of death of the Executive, the Non-Statutory
Stock Option shall be exercisable by the person or persons who acquired the
option by bequest or inheritance or by reason of the death of the Executive, or
by the executor or administrator of the estate of the deceased Executive at any
time before the expiration date of the Non-Statutory Stock Option.
5. NO IMPLIED RIGHTS. Nothing contained in this Agreement, nor the
granting of any options hereunder, shall be construed as giving the Executive or
any other person any legal or equitable rights against the Company or any
subsidiary corporation or any director, officer, employee or agent thereof,
except for those rights as are herein provided.
6. NO ASSIGNMENT. Except as otherwise provided herein, the
Non-Statutory Stock Option and the rights and privileges conferred hereby may
not be transferred, assigned, pledged, hypothecated or encumbered, and shall not
be subject to execution, attachment, garnishment or other similar legal
processes. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Non-Statutory Stock Option, the
Non-Statutory Stock Option and the rights and privileges conferred hereunder
shall immediately become null and void. This option may be exercised during the
lifetime of the Executive only by the Executive; provided, however, that if the
Executive is declared legally incompetent, the Executive's duly appointed legal
representative may exercise the Non-Statutory Stock Option granted hereunder in
the manner and to the extent that the Executive is entitled to exercise the
option hereunder.
7. INCORPORATION OF THE PLAN. This Agreement incorporates the terms of
the Plan, and any modifications or amendments thereto. The Employee acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms and
provisions thereof that are not inconsistent with the terms of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the law of North
Carolina, without reference to the principles of conflicts of law thereof.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Grover C. Wrenn
------------------------------------
Executive
- 3 -
<PAGE> 1
EXHIBIT 10.83f
SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT
THIS SUBSTITUTE NON-STATUTORY STOCK OPTION AGREEMENT ("Agreement")
entered into as of the 26th day of September, 1996 by and between Pharmaceutical
Product Development, Inc., a North Carolina corporation (the "Company") and
Grover C. Wrenn (the "Executive").
WITNESSETH:
WHEREAS, the Company has agreed, pursuant to the Agreement and Plan of
Reorganization by and among the Company, Wilmington Merger Corp., a North
Carolina corporation and wholly-owned subsidiary of the Company, and Applied
Bioscience International Inc., a Delaware corporation ("APBI") (the "Merger
Agreement"), to assume certain of the non-statutory stock options (the
"Options") granted to the Executive in connection with the Separation Agreement
dated August 25, 1995, entered into by and between the Executive and APBI (the
"Separation Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Executive
is entitled to receive substitute options denominated in shares of common stock
of the Company, in substitution for and cancellation of the Options, provided
that the substitute options shall be subject to the terms and conditions of this
agreement and the Pharmaceutical Product Development, Inc. Equity Compensation
Plan (the "Plan") except that the number of shares of the Company's common stock
and the exercise price of the option are to be adjusted in the manner set forth
in the Merger Agreement and the substitute options are to have substantially the
same restrictions, terms and conditions as the options for which they were
substituted.
NOW, THEREFORE, intending to be legally bound hereby, the Company and
the Executive do hereby covenant and agree as follows:
1. SUBSTITUTE OPTION. Pursuant to the terms of the Merger Agreement,
the Company does hereby issue to the Executive in substitution for the option
granted to the Executive on September 19, 1995, by APBI to replace the original
option granted to the Executive on September 13, 1994, the right and option to
purchase, under the terms and conditions hereinafter set forth, in whole or in
part, 20,270 shares of common stock of the Company, par value $.10 per share,
which right and option shall not constitute an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, (the
"Non-Statutory Stock Option"). The price at which the shares shall be purchased
shall be $14.50, which price is the adjusted exercise price of the Non-Statutory
Stock Option as determined under the Merger Agreement.
