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, 1997
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 incorporation (IRS Employer Identification No.)
or organization)
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. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $370,122,685 as of February 27, 1998, 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 23,024,417 as of February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive Proxy Statement for its 1998 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 development and consulting services in
the life, environmental and discovery sciences. The Company's life sciences
subsidiaries include PPD Pharmaco, Inc., Belmont Research, Inc. and Intek Labs,
Inc. The Company believes that PPD Pharmaco is the fourth largest contract
research organization ("CRO") in the world, 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 also
provides assessment and management of chemical and environmental health risk.
PPD Discovery, Inc., the Company's discovery sciences subsidiary, focuses on the
discovery segment of the research and development outsourcing market.
LIFE SCIENCES GROUP
The Company's Life Sciences Group provides services through (i) PPD
Pharmaco, Inc. and its wholly-owned European, South American, South African,
Australian and Canadian subsidiaries (collectively "PPD Pharmaco"), (ii) Belmont
Research, Inc. ("Belmont"), and (iii) Intek Labs, Inc. ("Intek").
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,
patient recruitment, 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.
BELMONT was acquired by the Company in March 1997. Belmont provides
software development and system integration services to the pharmaceutical
industry. The company's clients include international and domestic
pharmaceutical and biotechnology companies, scientific software vendors and
government agencies including the FDA. Belmont also develops specialized
software products to support different aspects of the pharmaceutical research
process, including drug discovery, clinical trials and regulatory review.
Current Belmont software products include RESOLVE TM, which manages data queries
to investigator sites, and CROSSGRAPHS (R) which is used for exploration and
presentation of research data.
INTEK was acquired in November 1997. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification services
through its current Good Laboratory Practice ("cGLP") compliant reference
laboratory. Intek furnishes pharmacogenetic services for clinical trials. Intek
routinely reports pharmacogenetic profiles within 48 hours enabling genotyping
to be performed on clinical trial candidates at enrollment. Intek also provides
genotyping and phenotyping for difficult cellular and tissue samples such as
liver, hepatocytes and S9 liver fractions. Additional services include IN VITRO
studies to correlate therapeutic response with polymorphisms early in drug
development, and large-scale genomic DNA purification and archiving services to
prepare clinical trial samples for DNA banking and pharmacogenomic research.
During 1997, the Life Sciences Group also included Clinix
International, Inc., which in August 1995 acquired the business and
substantially all of the assets of Chicago Center for Clinical Research
("CCCR"), a nationally recognized organization which conducts clinical trials in
the pharmaceutical, food and nutrition industries. The Company sold
substantially all of the assets of CCCR in February 1998.
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ENVIRONMENTAL SCIENCES GROUP
ENVIRON, the Company's Environmental Sciences Group, provides
environmental services through APBI Environmental Sciences Group, Inc.,
operating under the trade name ENVIRON. ENVIRON provides a broad range of
scientific, technical and strategic management consulting services that address
a wide variety of public health and environmental issues related to the presence
of chemicals in foods, drugs, medical devices, consumer products, the workplace,
and the environment. 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.
In 1997, the Company expanded its Environmental Sciences Group through
the acquisition of Technical Assessment Systems, Inc. ("TAS"). ENVIRON expanded
its geographic reach through a new presence in the Midwest United States and a
strategic alliance with Gerling Consulting Group in Cologne, Germany.
Geographical expansion is one of ENVIRON's strategic objectives. The firm's
opportunity to service existing clients more efficiently and to penetrate local
markets is enhanced by offices in critical regions of the U.S. and other parts
of the world.
DISCOVERY SCIENCES GROUP
PPD DISCOVERY, INC. ("PPD DISCOVERY") was established in June 1997. The
Company acquired SARCO, Inc. ("SARCO"), a combinational chemistry company. The
Company also acquired the GSX System, a functional genomics platform technology.
The acquisitions form the basis of the new wholly-owned subsidiary focused on
the discovery research segment of the research and development outsourcing
market.
Industry Overview
LIFE SCIENCES GROUP
The CRO industry provides independent product development services to
the pharmaceutical and biotechnology industries and derive substantially all of
their revenue from the research and development expenditures of these 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, 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 United States Food and Drug Administration ("FDA") 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-service 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.
Historically, pharmaceutical companies produced much of the software
used in the drug discovery, clinical development, and regulatory compliance
processes through use of internal programming resources. Now, these companies
are also seeking external sources, provided by companies including our Belmont
subsidiary, to meet these automation needs both through custom application
development and through proprietary packaged software. While many companies have
the computer expertise to provide these products and services, detailed
knowledge of the pharmaceutical industry drug discovery and development process
forms a barrier to entry.
ENVIRONMENTAL SCIENCES GROUP
The environmental industry historically has grown from assisting
private sector clients in responding to the regulatory systems that have been
put into place at both the federal and state levels. In addition, litigation
support on 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.
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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. 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.
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 TAS will allow it to better pursue these
opportunities.
DISCOVERY SCIENCES GROUP
Drugs are chemical compounds that interact with biological targets in
the body. Discovering and developing new drugs is an extremely expensive and
time-consuming process. Recent figures from the Pharmaceutical Research and
Manufacturers of America association (PhRMA), a pharmaceutical industry trade
group, show that research-based pharmaceutical companies invested approximately
$18.9 billion in R&D activities in 1997.
On average, these companies allocate over 40 percent of their Research
& Development budget to pre-clinical R&D functions. PhRMA estimates that the
average cost of bringing a drug to market exceeds $359 million and takes
approximately 10-15 years. Pre-clinical R&D functions include biological target
identification and validation, screening of chemical compounds to identify lead
compounds, chemical optimization of those leads, toxicology and safety testing
in animals, and formulation and stability testing for the new experimental drug.
SARCO is a chemical technology company that provides chemical compounds
to the pharmaceutical, biotechnology, agrochemical, and animal health
industries. SARCO's core expertise includes the rapid synthesis of large numbers
of chemical compounds for use in the pre-clinical drug discovery and development
process as well as the chemical optimization of those compounds found to have
beneficial biological activity.
GSX identifies targets for drug discovery by the selective inhibition
of genes responsible for key steps in a disease process. The system is based on
the finding that a gene fragment, when introduced into cells, sometimes
specifically inhibits the function of the whole gene from which the fragment was
obtained. Effective inhibitory fragments are obtained by breaking the DNA
containing the genes of interest into many different random pieces, inserting
these fragments into a population of tester cells and identifying the rare
individual cells that acquire a selected new property as a consequence of the
inhibitory action. Examples of desirable cellular properties that can be
selected include increased resistance to a virus or increased sensitivity to a
drug. The "winning" DNA fragments are then recovered from the selected cells and
analyzed to determine what genes, and thereby targets, they represent.
PPD Discovery markets its products and services to those research-based
companies looking for outsource research support. The Company believes that this
outsource trend will continue over the next decade.
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
provides IND submission preparation and compilation but 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
enters the clinical stage. 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 as well as
patients with the targeted disease or condition. The Company does provide full
development services for the clinical stage.
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.
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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:
(bullet) 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.
(bullet) 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.
(bullet) 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.
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
eighteen months. Drugs that successfully complete this review may be marketed in
the United States, subject to any 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 chemicals
as well as the impact of chemicals 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.
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Trends Affecting the CRO Industry
In 1997, worldwide expenditures on research and development by
pharmaceutical and biotechnology companies are estimated to have been $40
billion, of which the Company estimates $15 to $20 billion was spent on drug
development activities of the type offered by the CRO industry. The Company
believes that approximately $3.5 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 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 therefore 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
Applied Bioscience International Inc. ("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
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pharmaceutical and biotechnology companies. As pharmaceutical and biotechnology
companies increasingly outsource development, they may increasingly 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 these trends 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 to maximize its clients' return on massive R&D
investments. 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 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 to enhance
discovery and development services, (vi) expanding geographically and (vii)
pursuing opportunities provided by technological advances.
The Company differentiates itself from competitors by providing a
continuum of services, from discovery through aftermarket support. The Company
intends to be a leader in integrating pharmacogenomics in drug development.
MANAGERIAL 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 bringing drugs to market both nationally and
internationally. PPD Pharmaco concentrates on its core operational strengths in
all phases of clinical studies and other critical path studies such as treatment
INDs. 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 various technological advances, 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,
and report writing and 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,
cardiopulmonary diseases, central nervous system, oncology, and immunology.
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, experience, attitude 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 programs. As new
technologies develop, employees are equipped with and trained to make use of
such technological innovations.
GLOBAL STRATEGIC MARKETING INITIATIVES
PPD Pharmaco focuses its integrated 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 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.
Supplemented by centralized PPD corporate level marketing efforts,
ENVIRON conducts separate marketing activities at each of its office locations.
ENVIRON 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.
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Discovery services are marketed through centralized PPD corporate
marketing efforts to supplement localized marketing by scientists to scientists,
with support from appropriate outside consultants. The functional genomics
technology (GSX) is marketed primarily to large pharmaceutical companies, while
combinatorial chemistry is directed more toward biotechnology and virtual
companies.
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 communications efforts are advertising
in trade journals, exhibits and participation at scientific conferences,
speakers bureaus, direct mail, sales collateral and media relations.
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
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.
GEOGRAPHICAL EXPANSION
PPD Pharmaco currently has operations in the Americas (United States,
Canada, South America), Europe, including eastern Europe, South Africa and the
Pacific Rim. 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.
ENVIRON's 1997 acquisition of TAS in the United Kingdom and alliance
with Gerling Consulting Group in Cologne, Germany expanded their operations
outside the U.S. 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
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 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 advanced technology for expediting the drug development process.
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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. Belmont
provides innovative software development and system integration services and
creates a data link between discovery and development. Intek provides molecular
genotyping, phenotyping and large-scale genomic DNA purification services
through a cGLP compliment reference laboratory for discovery and development
services. During 1997, $187.2 million, or 79.6%, 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 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. The
Company believes that PPD Pharmaco is the industry's 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 Company'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; Research Triangle
Park, North Carolina and Leicester, England, which, to date have provided a
substantial pool of potential subjects for research studies. However, the
Company's business could be adversely affected if the Company were unable to
attract suitable and willing volunteers.
The Company also provides bioavailability and bioequivalence testing
services. This 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 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 Middleton, Wisconsin. PPD
Pharmaco's laboratories analyze biological fluid samples from clinical studies,
such as those conducted by PPD Pharmaco's Phase I units, for drug and metabolite
content and concentration. PPD Pharmaco currently has approximately 318
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, as well as
Phase I clinical testing.
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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, pharmacogenetics, and
infomatics 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:
<TABLE>
<CAPTION>
<S> <C>
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, obsessive-compulsive disorders,
disease panic disorders
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 and lung cancer
Pulmonary/Allergy Asthma, allergic rhinitis, community acquired pneumonia, Acute Respiratory
Distress Syndrome
Rheumatology Rheumatoid and osteoarthritis
Virology AIDS, herpes simplex, chronic hepatitis B, chronic hepatitis C
Women's health Hormone replacement, oral contraception
</TABLE>
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 compliance with government
regulations. PPD Pharmaco has adopted global standard operating procedures
(SOPs) which are intended to satisfy regulatory requirements and serve as a tool
for controlling and enhancing the quality of its clinical trials. All PPD
Pharmaco SOPs are in compliance with Good Clinical Practice ("GCP") requirements
and the International Conference on Harmonization ("ICH") standards. The FDA is
expected to adopt the ICH's guidelines, and, the European Community has agreed
to conduct all studies in accordance with the recommendations from ICH, which
sets global clinical study standards based on GCP. 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 study protocols
and CRFs. A study protocol defines the medical issues to be examined in
evaluating the safety and efficacy of a drug, the number of patients required to
produce statistically valid results, the clinical tests to be performed, the
time period over which the study will be conducted, the frequency and dosage of
drug administration, and the exact patient criteria. 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 process 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 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 data are recorded in a form that is 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 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 recruits investigators who
contract directly with either PPD Pharmaco 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 over 20,000 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 many instances, a project's
timely completion is 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 250 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.