2. TERMS. The Non-Statutory Stock Option herein granted shall expire at
12:00 midnight on the earlier of (a) February 11, 2001, or (b) the day
immediately following any period of twenty (20) consecutive trading days in
which the last sale for shares of the Company's
<PAGE> 2
Common Stock (as adjusted for stock splits, dividends, and similar events) for
each of such trading days equaled or exceeded $49.33 per share as quoted on the
NASDAQ National Market System. The Executive may at any time exercise this
option to acquire 13,513 shares. Thereafter, the Executive may exercise this
option in cumulative annual installments of portions of the shares covered by
the option, as follows:
Date Number of Shares
on or after September 13, 1997 6,757
3. EXERCISE. The Executive may exercise the Non-Statutory Stock Option
granted hereunder by giving written notice to the Compensation Committee of the
Company ("the Committee") at 3151 S. 17th Street Extension, Wilmington,
North Carolina 28412. Such notice, a form of which is attached hereto as Exhibit
A and incorporated by reference, shall state the number of full shares (no
fractional shares may be purchased) to which the election applies. Such notice
shall be accompanied by payment in an amount sufficient to purchase the number
of shares set forth in the notice at the per share price established by Section
1 hereof. Payment shall be made in cash, or the Committee in its discretion may
allow the Executive to use shares of the Company's Common Stock having a fair
market value equal to the purchase price (as determined by the Committee), or
the Committee may allow the use of a combination of cash and such shares.
4. DEATH. In the event of death of the Executive, the Non-Statutory
Stock Option shall be exercisable by the person or persons who acquired the
option by bequest or inheritance or by reason of the death of the Executive, or
by the executor or administrator of the estate of the deceased Executive at any
time before the expiration date of the Non-Statutory Stock Option.
5. NO IMPLIED RIGHTS. Nothing contained in this Agreement, nor the
granting of any options hereunder, shall be construed as giving the Executive or
any other person any legal or equitable rights against the Company or any
subsidiary corporation or any director, officer, employee or agent thereof,
except for those rights as are herein provided.
6. NO ASSIGNMENT. Except as otherwise provided herein, the
Non-Statutory Stock Option and the rights and privileges conferred hereby may
not be transferred, assigned, pledged, hypothecated or encumbered, and shall not
be subject to execution, attachment, garnishment or other similar legal
processes. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise encumber or dispose of the Non-Statutory Stock Option, the
Non-Statutory Stock Option and the rights and privileges conferred hereunder
shall immediately become null and void. This option may be exercised during the
lifetime of the Executive only by the Executive; provided, however, that if the
Executive is declared legally incompetent, the Executive's duly appointed legal
representative may exercise the Non-Statutory Stock Option granted hereunder in
the manner and to the extent that the Executive is entitled to exercise the
option hereunder.
7. INCORPORATION OF THE PLAN. This Agreement incorporates the terms of
the Plan, and any modifications or amendments thereto. The Employee acknowledges
receipt of a copy of
<PAGE> 3
the Plan and agrees to be bound by all the terms and provisions thereof that are
not inconsistent with the terms of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the law of North
Carolina, without reference to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------------
Its Chief Executive Officer
--------------------------------
/s/ Grover C. Wrenn
------------------------------------
Executive
<PAGE> 1
EXHIBIT 21
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., AND SUBSIDIARIES
SUBSIDIARIES
The subsidiaries of Pharmaceutical Product Development, Inc., as of February 28,
1997, are as follows:
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
or
Name of Subsidiary Organized in
- ------------------------------------------------------------------------ ------------------------------
<S> <C> <C>
1. Applied Bioscience International Inc. Delaware
2. PPD Pharmaco, Inc. (formerly Pharmaco International Inc.) Texas
3. Pharmaco International Holdings Inc. Delaware
4. Pharmaco Investments, Inc. Delaware
5. PPD Pharmaco International SNC (formerly Pharmaco LSR S.A.) France
6. Pharma Contracts Scandinavia AB (formerly PLSR Scandinavia AB) Sweden
7. Pharmaco Research S.L. (formerly Pharmaco LSR S.L.) Spain
8. PPD Do Brazil-Suporte Brazil
9. Q & Q Brazil
10. Pharmaco International Holdings GmbH (formerly PLSR
Beteiligungsverwaltungs GmbH) Germany
11. Pharmaco GmbH (formerly Pharmaco LSR GmbH) Germany
12. Pharmaco International Sp. zo.o (formerly PLSR Sp. zo.o.) Poland
13. PI Praha, s.r.o.(formerly PLSR Praha, s.r.o.) Czech Republic
14. Trilife GmbH & Co. KG Germany
15. Safe-Trade 41 (Pty) Ltd. South Africa
16. APBI UK Holdings Ltd. United Kingdom
17. Pharmaco International Ltd. (formerly Pharmaco UK Ltd.) United Kingdom
18. Leicester Clinical Research Centre, Ltd. United Kingdom
19. Environmental Assessment Group, Ltd. United Kingdom
20. ENVIRON International Ltd. United Kingdom
21. Gabbay Group Ltd. United Kingdom
22. Gabbay Assoc. Ltd. United Kingdom
23. Gabbay Ltd. United Kingdom
24. Data Analysis & Research (DAR) Ltd. United Kingdom
25. APBI Investor Relations, Inc. New Jersey
26. Clinix International Inc. Delaware
27. APBI Finance Corporation Delaware
28. APBI Environmental Sciences Group, Inc. Virginia
29. ENVIRON International Investments, Inc. Delaware
30. Paragon Global Services, S.A. Luxembourg
31. PPD Spain, S.L. Spain
32. Medisys, S.L. Spain
33. Cambridge Applied Nutrition Toxicology and Bioscience Limited United Kingdom
34. Clinical Technology Centre (International) Limited United Kingdom
36. Technical Assessment Systems, Inc. Maryland
</TABLE>
Subsidiaries 1 and 31 are wholly owned subsidiaries of Pharmaceutical Product
Development, Inc.