The Company offers data management and biostatistical analysis services
are both 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 sample size parameters for patient
enrollment, development of data analysis plans and randomization schemes. During
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 defend
biostatistical analyses. PPD Pharmaco has expertise in electronically capturing
and integrating geographically diverse data. PPD Pharmaco uses SAS, Clintrace,
Oracle, BBN Clintrial and other third party software, as specified by clients,
combined with customized programs developed by PPD Pharmaco.
Drug development time can be 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
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the database so that there is a rapid progression to final tables, listing
preparation and 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 includes a
procedure to allow patients to receive a new drug not yet approved treatment 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. The treatment IND application process has
the advantage of getting a 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, 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 integrated with
PPD Pharmaco's other services to speed the process 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 trials conducted by the
client or another CRO.
HEALTHCARE ECONOMICS AND OUTCOMES RESEARCH
PPD Pharmaco offers a number of services in the healthcare economics
area 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, or ENVIRON, currently provides
health and environmental sciences and engineering consulting services. During
1997, the Environmental Sciences Group generated 20.3% 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 chemicals 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) life 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; ecotoxicology, ecology and natural resources.
Approximately half of ENVIRON's employees have advanced degrees (master's level
or above). Of those with advanced degrees, approximately one-third have attained
their Ph.D.
ENVIRON offers the following services:
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
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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 governmental 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. 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 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 involve
substantially all of its practice areas. Services provided 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 determining 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.
AIR QUALITY
ENVIRON offers a full spectrum of air quality services, such as: 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 government 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.
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DISCOVERY SCIENCES GROUP
PPD Discovery consists of SARCO, a combinatorial chemistry company, and
the GSX System, a functional genomics platform technology for target discovery.
GSX is a proprietary whole-cell-based system that facilitates the rapid
identification, validation and functional analysis of novel targets.
GSX identifies targets for drug discovery by the selective inhibition
of genes responsible for key steps in a disease process. The system is based on
the finding that a gene fragment, when introduced into cells, sometimes
specifically inhibits the function of the whole gene from which the fragment was
obtained. Effective inhibitory fragments are obtained by breaking the DNA
containing the genes of interest into many different random pieces, inserting
these fragments into a population of tester cells and identifying the rare
individual cells that acquire a selected new property as a consequence of the
inhibitory action. Examples of desirable cellular properties that can be
selected include increased resistance to a virus or increased sensitivity to a
drug. The "winning" DNA fragments are then recovered from the selected cells and
analyzed to determine what genes, and thereby targets, they represent.
Activities surrounding the GSX technology are conducted in Research
Triangle Park, North Carolina and Menlo Park, California.
SARCO is a chemical technology company that provides chemical compounds
to the pharmaceutical, biotechnology, agrochemical, and animal health
industries. SARCO's core expertise includes the rapid synthesis of large numbers
of novel molecules for use in the pre-clinical drug discovery and development
process as well as the chemical optimization of those compounds found to have
beneficial biological activity.
SARCO is located in the Park Research Center, a high-technology campus
in Research Triangle Park, North Carolina, USA. SARCO's research facility is
fully equipped to perform solid and solution-phase combinatorial chemistry,
custom monomer synthesis and solution-phase medicinal chemistry. SARCO maintains
full analytical and computational capabilities in support of its combinatorial
and medicinal chemistry activities.
Products include SARCO base libraries; chemical compounds designed for
high throughput biological screening, and SARCO Focus Libraries; custom designed
chemical libraries provided exclusively to a client. Services include research
collaborations and partnerships with research-based discovery companies. These
collaborations and partnerships are typically structured for fixed period of
time or around discrete client projects.
Clients and Marketing
The Company's Life Sciences Group provides services primarily to
pharmaceutical and biotechnology companies. For the year ended December 31,
1997, approximately 83% of the Company's Life Sciences Group's net revenue was
attributable to clinical services and 17.0% to laboratory services. For the year
ended December 31, 1997, net revenue of the Life Sciences Group was derived
approximately as follows:
Percentage of
Source Net Revenue
------ ------------
Pharmaceutical 77.9%
Biotechnology 11.1
Government 3.4
Other 7.6
The Company provided services in 1997 to 24 of the top 25
pharmaceutical companies in the world as ranked by 1996 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 1996 and 1997, no
single client contributed more than 10% of the Company's total net revenue. In
1997, the Company's ten largest clients accounted for approximately 36.6% of the
Company's total net revenue and approximately 28% of the Company's total 1997
net revenue was derived from clients located outside the U.S., in particular in
Europe and Japan.
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ENVIRON's clients come primarily 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 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
pre-established events or milestones, such as investigator recruitment, patient
enrollment or database delivery. For fixed-price contracts, PPD Pharmaco bears
the risk of cost overruns, but benefits if costs are lower than anticipated.
Under-pricing of such 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 single large contract or 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 $205.7 million in net revenue at December 31, 1997,
compared to $156.5 million in net revenue at December 31, 1996.
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, a
few 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 large competitors include
Clintrials Research Inc., Covance, 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, the CRO industry has few barriers to entry. Newer, smaller entities
may compete aggressively 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 factors, 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
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and client communication. Although there can be no assurance that it will
continue to do so, the Company believes that it competes favorably in these
areas.
Belmont's competitors for its packaged software include major vendors
of software used in pharmaceutical applications such as Domain Solutions,
Oracle, and SAS as well as a variety of smaller, specialized software companies.
Competitors for Belmont's application development services include major
consulting companies with pharmaceutical industry groups (e.g., Arthur Andersen,
EDS, Coopers and Lybrand) and smaller companies with a pharmaceutical industry
focus (e.g. DataCeutics, Netforce, ISCG).
ENVIRON has many competitors, ranging from small local firms to large
national firms and more recently, firms in Europe. 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 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. However,
increased competition could result in price and other forms of competition that
may adversely affect ENVIRON.
The outsource chemistry research industry consists of several dominate
providers and numerous smaller niche companies. SARCO faces significant
competition from these companies as well as competition from research teams
funded internally at the pharmaceutical and biotechnology companies. While the
trend to outsource research is increasing, the vast majority of research
spending by these companies is for their own internal research personnel.
SARCO competes principally on the basis of reputation, scientific and
technical expertise, experience and qualifications of professional staff,
quality of services, and ability to delivery quality products to the client's
specifications. As such, SARCO's ability to attract and retain qualified
technical personnel is a key component in its ability to successfully compete in
the outsource contract research market.
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 refuse, or 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 or where
the indemnifying party does not fulfill its indemnification obligations. Until
September 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.
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 yet 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 regulations governing the
15
<PAGE>
selection of qualified investigators, (ii) obtaining specific written
commitments from the investigators, (iii) verifying that informed consent is
obtained from patients, (iv) monitoring the validity and accuracy of data, (v)
verifying drug or device accountability, and (vi) instructing investigators to
maintain records and reports. For specified periods PPD Pharmaco must also
maintain reports for each study for inspection by the study sponsor and
governmental authorities during audits. Noncompliance with GCP can result in the
disqualification of data collected during the clinical trial.
PPD Pharmaco's Global Standard Operating Procedures (SOPs) are written
in accordance with the Code of Federal Regulations and in accordance with ICG
guidelines agreed upon by US, European and Japanese Governments. This enables
our work to be conducted locally, regionally and globally to meet standards
which exceed all current regulatory requirements.
PPD Pharmaco's business depends on the continued 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.
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 a governmental authority against 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
governmental 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 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
The Company holds certain trademarks through its Belmont subsidiary
including CLASSIFY TM, RESOLVE TM, CROSS GRAPHS (R), and TABLE TRANS TM. In
addition, the Company holds certain licensing privileges related to the GSX
technology.
PPD Pharmaco also has developed certain computer software and
technically derived procedures intended to maximize the quality and efficiency
of its services. In addition to its rights to certain intellectual property, the
Company believes that other factors such as the technical expertise, knowledge,
ability and experience of the Company's professionals provide significant
benefits to its clients.
Employees
At December 31, 1997, the Company had approximately 2,470 full-time
equivalent employees, of whom 1,900 were employed in the Life Sciences Group,
350 were employed in the Environmental Sciences Group, 30 were employed in the
Discovery Sciences Group and the remainder were in the Company's corporate
headquarters. Of the Company's employees, approximately 120 hold Ph.D., M.D.,
Pharm.D. or D.V.M. degrees and approximately 350 hold other masters or other
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 to date 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
Note 18 of Notes to Consolidated Financial Statements presents
information about the Company's operations by geographic area for each of fiscal
years 1997, 1996 and 1995.
16
<PAGE>
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. In July 1997, the Company entered into a new ten year
build to suit lease for approximately 100,000 square feet in Morrisville, North
Carolina which is scheduled for completion in the fall of 1998.
The Company owns and operates a 52-bed Phase I facility in Leicester,
England. The Company also owns a building in Kerswell, Scotland, which it
acquired when it purchased Data Acquisition and Research Limited in December
1996. All other facilities are leased. The Company's operations occupy
approximately 781,000 square feet of space worldwide, including over 78,000
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,
1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
LIFE SCIENCES GROUP
Corporate Office Europe
Wilmington, North Carolina Brussels, Belgium
The Americas Cambridge, England
Sao Paulo, Brazil Chelmsford, England
La Jolla, California Leicester, England
San Bruno, California Southampton, England
Mississauga, Canada Gentilly, France
Chicago, Illinois (2) Karlsruhe, Germany
Columbia, Maryland Nuremburg, Germany
Cambridge, Massachusetts Milan, Italy
Lawrenceville, New Jersey Kersewell, Scotland
Morrisville, North Carolina Barcelona, Spain
Research Triangle Park, North Carolina Madrid, Spain
Austin, Texas (1) Stockholm, Sweden
Richmond, Virginia Eastern Europe
Middleton, Wisconsin Prague, Czech Republic
Pacific Rim Warsaw, Poland
Melbourne, Australia Africa
Cape Town, South Africa
Johannesburg, South Africa
ENVIRONMENTAL SCIENCES GROUP
The Americas Europe
Emeryville, California Liverpool, England
Irvine, California London, England
Novato, California Malvern, England
Princeton, New Jersey Edinburgh, Scotland
Arlington, Virginia
Houston, Texas
DISCOVERY SCIENCES GROUP
The Americas
Menlo Park, California
Research Triangle Park, North Carolina
</TABLE>
- ------
(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) With the sale of CCCR in February 1998, the Company no longer operates in
Chicago.
17
<PAGE>
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
not yet 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, 1997.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
The executive officers of the Company as of December 31, 1997, were as
follows:
Name Age Position
- -------------------------------- ---- ---------------------------------------------------------
<S> <C> <C>
Fredric N. Eshelman, Pharm.D. 49 Vice Chairman and Chief Executive Officer
Thomas D'Alonzo 54 President and Chief Operating Officer
Joseph H. Highland 53 Chief Executive Officer, APBI Environmental Sciences
Group, Inc. (ENVIRON)
Rudy C. Howard 40 Chief Financial Officer, Vice President - Finance and
Treasurer
Fred B. Davenport, Jr. 46 General Counsel, Vice President - Legal and Secretary
</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's
predecessor in 1985. 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.
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.
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.
FRED B. DAVENPORT, JR. is General Counsel, Vice President - Legal 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>
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, as reported by the
National Association of Securities Dealers, Inc. These prices are based on
quotations between dealers, which do not reflect retail mark-up, markdown, or
commissions.