Subsidiaries 2, 16, 25, 26, 27 and 28 are wholly owned subsidiaries of
Subsidiary 1.
Subsidiaries 3 and 4 are wholly owned subsidiaries of Subsidiary 2.
Subsidiary 5 is owned 99% by Subsidiary 3 and 1% by Subsidiary 25.
Subsidiaries 6, 7, 8, 10 and 15 are wholly owned subsidiaries of Subsidiary 3.
Subsidiary 9 is a wholly owned subsidiary of Subsidiary 8.
Subsidiaries 11, 12 and 13 are wholly owned subsidiaries of Subsidiary 10.
Subsidiary 14 is owned 95% by Subsidiary 10 and 5% by Subsidiary 11.
Subsidiaries 17, 18, 19, 20, 21 and 24 are wholly owned subsidiaries of
Subsidiary 16.
<PAGE> 2
Subsidiaries 22 and 23 are wholly owned subsidiaries of Subsidiary 21.
Subsidiaries 29, 30 and 36 are wholly owned subsidiaries of Subsidiary 28.
Subsidiary 32 is a wholly owned subsidiary of Subsidiary 31.
Subsidiaries 33, 34 and 35 are wholly owned subsidiaries of Subsidiary 17.
Subsidiary 26 does business under the trade name the Chicago Center for Clinical
Research.
Subsidiary 28 does business under the trade name ENVIRON.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Pharmaceutical Product Development, Inc. on Form S-8 (File No. 333-20925) of our
report dated February 11, 1997, on our audit of the financial statements of
Pharmaceutical Product Development, Inc. as of December 31, 1996 and for the
year then ended, which report is included in this Annual Report on Form 10-K.
/s/COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
March 25, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 22, 1996, included in this Form 10K, into the Company's
previously filed Registration Statement on Form S-8, File No. 333-20925.
/s/ARTHUR ANDERSEN LLP
Washington, DC
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Pharmaceutical Product Development Inc. Consolidated Balance Sheet and Statement
of Operations included within this Form 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,838
<SECURITIES> 14,210
<RECEIVABLES> 77,748
<ALLOWANCES> 1,511
<INVENTORY> 0
<CURRENT-ASSETS> 128,272
<PP&E> 69,739
<DEPRECIATION> 38,260
<TOTAL-ASSETS> 181,457
<CURRENT-LIABILITIES> 61,669
<BONDS> 0
0
0
<COMMON> 2,163
<OTHER-SE> 113,143
<TOTAL-LIABILITY-AND-EQUITY> 181,457
<SALES> 0
<TOTAL-REVENUES> 197,796
<CGS> 0
<TOTAL-COSTS> 110,852
<OTHER-EXPENSES> 88,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> 627
<INCOME-TAX> 4,134
<INCOME-CONTINUING> (3,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,507)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
<PAGE> 1
EXHIBIT 99
Report of Independent Public Accountants
To Applied Bioscience International Inc. and Subsidiaries:
We have audited the consolidated balance sheet of Applied Bioscience
International Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1995
prior to the restatement (and, therefore, are not presented herein) for the
merger accounted for as a pooling of interests transaction as described in Note
2 to the restated financial statements. These consolidated financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Applied
Bioscience International Inc. and subsidiaries as of December 31, 1995 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ARTHUR ANDERSEN LLP
Washington, DC
February 22, 1996