1997 1996
--------------------------------------------------------
High Low High Low
-------------------------------------------------------
Low
First Quarter(1) $ 30.00 $ 18.50 $ 37.25 $ 22.75
Second Quarter $ 25.125 $ 16.00 $ 47.25 $ 33.25
Third Quarter $ 24.00 $ 18.50 $ 34.50 $ 26.50
Fourth Quarter $ 22.625 $ 12.25 $ 27.50 $ 14.50
- -----------------------------
(1) From January 23, 1996, the effective date of PPD's initial public offering.
As of February 27, 1998, there were approximately 7,667 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 shareholders 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, 1997 have been derived from the 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, 1993 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, 1993 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, 1993 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, 1993
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>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1997 (3) 1996 (3) 1995 (3) 1994 1993
----------- ----------- ---------- ----------- --------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenue (7) $ 235,272 $ 197,796 $ 209,778 $ 192,105 $ 165,815
----------- ----------- ---------- ---------- -----------
Operating expenses 211,390 182,859 200,022 181,120 169,014
Loss on sale of business, special charges,
restructuring costs, merger costs, and acquired
in-process research and development costs 9,670 16,114 24,290 - 9,365
----------- ----------- ---------- ---------- -----------
221,060 198,973 224,312 181,120 178,379
----------- ----------- ---------- ---------- -----------
Income (loss) from operations 14,212 (1,177) (14,534) 10,985 (12,564)
Other income (expense), net 1,464 1,804 (2,616) (2,728) (1,183)
----------- ----------- ---------- ---------- -----------
Income (loss) from continuing operations
before provision for income taxes 15,676 627 (17,150) 8,257 (13,747)
----------- ---------- ----------
Provision for income taxes 6,074 4,134
----------- -----------
Net income (loss) (6) $ 9,602 $ (3,507)
=========== ============
Weighted average number of shares outstanding:
Basic 22,825 21,168
Dilutive effect of stock options 60 -
----------- -----------
Diluted 22,885 21,168
=========== ===========
Net income (loss) per share:
Basic $ 0.42 $ (0.17)
================ =======
Diluted $ 0.42 $ (0.17)
================ =======
Pro Forma Data (1):
Income (loss) from continuing operations
before provision for income taxes (17,150) 8,257 (13,747)
Pro forma income tax expense (benefit) (14,359) 3,371 (2,001)
----------- ---------- ------------
Pro forma net income (loss) from
continuing operations (4)(5) (2,791) 4,886 (11,746)
Discontinued operations (1,716) (12,873) (12,133)
Extraordinary loss from early
extinguishment of debt (897) - -
------------- ---------- -----------
Pro forma net loss $ (5,404) $ (7,987) $(23,879)
============= ============= ============
Pro forma basic and diluted weighted average number
of shares outstanding (2) 18,815 18,671 18,409
============ ========== ===========
Pro forma basic and diluted net income (loss) per share:
Continuing $ (0.15) $ 0.26 $ (0.64)
Discontinued (0.09) (0.69) (0.66)
Extraordinary (0.05) - -
------------ ----------- ---------
Net loss $ (0.29) $ (0.43) $ (1.30)
============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------
(in thousands)
Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 15,879 $ 21,838 $ 13,565 $ 9,804 $ 14,854
Marketable securities 7,994 14,210 242 203 -
Working capital 69,950 66,603 37,320 27,795 (565)
Total assets 197,047 181,457 142,661 202,773 195,492
Long-term debt 340 1,428 3,471 47,620 15,411
Long-term debt, including current portion 5,246 5,649 5,672 51,170 19,943
Shareholders' equity 127,605 115,306 77,300 74,198 79,065
</TABLE>
- -----------------------------------------------
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA, EXCLUDING TOXICOLOGY OPERATIONS (SOLD 11/95),
LOSS ON SALE OF BUSINESS, SPECIAL CHARGES, RESTRUCTURING CHARGES,
MERGER COSTS, ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS,
DISCONTINUED OPERATIONS AND EXTRAORDINARY LOSS.
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1997(2) 1996(2) 1995(1)(2) 1994(1) 1993(1)
---------- ----------- ----------------- ------- -----------
(in thousands)
Consolidated Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net revenue $ 235,272 $ 197,796 $ 171,332 $ 145,718 $ 122,813
Operating expenses 211,390 182,859 160,440 137,142 114,487
----------------------------------------------------------------------------
Income from operations 23,882 14,937 10,892 8,576 8,326
Other income (expense), net 1,464 1,804 (2,616) (2,728) (1,183)
-----------------------------------------------------------------------------
Income from continuing operations before
provision for income taxes 25,346 16,741 8,276 5,848 7,143
Pro forma income tax expense(1) 9,894 6,680 3,310 2,339 2,857
----------------------------------------------------------------------------
Pro forma net income $ 15,452 10,061 4,966 3,509 4,286
============================================================================
Pro forma weighted average number of
basic shares outstanding(2) 22,885 21,319 18,815 18,761 18,409
============================================================================
Pro forma net income per share $ 0.68 $ 0.47 $ 0.26 $ 0.19 $ 0.23
- -----------------------------------------------============================================================================
</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 reflects 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, 1993.
(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.
(3) The acquisitions of TAS and GSX System in 1997, Trilife, Medisys, Q&Q, DAR
and EAG in 1996, and Gabbay and CCCR in 1995 were accounted for as purchase
transactions. The acquisitions of Belmont, SARCO and Intek in 1997 were
accounted for as pooling transactions, however, no pro forma information is
presented because the results of operations prior to the date of the
acquisitions are not material to the Company.
(4) 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.
(5) 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.
(6) 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.
(7) Net of subcontractor costs.
21
<PAGE>
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 1997, the Company reported net income of $9.6 million, or $0.42
per share, compared to a net loss of $3.5 million, or $0.17 per share, during
1996. Excluding merger and acquisition related costs, the Company's net income
of $15.5 million, or $0.68 per share, was 53.6% higher than net income,
excluding merger and acquisition costs, last year of $10.1 million, or $0.47 per
share.
In 1997, the Company moved into a new line of business with the
acquisition of SARCO and the GSX System in June. These acquisitions form the
basis of the Company's Discovery Sciences Group which focuses on the discovery
segment of the research and development outsourcing market. The company acquired
SARCO in a transaction accounted for as a pooling-of-interests. The
consideration for SARCO consisted of 263,158 shares of the Company's common
stock. The Company also acquired the GSX System, a functional genomics platform
technology. The GSX System was purchased for approximately $8.7 million in cash.
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.
In March 1997, the Company acquired Belmont, a software systems
company, in a transaction accounted for as a pooling-of-interests. The
consideration for Belmont consisted of 502,384 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"), a
pharmacogenetics company, in a transaction accounted for as a
pooling-of-interests. The consideration for Intek consisted of 399,999 shares of
the Company's common stock.
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.
22
<PAGE>
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:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE FROM CONTINUING OPERATIONS
For the Year Ended December 31,
1997 1996 1995
----------------------- ---------------------- -------------
Amount % Amount % Amount %
------- ----- ------- ---- ------ ----
(dollars in thousands)
Net revenue (4):
<S> <C> <C> <C> <C> <C> <C>
Life sciences $ 187,201 79.6% $ 152,304 77.0% $ 160,495 76.5%
Environmental sciences 47,785 20.3 45,492 23.0 49,283 23.5
Discovery sciences 286 0.1 - - - -
---------- --------- ------- ------ ---------- -----
235,272 100.0 197,796 100.0 209,778 100.0
Direct costs:
Life sciences 94,909 79,108 90,315
Environmental sciences 33,431 31,744 32,442
Discovery sciences 1,859 - -
---------- ---------- ----------
130,199 55.3 110,852 56.0 122,757 58.5
Selling, general, and
administrative expenses 68,797 29.2 61,571 31.1 64,014 30.5
Depreciation and amortization 12,394 5.3 10,436 5.3 13,251 6.3
Loss on sale of business - - - - 19,308 9.2
Acquired in-process research
and development costs 9,112 3.9 - - - -
Merger costs and special charges 558 0.2 16,114 8.1 4,982 2.4
---------- --------- ---------- ---------- ---------- ------
Operating income (loss) (2)(3) 14,212 6.0 (1,177) (0.6) (14,534) (6.9)
---------- --------- ---------- ---------- ----------- -------
Net income (loss) $ 9,602 4.1% $ (3,507) (1.8)%
========== ========= =========== ==========
Pro forma loss from (1):
Continuing operations (2,791) (1.3)
Discontinued operations (1,716) (0.8)
Extraordinary loss (897) (0.4)
---------- -------
Pro forma net loss $ (5,404) (2.6)%
=========== ========
</TABLE>
<TABLE>
<CAPTION>
Percentage Change
For the Year Ended December 31,
--------------------------------------------------
1997 vs. 1996 1996 vs. 1995(5)
------------- ----------------
Net revenue (4):
<S> <C> <C>
Life sciences 22.9% (5.1)%
Environmental sciences 5.0 (7.7)
Discovery sciences(6) N/A N/A
Total net revenue 18.9 (5.7)
Direct costs:
Life sciences 20.0 (12.4)
Environmental sciences 5.3 (2.2)
Discovery sciences(6) N/A N/A
Selling, general and administrative expenses 11.7 (3.8)
Depreciation and amortization 18.8 (21.2)
</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 reflects 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, 1995.
(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 calculable or meaningful.
23
<PAGE>
Below is a comparison of 1997 and 1996 operating statements which
reflects only on-going operations and excludes 1997 merger and acquisition
related charges and 1996 merger costs.
STATEMENT OF OPERATIONS DATA
EXCLUDES MERGER COSTS AND ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
COSTS IN 1997 AND APBI MERGER COSTS IN 1996.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996 PERCENTAGE CHANGE
---- ---- ------------------
(dollars in thousands)
Net revenue:
<S> <C> <C> <C>
Life sciences $ 187,201 $ 152,304 22.9%
Environmental sciences 47,785 45,492 5.0
Discovery sciences 286 - N/A
---------- ---------
Total net revenue 235,272 197,796
Direct costs:
Life sciences $ 94,909 $ 79,108 20.0
Environmental sciences 33,431 31,744 5.3
Discovery sciences 1,859 - N/A
---------- ----------
Total direct costs 130,199 110,852
---------- ----------
Gross margin 105,073 86,944 20.9
Selling, general and administrative expenses 68,797 61,571 11.7
Depreciation and amortization 12,394 10,436 18.8
---------- ----------
Income from operations 23,882 14,937 59.9
Other income (expense), net 1,464 1,804 (18.9)
---------- ----------
Income before taxes 25,346 16,741 51.4
Income tax provision 9,894 6,680 48.1
---------- ----------
Net income $ 15,452 $ 10,061 53.6%
========== ========== =======
Net income per share:
Basic $ 0.68 $ 0.48
========== ==========
Diluted $ 0.68 $ 0.47
========== ==========
Weighted average number of common shares outstanding:
Basic 22,825 21,168
========== ==========
Diluted 22,885 21,319
========== ==========
</TABLE>
24
<PAGE>
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
Net revenue increased $37.5 million, or 19.0%, to $235.3 million in
1997 from $197.8 million. The Life Sciences Group's operations accounted for
79.6% of the Company's net revenue for 1997. The Life Sciences Group generated
net revenue of $187.2 million, up $34.9 million, or 22.9%, from last year. The
growth in the Life Sciences Group operations was primarily attributable to an
increase in the size, scope and number of contracts in the North America
clinical development and biostatistics business. The acquisitions of Belmont and
Intek, both completed in 1997, contributed net revenue of $5.7 million for the
year.
Net revenue from ENVIRON, the Company's Environmental Sciences Group,
representing 20.3% of the Company's net revenue for 1997, was $47.8 million,
compared with $45.4 million in 1996, an increase of 5.0%, or $2.4 million. The
increase in net revenue at ENVIRON was due principally to the 1997 acquisition
of TAS and EAG's increase in net revenue, which contributed net revenue of $6.3
million. The decrease in ENVIRON's core business resulted from the completion of
a significant contract in early 1997.
Total direct costs increased 17.4% to $130.2 million from $110.9
million last year and declined as a percentage of net revenue to 55.3% from
56.0% last year. The Life Sciences Group direct costs decreased as a percentage
of related net revenue to 50.7% from 51.9%. This decrease is principally due to
higher labor utilization and a focused effort to control costs across all
business segments. ENVIRON's direct costs as a percentage of related net revenue
increased slightly to 70.0% from 69.8% last year.
Selling, general and administrative ("SG&A") expenses increased 11.7%
to $68.8 million from $61.6 million in 1996. SG&A expenses from 1997
acquisitions comprise $2.8 million of the increase. The remaining increase of
$4.4 million is primarily attributable to the investment in the Company's
business development and marketing organization and in the area of information
technology. As a percentage of net revenue, SG&A expenses decreased to 29.2%
from 31.1% last year, primarily as a result of the increase in net revenue.
Total depreciation and amortization expense of $12.4 million was $2.0
million, or 18.8%, higher than last year. The increase was related to the
Company's growth as well as the ongoing capital investment in the Company's
business.
During 1997, the Company recorded one-time merger costs of $0.6 million
in connection with the acquisitions of Belmont, SARCO and Intek. These costs are
primarily current cash expenses, such as legal and accounting fees related to
pooling transactions. During 1996, the Company recorded one-time merger costs of
$16.1 million. 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.
The Company also recorded acquired in-process research and development
costs of $9.1 million in the second quarter of 1997. These costs were charged to
operations upon the acquisition of the GSX System. A valuation was performed by
an independent consultant to determine the fair value of the acquired in-process
research and development. The purchase price in excess of the net assets of the
GSX System was allocated to acquired in-process research and development costs
and was charged to operations upon the acquisition of the GSX System, as the
technology has no alternative future use and the technology has not yet reached
technological feasibility.
Operating income (loss) improved $15.4 million to an operating income
of $14.2 million for the year ended December 31, 1997, as compared to an
operating loss of $1.2 million for the year 1996. Excluding merger and
acquisition related costs, the Company's operating income of $23.9 million in
1997 was 59.9% higher than operating income (before the impact of merger and
acquisition related costs) of $14.9 million in 1996. As a percentage of net
revenue, the yearly operating income of 6.0% represents a dramatic improvement
from the operating loss of 0.6% of net revenue last year.
The net income of $9.6 million in 1997 represents an improvement of
$13.1 million over the $3.5 million net loss in 1996. 1997 net income per basic
and diluted share of $0.42 compares to net loss per basic and diluted share of
$0.17 in 1996. Excluding the impact of the merger costs and acquisition related
charges on both years, the Company's 1997 net income of $15.5 million is 53.6%
higher than 1996's net income of $10.1 million. This net income per diluted
share of $0.68 compares to $0.47 for 1996 computed on 1.6 million more shares
outstanding for 1997.
25
<PAGE>
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Net revenue in 1996 decreased $12.0 million, or 5.7%, to $197.8 million
in 1996 from $209.8 million in 1995. The Life Sciences Group's operations
accounted for 77.0% of the Company's net revenue for 1996. After elimination of
the net revenue from APBI's former toxicology operations, which were sold in
November 1995 ($38.4 million in 1995), 1996 net revenue increased 15.4% as
compared to 1995. Results of operations which exclude the results of the
divested businesses (APBI's former toxicology operations) are considered the
results of the Company's ongoing operations.
Net revenue for the year ended December 31, 1996 from the Life Sciences
Group's operations of $152.3 million reflects an increase of $30.2 million, or
24.8%, from 1995. The growth in Life Sciences Group operations 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 $10.8 million in 1996, representing an increase
of $8.5 million over 1995.
Net revenue from ENVIRON, which represented 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 sole ongoing operation in the Environmental Sciences
Group, was 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
and declined as a percentage of net revenue to 56.0% from 58.5% in 1995. Life
Sciences Group 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 was 71.0% compared
to 76.0% during the prior year.
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% in 1996
from 30.5% in 1995. After factoring out the SG&A expenses associated with the
divested toxicology business ($7.6 million in 1995), SG&A expenses increased
approximately 9.2%, or $5.2 million, for 1996 as compared to 1995. SG&A expenses
from CCCR and the Leicester Phase I laboratory comprised $2.0 million of the
increase, and the Company incurred incremental rent expense of $1.2 million
associated with the sale-leaseback of its real estate in Austin, Texas
(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 in 1996
was $2.8 million, or 21.2%, lower than in 1995. After adjusting out the
depreciation for the divested toxicology business ($4.5 million in 1995), total
depreciation and amortization increased $1.7 million, or 19.0%, versus 1995. The
increase was related to the Company's growth as well as the ongoing capital
investment in the Company's 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 of 1996, 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.
In the fourth quarter of 1995, APBI recorded a charge of $19.3 million
in 1995 relating to the book loss on the sale of the toxicology business. 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. The remaining $2.3
million 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 termination of the
Company's defined benefit pension plan.
APBI also recorded special charges of $5.0 million in the fourth
quarter of 1995, including a $3.4 million non-cash expense to write down to
market APBI's EnSys investment and the write-off of other non-productive assets.
In addition, APBI recorded severance charges totaling $1.2 million in the
quarter 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.
26
<PAGE>
Operating loss 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 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 primarily 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 in 1996 represents an improvement of $1.9
million from 1995. The 1996 net loss per basic and diluted share of $0.17
compares to pro forma net loss per basic and diluted share of $0.29 in 1995.
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 was 102.6% higher than 1995's pro forma net income of $5.0 million. This
net income per share of $0.47 compares to $0.26 for 1995 computed on 2.4 million
more shares outstanding for 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had $15.9 million of cash and cash
equivalents on hand and $8.0 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, 1997, the Company experienced a net
increase in cash from operating activities of $11.1 million. For the period, net
income of $9.6 million, depreciation and amortization of $12.4 million and the
acquired in-process research and development of $9.1 million were offset
primarily by the net decrease of $19.1 million in other assets and liabilities
(which includes a $24.5 million increase in billed and unbilled receivables), as
well as cash disbursements of $7.4 million related to previously accrued merger
expenses.
For the year ended December 31, 1997, the Company used net cash of
$16.8 million in investing activities, as capital expenditures $13.6 million and
the $8.1 million net cash paid for acquisitions were only partially offset by
$6.3 million in cash provided by net maturities of investments.
For the year ended December 31, 1997, the Company's financing
activities provided $1.0 million in cash, as net proceeds from stock option
exercises of $2.2 million were partially offset by $1.3 million in net repayment
of long-term debt and $0.4 million in cash used to pay pre-merger distributions
to stockholders of Belmont.
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 holding of marketable
securities.
In June 1997, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank. Interest accrues on amounts borrowed at
a floating rate currently equal to LIBOR plus 0.75% per year. Indebtedness under
the line is unsecured and subject to certain covenants relating to financial
ratios and tangible net worth. The unused portion of the loan is available to
provide working capital and for general corporate purposes. As of December 31,
1997, the Company had no amounts outstanding under this facility.
In August 1997, the Company negotiated a credit facility for $50.0
million with Wachovia Bank, N.A. Interest accrues on amounts borrowed at a
floating rate currently equal to LIBOR plus 0.70% per year. Indebtedness under
the line is unsecured and subject to certain covenants relating to financial
ratios and tangible net worth. The unused portion of the loan is available to
provide working capital and for general corporate purposes. As of December 31,
1997, the Company had $3.3 million outstanding under this facility.
27
<PAGE>
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 facilities. The Company believes that
such sources of cash will be sufficient to fund the Company's current operations
for at least the next 12 months. 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.
YEAR 2000 IMPACT
The Company has accessed the impact Year 2000 could have on its
operations and does not anticipate that the Year 2000 will materially impact the
Company's information systems, business, and ability to operate in a
well-controlled environment.
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.
Contracts between the Company's United Kingdom subsidiaries and their
clients are generally denominated in pounds sterling. Substantially all of the
United Kingdom subsidiaries' expenses, such as salaries, services, materials and
supplies, are paid in pounds sterling. 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.
The Company currently participates in only a small number of
transactions involving multiple currencies. In most of those situations,
contractual provisions either limit or reduce the translation risk. Financial
statement translation has not, to date, been material to the Company's balance
sheet. The reasons for this are that the majority of international operations
are located in the United Kingdom, which traditionally has had a relatively
stable currency, and that international operations have not accounted for a
significant portion of total operations (less than 15%). It is anticipated that
those conditions will persist for at least the following year.
There are no material 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.
28
<PAGE>
PART III
Certain information required by Part III is omitted from this report,
because the Registrant will file a definitive proxy statement for its 1998
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.
29
<PAGE>
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. None.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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.
10.4** --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).
10.8** --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.
10.31** --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.
10.35** --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.
10.38** --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.
10.49** --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.
10.55** --Lease made January 23, 1996 between PPD-CRU and Western Center Properties, Inc.
10.57* --First Amendment to Registration Rights Agreement.
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.
10.71* --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.
10.73* --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.
30
<PAGE>
<CAPTION>
<S> <C>
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.
10.84* --Employment Agreement, dated June 4, 1997, by and between the PPD Discovery, Inc. and Mark E.
Furth.
10.85* --Note and Loan Agreement, dated June 25, 1997, made by the PPD Discovery, Inc. for the benefit
of First Union National Bank of North Carolina.
10.86* --Pharmaceutical Product Development, Inc. Employee Stock Purchase Plan, dated May 15,1997.
10.87* --Amendment to Employee Stock Purchase Plan, dated June 21, 1997.
10.88* --Amendment to Stock Option Plan for Non-Employee Directors, dated May 15, 1997.
10.89* --Amendment to Equity Compensation Plan, dated May 15, 1997.
10.90* --Employment Agreement, effective July 1, 1997, between Pharmaceutical Product Development, Inc.
and Fredric N. Eshelman.
10.91* --Note and Loan Agreement, dated August 7, 1997, between Pharmaceutical Product Development,
Inc. and Wachovia Bank, N.A.
10.92* --First Amendment to Loan Agreement dated August 11, 1997, between the Registrant and First
Union National Bank.
10.93* --Lease Agreement dated July 9, 1997, between Weeks Realty, Inc. and PPD Pharmaco, Inc.
10.94 --Employment Agreement dated October 1, 1997 between PPD Pharmaco, Inc. and Joshua S. Baker.
10.95 --Employment Agreement dated January 1, 1998 between Pharmaceutical Product Development, Inc.
and Rudy C. Howard.
10.96 --Employment Agreement dated January 1, 1998 between PPD Pharmaco, Inc. and Patrick C. O'Connor.
10.97 --Employment Agreement dated January 1, 1998 between PPD Pharmaco, Inc. and Paul S. Covington.
10.98 --Employment Agreement dated January 1, 1998 between PPD Pharmaco, Inc. and Mark A. Sirgo.
10.99 --Amendment to Employment Agreement dated February 2, 1998 between Pharmaceutical Product
Development, Inc. and Fred B. Davenport, Jr.
10.100 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Fredric N. Eshelman.
10.101 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Thomas D'Alonzo.
10.102 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Rudy C. Howard.
10.103 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Fred B. Davenport, Jr.
10.104 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
31
<PAGE>
<CAPTION>
<S> <C>
and Joseph H. Highland.
10.105 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Joshua S. Baker.
10.106 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Patrick C. O'Connor.
10.107 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Paul S. Covington.
10.108 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and Mark A. Sirgo.
10.109 --Severance Agreement dated February 2, 1998 between Pharmaceutical Product Development, Inc.
and William Neilson.
10.110 --Amendment to Employee Stock Purchase Plan, dated March 2, 1998.
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.
</TABLE>
* Previously filed.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended (File No. 33-98996).
32
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Report of Independent Accountants on Supplemental Schedule F-29
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Pharmaceutical Product Development, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Pharmaceutical
Product Development, Inc. and its subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
We previously audited and reported on the combined statements of operations,
shareholders' equity and cash flows of Pharmaceutical Product Development, Inc.,
its affiliates and its consolidated subsidiaries for the year ended December 31,
1995, prior to their restatement for the 1996 pooling of interests. The
contribution of Pharmaceutical Product Development, Inc., its affiliates and its
consolidated subsidiaries to net revenue represented 17 percent of the restated
total for 1995. 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. Separate financial statements of the other company included in the 1995
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 statements of operations,
shareholders' equity and cash flows for the year ended December 31, 1995, 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.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
February 5, 1998, except as to the information
presented in Note 20 for which the date is
February 27, 1998.
F-2
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Life sciences revenues, net of subcontractor costs of $69,094
$47,933 and $52,066, respectively $ 187,201 $ 152,304 $ 160,495
Environmental sciences revenues, net of subcontractor costs
of $6,408, $4,752 and $7,230, respectively 47,785 45,492 49,283
Discovery sciences revenues, net of subcontractor costs
of $45 in 1997 286 - -
---------- ---------- ----------
Net revenue 235,272 197,796 209,778
---------- ---------- ----------
Direct costs - Life sciences 94,909 79,108 90,315
Direct costs - Environmental sciences 33,431 31,744 32,442
Direct costs - Discovery sciences 1,859 - -
Selling, general and administrative expenses 68,797 61,571 64,014
Depreciation and amortization 12,394 10,436 13,251
Loss on sale of business - - 19,308
Merger costs and special charges 558 16,114 4,982
Acquired in-process research and development costs 9,112 - -
---------- ---------- ----------
221,060 198,973 224,312
---------- ---------- ----------
Operating income (loss) 14,212 (1,177) (14,534)
Interest:
Expense (478) (420) (3,304)
Income 1,342 1,919 263
Other income (expense), net 600 305 425
---------- ---------- ----------
Income (loss) from continuing operations before provision
for income taxes 15,676 627 (17,150)
-----------
Provision for income taxes 6,074 4,134
---------- ----------
Net income (loss) $ 9,602 $ (3,507)
========== ==========
Weighted average number of common shares outstanding:
Basic 22,825 21,168
Dilutive effect of stock options 60 -
---------- ----------
Diluted 22,885 21,168
========== ==========
Net income (loss) per share:
Basic $ 0.42 $ (0.17)
========= ===========
Diluted $ 0.42 $ (0.17)
========= ===========
Pro Forma Data (Note 1):
Loss from continuing operations before provision for
income taxes (17,150)
Pro forma benefit for income taxes (14,359)
-----------
Pro forma loss from continuing operations (2,791)
Loss from discontinued operations:
Estimated loss on disposal of discontinued operations, net of
income tax benefit of $2,036 (1,716)
----------
Pro forma net loss before extraordinary item (4,507)
Extraordinary loss on early extinguishment of debt, net of
income tax benefit of $475 (897)
-----------
Pro forma net loss $ (5,404)
==========
Pro forma basic and diluted weighted average number of common shares outstanding 18,815
==========
Pro forma basic and diluted loss per common share:
Loss from continuing operations $ (0.15)
Loss from discontinued operations (0.09)
Extraordinary loss (0.05)
-----------
Pro forma loss per common share $ (0.29)
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 15,879 $ 21,838
Marketable securities 7,994 14,210
Accounts receivable and unbilled services, net 101,554 76,237
Investigator advances 1,870 5,280
Prepaid expenses and other current assets 7,227 5,752
Deferred tax asset 1,973 4,955
---------- ----------
Total current assets 136,497 128,272
Property and equipment, net 34,902 31,479
Goodwill, net 18,026 18,397
Other assets 7,622 3,309
---------- ----------
Total assets $ 197,047 $ 181,457
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 4,906 $ 4,221
Accounts payable 6,249 7,051
Payables to investigators 4,138 5,429
Other accrued expenses 23,532 26,263
Unearned income 27,722 18,705
---------- ----------
Total current liabilities 66,547 61,669
Long-term debt, less current maturities 340 1,428
Deferred rent and other 2,555 3,054
---------- ----------
Total liabilities 69,442 66,151
---------- ----------
Commitments and contingencies (Notes 10 and 14)
Shareholders' equity
Common stock, $0.10 par value, 95,000,000 shares authorized; 22,949,000 and
21,624,000 shares issued and outstanding,
respectively 2,295 2,163
Paid-in capital 115,680 112,606
Retained earnings (accumulated deficit) 10,112 (363)
Unrealized gain on investments, net 168 232
Cumulative translation adjustment (650) 668
---------- ----------
Total shareholders' equity 127,605 115,306
---------- ---------
Total liabilities and shareholders' equity $ 197,047 $ 181,457
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED UNREALIZED
COMMON STOCK EARNINGS GAIN (LOSS) CUMULATIVE
STOCK PAR PAID-IN (ACCUMULATED ON TRANSLATION UNEARNED
SHARES VALUE CAPITAL DEFICIT) INVESTMENTS ADJUSTMENT COMPENSATION
------ ----- ------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 -
Unrealized loss on investments, net (61)
Issuance of 1,165 common shares in
connection with acquisitions 1,165 115 89 1,304
Issuance of 142 common shares 142 16 2,199
Income tax benefit from exercise of
stock options 510
Translation adjustments (1,318)
Net income 9,602
Distribution to shareholders (431)
Proceeds of Section 16(b) transaction,
net of related tax provision of $155 276
Other 18 1 (3)
-------- -------- --------- ----------- ---------- -------- -----------
Balance, December 31, 1997 22,949 $ 2,295 $115,680 $10,112 $ 168 $ (650) $ -
======== ======== ========= =========== ========== ========= ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,602 $ (3,507) $ (3,630)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 12,394 10,436 13,251
Purchased in-process research and development 9,112 - -
Deferred income taxes (910) 1,375 (18,204)
Stock compensation amortization - 668 539
Loss on sale of toxicology operations - - 16,991
Provision for loss on disposal of discontinued operations - - 3,752
(Gain) loss on disposition of property and equipment 32 6 (2,741)
(Gain) loss on sale of investments 3 (8) -
Impairment of investment in EnSys - - 2,638
Early extinguishment of debt - - 955
Change in assets and liabilities:
Accounts receivable and unbilled services, net (24,470) (2,043) 108
Prepaid expenses and other current assets 2,073 (4,317) 2,076
Current income taxes 3,406 1,354 1,472
Other assets 842 1,068 (1,968)
Assets and liabilities of discontinued operations, net - - (1,593)
Accounts payable and accrued liabilities (9,627) (6,872) 9,301
Unearned income 8,740 2,569 (7,011)
Other (58) (411) (13)
---------- ----------- -----------
Net cash provided by operating activities 11,139 318 15,923
--------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (13,599) (11,176) (10,117)
Proceeds from sale of toxicology operations - - 32,500
Proceeds from sale of property and equipment 174 74 14,158
Proceeds (purchase) of marketable securities, net 6,268 (13,799) (14)
Sale of investments - 244 -
Purchase of investments (1,500) - -
Net cash paid for acquisitions (8,121) (3,867) (741)
---------- ---------- ----------
Net cash (used in) provided by investing activities (16,778) (28,524) 35,786
---------- ---------- ----------
Cash flows from financing activities:
Short-term bank (repayments) borrowings, net - - (1,687)
Line of credit (repayments) borrowings, net - 669 (12,892)
Proceeds from long-term debt 138 167 -
Principal repayments on long-term debt (1,355) (2,415) (32,897)
Proceeds of Section 16(b) transaction 431 - -
Cash dividends paid - (5,937) (723)
Distribution to shareholders (431) - -
Proceeds from issuance of common stock 2,215 42,902 761
--------- ---------- ----------
Net cash provided by (used in) financing activities 998 35,386 (47,438)
--------- ---------- -----------
Effect of exchange rate changes on cash (1,318) 1,093 (510)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (5,959) 8,273 3,761
Cash and cash equivalents, beginning of the year 21,838 13,565 9,804
--------- --------- ----------
Cash and cash equivalents, end of the year $ 15,879 $ 21,838 $ 13,565
========= ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
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 three business segments: life sciences, environmental sciences and
discovery 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. Discovery sciences services include target identification
and validation, compound creation, screening and compound selection. Such
services are provided through all three 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 79.6% of the Company's business in 1997
based on net revenue, are marketed primarily in the United States and Europe.
The Company's remaining 1997 net revenue was derived from its environmental
sciences segment (20.3%) which is primarily domestic and its discovery segment
(0.1%) which is entirely 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
During 1997, the Company recorded one-time merger cost of $0.6 million
in connection with the acquisitions of Belmont Research, Inc., SARCO, Inc., and
Intek Labs, Inc. These costs are primarily current cash expenses, such as legal
and accounting fees related to pooling transactions.
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 $16.1 million in 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
$9.0 million in accruals for severance, lease termination and certain other
costs. Of the amounts accrued, $3.2 million is for severance payments for
approximately 40 individuals consisting mainly of administrative personnel.
Approximately $0.1 million and $7.5 million of merger and reorganization costs
were accrued as of December 31, 1997 and 1996, respectively, and included in
other accrued expenses.
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.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS
The purchase price in excess of the net assets of the GSX System was
allocated to acquired in-process research and development costs and was charged
to operations upon the acquisition of the GSX System, as the technology has no
alternative future use and the technology has not yet reached technological
feasibility.
F-7
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.
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 consist 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):
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
Cash paid (received):
Interest $ 354 $ 326 $ 3,707
======== ======== ========
Income taxes, net $ 2,583 $ 1,594 $ (2,299)
======== ======== ========
The non-cash assets and liabilities acquired, including the acquisition
of Technical Assessment Systems, Inc.; Belmont Research, Inc.; SARCO, Inc.;
Intek Labs, Inc.; and the GSX System in 1997 and 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):
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- -------
Acquisitions:
Fair value of assets acquired $ 2,795 $ 4,841 $ 7,633
Liabilities assumed 3,346 5,242 3,416
Non-cash consideration received:
Fair value of assets acquired $ - $ - $ 5,098
Liabilities assumed - - 598
F-8
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.)
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 is required to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, in accordance with the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of property, plant and equipment and intangibles in relation
to the operating performance and estimates of future discounted cash flows of
the underlying business.
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, 1997 and 1996, accumulated
amortization was $4,383,000 and $3,036,000, respectively. The amortization
charges for each of the three years ended December 31, 1997, 1996 and 1995 were
$1,401,000, $950,000 and $715,000, 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.)
F-9
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 1995 statement of operations includes
a pro forma income tax provision related to the net loss 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.
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 basic income (loss) per share information is based
on the weighted average number of common shares outstanding during the year. The
computation of diluted income (loss) per share information is based on the
weighted average number of common shares outstanding during the year plus the
effects of any common stock equivalents at year end.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), on December 31, 1997. SFAS No. 128
requires the Company to change its method of computing, presenting and
disclosing earnings per share information. Accordingly, all prior period data
presented has been restated to conform to the provisions of SFAS No. 128.
The Company will adopt Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), for the year ending
December 31, 1998. SFAS No. 130 requires the Company to display an amount
representing total comprehensive income for the period in a financial statement
which is displayed with the same prominence as other financial statements. Upon
adoption, all prior period data presented will be restated to conform to the
provisions of SFAS No. 130. The Company does not expect this new pronouncement
to have a significant impact on the financial statements.
F-10
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company will adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), for the year ending December 31, 1998. SFAS No. 131 requires
the Company to report certain information about operating segments in complete
sets of financial statements and in condensed financial statements of interim
period issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company does not expect this new pronouncement to have a significant impact
on the financial statements.
The Company will adopt Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits"
("SFAS No. 132"), for the year ending December 31, 1998. SFAS No. 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information and changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. The Company does not expect this new pronouncement to have a significant
impact on the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the 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
1997 presentation.
2. ACQUISITIONS:
POOLINGS
In March 1997, the Company acquired Belmont Research, Inc. ("Belmont").
The consideration for Belmont consisted of 502,384 shares of the Company's
common stock plus options to purchase approximately 115,000 shares of Company
common stock. In June 1997, the Company acquired SARCO, Inc. ("SARCO"). The
consideration for SARCO consisted of 263,158 shares of the Company's common
stock. In November 1997, the Company acquired Intek Labs, Inc. ("Intek"). The
consideration for Intek consisted of 399,999 shares of the Company's common
stock. All three of these acquisitions were accounted for as pooling of
interests transactions. 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.
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.
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.
F-11
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS (CONTINUED):
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 all of 1996 and the 1995 financial statements 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:
In a January 1997 transaction, 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. In connection with the acquisition,
the Company recorded $1,070,000 in goodwill. In June 1997, the Company acquired
the GSX System, a functional genomics platform technology. The GSX System was
purchased for approximately $8.7 million in cash. Liabilities assumed in this
transaction were $832,000. 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.
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-12
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 results of operations (excluding the effect of the loss on the sale
of the business) for the year ended December 31, 1995 included the following for
the disposed business (in thousands):
1995
----
Net revenues $ 38,446
Operating loss (1,136)
4. DISCONTINUED OPERATIONS:
During the fourth quarter of 1995, PACE Incorporated ("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. 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." At that time, the Company wrote
off its remaining investment in PACE of approximately $3,600,000, and accrued
its estimated exposure for guarantees on leases. PACE was involuntarily placed
in bankruptcy under Chapter 7 of the Bankruptcy Code during 1996. As a result of
a settlement reached with the bankruptcy trustee in December 1997, the Company
expects repayment of approximately $300,000 related to funds loaned to PACE and
written off in the fourth quarter of 1995.
F-13
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. MARKETABLE SECURITIES:
The estimated market value and aggregate cost of current marketable
securities were as follows (in thousands):
DECEMBER 31,
----------------------
1997 1996
--------- ---------
Estimated market value $ 7,994 $ 14,210
Aggregate cost 8,000 14,210
--------- ---------
Gross unrealized loss $ (6) $ -
========== =========
Marketable securities consist of debt securities issued by the U.S.
Treasury in 1997 and 1996. These securities are classified as available-for-sale
and reported in the balance sheet at fair value. The U.S. Treasury note held at
December 31, 1997 matured February 2, 1998.
6. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES:
Accounts receivable and unbilled services consisted of the following
(in thousands):
DECEMBER 31,
-----------------
1997 1996
---- ----
Trade:
Billed $ 55,257 $ 45,419
Unbilled 46,730 30,404
Reserve for doubtful accounts (1,515) (1,511)
---------- ---------
100,472 74,312
Officers and employees 386 363
Other 696 1,562
--------- ---------
$ 101,554 $ 76,237
========= =========
7. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Land $ 517 $ 593
Buildings and leasehold improvements 13,291 13,049
Construction in progress and asset deposits 620 167
Furniture and equipment 33,066 28,062
Computer equipment and software 36,466 27,868
--------- ---------
83,960 69,739
Less - Accumulated depreciation and amortization 49,058 38,260
--------- ---------
$ 34,902 $ 31,479
========= =========
</TABLE>
The annual depreciation and amortization charges on property and
equipment for each of the three years ended December 31, were (in thousands):
1995 $12,015
1996 9,399
1997 10,830
F-14
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OTHER ASSETS:
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
Investment in DAS $ 1,500 $ -
Investment in SDI 1,161 1,240
Long-term deferred tax asset 3,742 963
Intangible and other assets, net of accumulated
amortization of $1,040 and $1,024, respectively 1,219 1,106
-------- ------
$ 7,622 $ 3,309
======== ========
</TABLE>
The annual amortization charges on intangible assets for each of the
three years ended December 31, 1997, 1996 and 1995 were $163,000, $87,000 and
$602,000, respectively.
The Company owns 600,000 shares (approximately 8.0%) of Digital Arts
and Sciences ("DAS") Series D preferred stock as of December 31, 1997. The
Company's investment in DAS is valued at cost, which approximates fair market
value.
The Company owns 714,600 and 729,600 shares of Strategic Diagnostics
Inc. ("SDI"), formerly EnSys Environmental Products Inc. ("EnSys") common stock
as of December 31, 1997 and 1996, respectively. 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 $2.25 and $2.00 as of December 31,
1997 and 1996, respectively. The Company owned approximately 5.5% of the SDI
common stock at December 31, 1997.
The Company's investment in SDI was carried at its fair value in 1996.
However, during 1997 the Company sold options to various other companies which
provided them the right to acquire all SDI shares owned by the Company at a
price of $1.625 per share. Accordingly, during 1997 the Company reduced the
carrying value of this investment to the lower of market or $1.625 per share
($1.625 at December 31, 1997). 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 1997, $174,000 is reported as a separate component of
shareholders' equity to represent the difference between option value and the
prior year's carrying value. 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,
-----------------
1997 1996
---- ----
<S> <C> <C>
Accrued salaries, wages, benefits and related costs $ 15,626 $ 10,976
Accrued merger costs 117 7,513
Other 7,789 7,774
--------- ---------
$ 23,532 $ 26,263
========= =========
</TABLE>
F-15
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBT AND LEASE OBLIGATIONS:
Long-term debt consisted of the following (in thousands):
DECEMBER 31,
--------------------
1997 1996
-------- -------
LIBOR (5.9% at December 31, 1997) plus 0.70%
unsecured line of credit due March 3, 1998 $ 3,300 $ 3,300
Equipment leases 721 689
Various notes at interest rates up to 9.75% 1,225 1,660
-------- --------
5,246 5,649
Less current maturities (4,906) (4,221)
--------- --------
$ 340 $ 1,428
======== ========
In June 1997, the Company obtained a $50.0 million revolving credit
facility with First Union National Bank which accrues interest on amounts
borrowed at a floating rate currently equal to the LIBOR Rate plus 0.75% per
year. Indebtedness under the line is unsecured and subject to certain covenants
relating to financial ratios and tangible net worth. The unused portion of the
loan is available to provide working capital and for general corporate purposes.
As of December 31, 1997, the Company has no amounts outstanding under this
facility.
In August 1997, the Company negotiated a new credit facility for $50.0
million with Wachovia Bank, N.A. which accrues interest on amounts borrowed at a
floating rate currently equal to the LIBOR Rate plus 0.70% per year.
Indebtedness under the line is unsecured and subject to certain covenants
relating to financial ratios and tangible net worth. The unused portion of the
loan is available to provide working capital and for general corporate purposes.
As of December 31, 1997, the Company had $3.3 million outstanding under this
facility.
For the years subsequent to December 31, 1997, annual maturities of
long-term debt outstanding are (in thousands):
1998 $ 4,906
1999 205
2000 81
2001 54
--------
$ 5,246
========
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
$13,492,000, $10,334,000 and $8,200,000 for the years ended December 31, 1997,
1996 and 1995, 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 15-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.
F-16
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED):
Future minimum payments for all operating lease obligations for years
subsequent to December 31, 1997 are as follows (in thousands):
1998 $ 13,983
1999 11,583
2000 9,577
2001 8,784
2002 8,312
2003 and thereafter 34,004
---------
$ 86,243
=========
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 2,500,000
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 10 years. Options are granted upon approval of the Board of
Directors and vest over various periods.
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 the Plan.
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 income (loss) and basic and diluted
net income (loss) per share would have been decreased (increased) to the pro
forma amounts indicated below.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) (in thousands) $ 9,602 $ 7,730 $(3,507) $ (7,670) $(5,404) $ (5,637)
Basic and diluted net income
(loss) per share $ 0.42 $ 0.34 $ (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 1997, 1996 and 1995: expected volatility of
58.7%, 49.9% and 49.9%, respectively, risk-free interest of 6.0%, 6.25% and
6.25%, respectively, and expected lives of five years. The weighted average fair
value of options granted during 1997, 1996 and 1995 was $9.48, $11.48 and $6.55
per share, respectively.
A summary of the status of the Company's Plan as of December 31, 1997,
1996 and 1995, and changes during the years ending on those dates, is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ------------------------- --------------------------
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 1,241,142 $ 22.28 1,180,809 $ 16.29 1,240,682 $ 17.07
Granted 459,740 15.45 1,056,539 22.57 191,837 12.38
Exercised (157,857) 14.74 (858,800) 15.10 (63,547) 9.82
Forfeited (105,959) 24.63 (137,406) 17.96 (188,163) 19.63
--------- -------- --------
Outstanding at end of year 1,437,066 $ 20.71 1,241,142 $ 22.28 1,180,809 $ 16.29
========= ======= ========= ======== ========= =======
Options exercisable at year-end 799,361 $ 20.77 771,069 $ 19.85 766,895 $ 17.31
======== ======= ========= ======== ========= =======
</TABLE>
F-17
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK PLANS (CONTINUED):
The following table summarizes information about the Plan's stock
options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ---------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.71-$ 10.00 28,264 5.1 years $ 6.23 25,832 $ 5.93
$ 10.01-$ 20.00 706,296 7.8 years $ 15.65 434,041 $ 16.21
$ 20.01-$ 30.00 622,046 8.7 years $ 25.14 259,028 $ 25.16
$ 30.01-$ 40.00 74,668 3.8 years $ 35.59 74,668 $ 35.59
$ 40.01-$ 40.55 5,792 4.2 years $ 40.55 5,792 $ 40.55
-------- --------
1,437,066 799,361
========= ========
</TABLE>
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.
SAVINGS RELATED STOCK OPTION PLAN
The Company has a Savings Related Stock Option 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 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 to accrue the additional bonuses
and forfeit the option to purchase the shares. The United Kingdom Plan, as
approved by the shareholders, was implemented by Applied Bioscience
International Inc. during 1988. Currently, employees of the Company's United
Kingdom subsidiary, Pharmaco International Ltd., participate in this plan.
Outstanding options at the time of the merger with APBI were converted in
accordance with the exchange ratio provided for in the merger agreement.
F-18
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK PLANS (CONTINUED):
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 granted in excess of the savings balance
were forfeited. The exercise period for the vested options extended through
April 1996.
At December 31, 1997, there were 1,029 options outstanding at an
average exercise price of $13.72. Of those, 667 options were exercisable at
December 31, 1997, at an average exercise price of $13.75. These options are
included in the table above that summarizes total options outstanding at
December 31, 1997.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has reserved 500,000 shares of the Company's
common stock for issuance under the Employee Stock Purchase Plan (the "ESPP").
The plan will have two six-month offering periods (each an "Offering Period")
annually, beginning January 1 and July 1, respectively. The first Offering
Period under the ESPP began July 1, 1997. Eligible employees can elect to make
deductions from 1% to 15% of their compensation during each payroll period of an
Offering Period. An eligible employee may also make contributions outside
elected payroll deductions, provided that no eligible employee can purchase
common stock of the Company under the ESPP in excess of $25,000 in any calendar
year. Special limitations apply to eligible employees who own 5% or more of the
outstanding common stock of the Company. None of the contributions made by
eligible employees to purchase the Company's common stock under the ESPP,
whether through elected payroll deductions or outside of elected payroll
deductions, are tax deductible to the employees. At the end of an Offering
Period, the total payroll deductions and other contributions by an eligible
employee for that Offering Period will be used to purchase common stock of the
Company at a price equal to 85% of the lesser of (a) the reported closing price
of the Company's common stock for the first day of the Offering Period, or (b)
the reported closing price of the common stock for the last day of the Offering
Period.
Employees eligible to participate in the ESPP include employees of the
Company and its United States operating subsidiaries, except those employees who
customarily work less than 20 hours per week or five months in a year. Since
both participation in and contributions to the ESPP are determined by the
eligible employee, it is not possible to determine the benefits and amounts that
would be received by an eligible participant or group of participants in the
future.
At December 31, 1997, $991,000 had been contributed to the ESPP. Shares
were not issued on December 31, 1997 since the market had to be closed before a
purchase price could be determined. On January 2, 1998, 75,508 shares were
issued. The compensation costs for the ESPP as determined based on the fair
value of the contributions under the ESPP, consistent with the method of SFAS
No. 123, was $196,000, and is reflected in the pro forma net income and basic
and diluted net income per share for 1997 as disclosed above.
The ESPP was amended to limit additional cash contributions to $5,000
for the Offering period commencing January 1, 1998 and eliminate additional cash
contributions during the Offering Period commencing July 1, 1998 and thereafter.
Stock available for purchase during the Offering Period commencing January 1,
1998, will be limited to a total of 150,000 shares.
F-19
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES:
The components of income (loss) before provision for income taxes were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
------- ---------- ------
<S> <C> <C> <C>
Domestic $16,907 $ 1,228 $ (16,778)
Foreign (1,231) (601) (372)
-------- ---------- ----------
Income (loss) from continuing operations 15,676 627 (17,150)
Loss from discontinued operations - - (3,752)
Extraordinary loss - - (1,372)
------- ---------- ----------
Total $15,676 $ 627 $ (22,274)
======= ========== =========
</TABLE>
The components of the provision (benefit) for income taxes were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
------- ---------- ------
<S> <C> <C> <C>
State income taxes:
Current $ 313 $ 330 $ (63)
Deferred (97) 90 (166)
Federal income taxes:
Current 5,305 2,130 (1,021)
Deferred 115 1,285 (4,716)
Foreign income taxes:
Current 438 299 109
Deferred - - (12,788)
------ ---------- ---------
Provision (benefit) for income taxes $ 6,074 $ 4,134 (18,645)
======= ==========
PPD's pro forma income tax provision (See Note 1) 1,775
--------
Pro forma benefit for income taxes $ (16,870)
==========
</TABLE>
The income tax provision (benefit) is included in the financial statements
as follows (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------- ---------- ----------
Continuing operations $ 6,074 $ 4,134 $(14,359)
Discontinued operations - - (2,036)
Extraordinary loss - - (475)
------- ---------- ---------
Total $ 6,074 $ 4,134 $(16,870)
======= ========== =========
F-20
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES (CONTINUED):
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.
The 1997 and 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.
Taxes computed at the statutory federal income tax rate are reconciled
to the provision (benefit) for income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Effective tax rate 38.7% 660.2% 83.7%
======== ========= =========
United States federal statutory rate $ 5,487 $ 213 $ (7,574)
Differential on rates applied to foreign earnings - (72) 30
State taxes (net of federal benefit) 237 277 47
Write-down of investment in PACE Incorporated
and EnSys - - (40)
Sale of toxicology operations - - (10,370)
Allowance for limitation of foreign tax losses 533 299 841
Merger costs not deductible for income tax purposes - 2,751 -
Goodwill and other items not deductible for income
tax purposes 449 435 -
Other (371) 231 196
Benefit of federal statutory rate reduction from 35% to 34% (100) - -
Deferred taxes set up for S to C conversion on
acquisitions (161) - -
Taxes on PPD's subchapter S earnings paid by former
S shareholders - - (1,775)
-------- ---------- ---------
Provision (benefit) for income taxes $ 6,074 $ 4,134 $ (18,645)
======== ========== ==========
</TABLE>
During 1997, the Company began recording deferred taxes at a 35%
federal rate due to expected levels of income in the future. 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.
F-21
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES (CONTINUED):
Components of the net current deferred tax asset were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- -------
<S> <C> <C>
Future benefit of foreign net operating losses $ 96 $ 92
Allowance for doubtful accounts 787 733
Accruals 1,090 3,263
Future benefit of U.S. and state net operating losses - 1,051
Other - (184)
-------- ---------
Net current deferred tax asset $ 1,973 $ 4,955
======== ========
</TABLE>
Components of the net long-term deferred tax asset, included in other
assets, were as follows (in thousands):
DECEMBER 31,
----------------
1997 1996
---- ----
Depreciation and amortization $ 2,721 $ (836)
Deferred rent 1,068 1,228
Future benefit of U.S. tax credits - 391
Other (47) 179
-------- ---------
Net long-term deferred tax asset $ 3,742 $ 962
======= =========
The cumulative amount of undistributed earnings of foreign subsidiaries
for which the Company has not provided U.S. income taxes at December 31, 1997
was $805,000. 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.
During 1997, the Company utilized all U.S. net operating loss
carryforwards and alternative minimum tax credit carryforwards.
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, 1997, 1996 and 1995 were $1,945,000, $1,483,000 and $1,628,000,
respectively.
F-22
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the
Company'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):
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- -------- -------
Service cost-benefits earned
during the year $ 738 $ 553 $ 1,311
Interest cost on projected
benefit obligation 631 394 1,361
Actual return on plan assets (954) (500) (1,566)
Net amortization and deferral (13) (9) (38)
-------- -------- --------
Net pension cost $ 402 $ 438 $ 1,068
======= ======== ========
The funded status of the defined benefit plan was as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (8,034) $ (5,033)
========= =========
Accumulated benefit obligation $ (8,214) $ (5,249)
========= =========
Projected benefit obligation $ (8,528) $ (5,459)
Plan assets at fair value 10,932 6,497
--------- ---------
Plan assets in excess of projected
benefit obligation 2,404 1,038
Remaining unrecognized net asset arising
from initial application of SFAS 87 (98) (67)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions (406) 558
---------- ---------
Prepaid pension cost $ 1,900 $ 1,529
========= =========
</TABLE>
Assumptions used to determine pension costs and projected benefit
obligations were as follows:
1997 1996
---- ----
Discount rate 8.5% 8.5%
Rate of compensation increase 6.0% 6.5%
Long-term rate of return on plan assets 9.5% 8.5%
F-23
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE SAVINGS AND PENSION PLANS (CONTINUED):
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, 1997, 1996 and 1995 was $638,000, $620,000 and $645,000,
respectively. As of December 31, 1997 and 1996, accrued pension was $701,000 and
$648,000, 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 1997, 1996 and 1995 were $35,000, $39,000 and $44,000,
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, 1997, this
coverage included two policies. One policy is for the Life and Discovery
Sciences Groups and one is for the Environmental Sciences Group. Both policies
included a $500,000 self-insured retention per claim.
In July 1997, the Company entered into a new 10 year build-to-suit
lease for approximately 100,000 square feet in Morrisville, North Carolina which
is scheduled for completion in the fall of 1998.
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 $37,200, $65,900 and
$102,000 in expenses for the years ended December 31, 1997, 1996 and 1995,
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 and 1995,
totaled $402,300 and $341,000, 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 and $500,000 in 1996 and 1995, respectively.
F-24
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 DAS
The Company's investment in DAS is recorded at $1,500,000 at December
31, 1997. The Company's investment in DAS is valued based on the cost method and
does not exceed estimated net realizable value.
INVESTMENT IN SDI
The Company's investment in SDI is recorded at $1,161,200 and
$1,240,300 compared to the market price of $1,607,900 and $1,459,200 as quoted
on the National Market System of the National Association of Securities Dealers
Automated Quotation System at December 31, 1997 and 1996. In 1997, this
investment was not valued at the market price due to the options outstanding at
the exercise price of $1.625 for all shares which the Company owns. In 1996, the
market price was discounted $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.
F-25
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. BUSINESS SEGMENT DATA:
The Company operates in three business segments - life sciences,
environmental sciences and discovery sciences.
Revenues by principal business segment are separately stated in the
consolidated financial statements. Merger costs and acquired in-process research
and development costs incurred in 1997 and 1996 of $9.7 million and $16.1
million, respectively, 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):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) from operations:
Life sciences $ 19,902 $ 9,580 $ (18,657)
Environmental sciences 6,305 5,357 4,123
Discovery sciences (2,325) - -
Merger costs and acquired in-process
research and development costs (9,670) (16,114) -
----------- ----------- ----------
Operating income (loss) $ 14,212 $ (1,177) $ (14,534)
========== =========== ===========
Depreciation and amortization:
Life sciences $ 10,651 $ 8,766 $ 11,601
Environmental sciences 1,514 1,670 1,650
Discovery sciences 229 - -
---------- ---------- ----------
Total $ 12,394 $ 10,436 $ 13,251
========== ========== ==========
Identifiable assets:
Life sciences $ 165,855 $ 159,394 $ 117,292
Environmental sciences 29,727 22,063 25,369
Discovery sciences 1,465 - -
---------- ---------- ----------
Total $ 197,047 $ 181,457 $ 142,661
========== ========== ==========
Capital expenditures:
Life sciences $ 11,589 $ 9,895 $ 8,853
Environmental sciences 1,515 1,281 1,264
Discovery sciences 495 - -
---------- ---------- ----------
Total $ 13,599 $ 11,176 $ 10,117
========== ========== ==========
</TABLE>
F-26
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. OPERATIONS BY GEOGRAPHIC AREA:
The following table presents information about the Company's operations
by geographic area (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- -------
<S> <C> <C> <C>
Net revenue:
United States $ 204,921 $ 175,173 $ 170,465
U.K. 20,269 15,542 31,141
* Other 10,082 7,081 8,172
---------- ---------- ----------
Total $ 235,272 $ 197,796 $ 209,778
========== ========== ==========
Operating income (loss):
United States $ 24,617 $ 14,731 $ (14,834)
U.K. 119 (837) 1,556
* Other (854) 1,043 (1,256)
Merger costs and acquired in-process
research and development costs (9,670) (16,114) -
----------- ----------- ----------
Operating income (loss) $ 14,212 $ (1,177) $ (14,534)
========== ========== ===========
Identifiable assets:
United States $ 157,543 $ 142,464 $ 118,310
U.K. 27,063 27,657 12,579
* Other 12,441 11,336 11,772
---------- ---------- ----------
Total $ 197,047 $ 181,457 $ 142,661
========== ========== ==========
</TABLE>
* Principally consists of revenue from 11 countries, seven of
which are located in Europe.
19. QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 FIRST SECOND THIRD FOURTH TOTAL
- ------------------------------------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue $ 57,678 $ 60,065 $ 58,325 $ 59,204 $ 235,272
Operating income (loss) 5,266 (2,588) 6,568 4,966 14,212
Net income (loss) 3,343 (1,346) 4,141 3,464 9,602
Net income (loss) per common share:
Basic $ 0.15 $ (0.06) $ 0.18 $ 0.15 $ 0.42
Diluted $ 0.15 $ (0.06) $ 0.18 $ 0.15 $ 0.42
1996
- ------------------------------------
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)
Net income (loss) per common share:
Basic $ 0.10 $ 0.11 $ (0.56) $ 0.18 $ (0.17)
Diluted $ 0.10 $ 0.11 $ (0.56) $ 0.18 $ (0.17)
</TABLE>
F-27
<PAGE>
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. SUBSEQUENT EVENT:
On February 27, 1998, the Company, through its subsidiary Clinix
International Inc., sold the business and assets of the Chicago Center for
Clinical Research ("CCCR"). The selling price was approximately $7.6 million in
the form of cash and a promissory note payable over five years. The sale
resulted in a gain of approximately $1.0 million which will be included in
operations during the first quarter of 1998. As part of the sales agreement, the
Company will continue to provide clinical and administrative services over the
next several quarters.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
The Board of Directors and Shareholders
Pharmaceutical Product Development, Inc. and Subsidiaries
Our report on the consolidated financial statements of Pharmaceutical Product
Development, Inc. and its subsidiaries is included on page F-2 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the 1997 and 1996 information included in the related financial
statement schedule listed on page F-30 of this Form 10-K.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
February 5, 1998
F-29
<PAGE>
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, 1997
Reserve for doubtful accounts $ 1,511 $ 647 $ (740) $ 97 $ 1,515
======= ======== ========== ===== ========
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
======= ======== ========= ====== ========
F-30
<PAGE>
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 27, 1998 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>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Fredric N. Eshelman, Pharm.D. Director and Chief Executive Officer March 27, 1998
----------------------------------- (Principal Executive Officer)
Fredric N. Eshelman, Pharm.D.
/s/ Rudy C. Howard Chief Financial Officer, Vice President of March 27, 1998
----------------------------------- Finance and Treasurer (Principal Financial
Rudy C. Howard Officer)
/s/ Linda Baddour Chief Accounting Officer and Executive March 27, 1998
--------------------------- Director, Finance (Principal Accounting
Linda Baddour Officer)
/s/ Ernest Mario, Ph.D. Director March 27, 1998
------------------------------------
Ernest Mario, Ph.D.
/s/ Stuart Bondurant, M.D. Director March 27, 1998
---------------------------
Stuart Bondurant, M.D.
/s/ Kirby L. Cramer Director March 27, 1998
------------------------------------
Kirby L. Cramer
/s/ Thomas D'Alonzo Director March 27, 1998
------------------------------------
Thomas D'Alonzo
/s/ Frederick Frank Director March 27, 1998
------------------------------------
Frederick Frank
/s/ Frank E. Loy Director March 27, 1998
------------------------------------
Frank E. Loy
/s/ John A. McNeill, Jr. Director March 27, 1998
------------------------------------
John A. McNeill, Jr.
</TABLE>
S-1
5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), made
this 1st day of October, 1997, by and between PPD Pharmaco, Inc., a Texas
corporation with its principal office at 3151 17th Street Extension, Wilmington,
North Carolina 28412 (hereinafter "PPD Pharmaco"), and Joshua S. Baker
(hereinafter "Employee").
RECITALS:
A. Employee desires employment upon the terms and conditions
herein stated.
B. PPD Pharmaco desires to employ Employee upon the terms and
conditions herein stated.
C. Employee and PPD Pharmaco desire to embody in writing the
terms and conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. PPD Pharmaco hereby employs Employee and
Employee hereby accepts such employment on a full time basis as Senior Vice
President - Clinical Operations upon the terms and conditions hereinafter set
forth.
2. Term. The term of this Agreement shall be for one year,
beginning October 1, 1997, and ending September 30, 1998, 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 paragraph 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 60 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 Pharmaco shall pay to Employee an annual salary of $200,000 for
the initial one-year term hereof.
4. Stock Options. Pharmaceutical Product Development, Inc.
("PPD"), the parent company of PPD Pharmaco, has granted to Employee as of the
date of this Agreement (the "Grant Date") options to purchase 10,000 shares of
PPD's common stock at a purchase price equal to NASDAQ market close price on the
Grant Date. Said share options have been granted under the terms of PPD's Equity
2
<PAGE>
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) 3,334 of the share options may only be
exercised one year after the Grant Date, (b) 3,333 of the share options may only
be exercised two years after the Grant Date, (c) the remaining 3,333 share
options may only be exercised three years after the Grant Date, and (d) any
unvested share options, i.e., share options which cannot be exercised under the
terms hereof, shall be forfeited upon Employee's termination of employment with
PPD Pharmaco.
5. Duties. Employee shall have overall responsibility for and
decision making authority necessary to fulfill the duties of Senior Vice
President - Clinical Operations of PPD Pharmaco. Employee shall undertake such
travel as 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 Pharmaco.
6. Working Facilities. PPD Pharmaco 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
in any other business which is developed by PPD Pharmaco 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 Pharmaco 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 Pharmaco may terminate Employee's employment hereunder upon the
occurrence of any of the following events:
a. Death of Employee.
b. A determination by the Chief Executive Officer and the
President and Chief Operating Officer of PPD, acting in good faith but made in
their sole discretion, that Employee has failed to substantially perform his
duties under this Agreement.
c. A determination by the Chief Executive Officer and the
President and Chief Operating Officer of PPD, acting in good faith but made in
their sole discretion, 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. As a condition of employment
hereunder, Employee will execute as of the date of this Agreement that certain
Proprietary and Inventions Agreement attached hereto as Exhibit A and
incorporated herein by reference.
10. Benefits. During the term thereof, Employee shall be
entitled to participate in all benefits provided by PPD Pharmaco to its
employees generally, including but not limited to health insurance, disability
insurance and retirement plans, all of which are currently provided to employees
of PPD Pharmaco, subject to the eligibility requirements of any plan(s)
establishing same. Employee shall be subject to PPD Pharmaco's policies
applicable to other executive employees of PPD Pharmaco 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 Pharmaco to its
executive employees, including but not limited to issuance of stock options,
cash bonuses, etc., to the extent such bonuses, etc., are not otherwise provided
for herein in connection with Employee's duties and performance as an executive
employee.
11. Expenses. PPD Pharmaco shall pay all reasonable expenses
of Employee which are directly related to Employee's duties hereunder in
accordance with PPD Pharmaco's policy for reimbursement of employee expenses.
12. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 7 of this Agreement, PPD Pharmaco 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 Pharmaco 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.
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.
3
<PAGE>
14. Waiver of 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 Pharmaco, 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, if to
PPD Pharmaco at PPD Pharmaco's principal office in Wilmington, North Carolina at
the address hereinabove set forth, and if to Employee at PPD Pharmaco's
principal office in Morrisville, North Carolina, and shall be deemed received
when actually received. Any notice from Employee to PPD Pharmaco shall be
addressed to the Chief Executive Officer and to the President and Chief
Operating Officer of PPD, with a copy to the General Counsel of PPD. Either
party hereto may change the notice address provided for herein upon ten days
prior written notice to the other in the manner prescribed for herein.
20. Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement, including but not limited to any breach, or as
to its existence, validity, interpretation, performance or non-performance,
breach or damages, including claims in tort, shall be decided by a single
neutral arbitrator in Wilmington, North Carolina in binding arbitration pursuant
to the commercial Arbitration Rules of the American Arbitration Association then
in effect. The parties to any such arbitration shall be limited to the parties
to this Agreement or any successor thereof. The arbitration shall be conducted
in accordance with the procedural laws of the United States Federal Arbitration
Act, as amended. The written decision of the arbitrator shall be final and
binding, and may be entered and enforced in any court of competent jurisdiction
and each party specifically acknowledges and agrees to waive any right to a jury
trial in any such forum. Each party to the arbitration shall pay its fees and
expenses, unless otherwise determined by the arbitrator.
4
<PAGE>
21. Amendment; Modification. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is sought. No
waiver shall be deemed a continuing waiver or a waiver in respect of any
subsequent breach or deferral, either of a similar or different nature, unless
expressly so stated in writing.
22. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
23. Descriptive Headings: Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PPD PHARMACO, INC.
By: /s/ Thomas W. D'Alonzo
------------------------------
Name: Thomas W. D'Alonzo
------------------------------
Title: President
----------------------------
/s/ Joshua S. Baker
----------------------------(SEAL)
Joshua S. Baker
5
<PAGE>
5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), made
this 1st day of January, 1998, by and between Pharmaceutical Product
Development, Inc., a North Carolina corporation with its principal office at
3151 17th Street Extension, Wilmington, North Carolina 28412 (hereinafter
"PPD"), and Rudy C. Howard (hereinafter "Employee").
RECITALS:
A. Employee desires employment upon the terms and conditions
herein stated.
B. PPD desires to employ Employee upon the terms and
conditions herein stated.
C. Employee and PPD desire to embody in writing the terms and
conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. PPD hereby employs Employee and Employee hereby
accepts such employment on a full time basis as Chief Financial Officer upon the
terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for one year,
beginning January 1, 1998, and ending December 31, 1998, 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 paragraph 9 below,
unless either party gives notice as herein provided to the other of said party's
intent not renew this Agreement not less than 60 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 Pharmaco shall pay to Employee an annual salary of $200,000 for
the initial one-year term hereof.
4. Duties. Employee shall have overall responsibility for and
decision making authority necessary to fulfill the duties of Chief Financial
Officer of PPD. Employee shall undertake such travel as 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.
<PAGE>
5. 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.
6. 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
in 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.
7. 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 Chief Executive Officer of PPD,
acting in good faith but made in his sole discretion, that Employee has failed
to substantially perform his duties under this Agreement.
c. A determination by the Chief Executive Officer of PPD,
acting in good faith but made in his sole discretion, 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.
8. Disclosure of Information. As a condition of employment
hereunder, Employee will execute as of the date of this Agreement that certain
Proprietary and Inventions Agreement attached hereto as Exhibit A and
incorporated herein by reference.
9. Benefits. During the term thereof, Employee shall be
entitled to participate in all benefits provided by PPD and its subsidiaries to
their employees
2
<PAGE>
generally, including but not limited to health insurance, disability insurance
and retirement plans, all of which are currently provided to employees of PPD
and its subsidiaries, 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., in connection with
Employee's duties and performance as an executive employee.
10. Expenses. PPD Pharmaco shall pay all reasonable expenses
of Employee which are directly related to Employee's duties hereunder in
accordance with PPD's policy for reimbursement of employee expenses.
11. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 6 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.
12. 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.
13. Waiver of 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.
14. 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.
15. 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.
16. Applicable Law. This Agreement shall be governed by the
laws of the State of North Carolina.
17. Assignment. Neither party hereto may assign said party's
rights or obligations hereunder without the prior written consent of the other.
3
<PAGE>
18. Notice. Any notice required or permitted hereunder shall
be delivered in person or mailed certified mail, return receipt requested, if to
PPD at PPD's principal office in Wilmington, North Carolina at the address
hereinabove set forth, and if to Employee 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 of PPD, with a copy to the General Counsel of PPD. Either party hereto
may change the notice address provided for herein upon ten days prior written
notice to the other in the manner prescribed for herein.
19. Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement, including but not limited to any breach, or as
to its existence, validity, interpretation, performance or non-performance,
breach or damages, including claims in tort, shall be decided by a single
neutral arbitrator in Wilmington, North Carolina in binding arbitration pursuant
to the commercial Arbitration Rules of the American Arbitration Association then
in effect. The parties to any such arbitration shall be limited to the parties
to this Agreement or any successor thereof. The arbitration shall be conducted
in accordance with the procedural laws of the United States Federal Arbitration
Act, as amended. The written decision of the arbitrator shall be final and
binding, and may be entered and enforced in any court of competent jurisdiction
and each party specifically acknowledges and agrees to waive any right to a jury
trial in any such forum. Each party to the arbitration shall pay its fees and
expenses, unless otherwise determined by the arbitrator.
20. Amendment; Modification. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is sought. No
waiver shall be deemed a continuing waiver or a waiver in respect of any
subsequent breach or deferral, either of a similar or different nature, unless
expressly so stated in writing.
21. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
22. Descriptive Headings: Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
--------------------------------
Name: Fredric N. Eshelman
-----------------------------
Title: Chief Executive Officer
-----------------------------
/s/ Rudy C. Howard
---------------------------- (SEAL)
Rudy C. Howard
5
<PAGE>
5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), made
this 1st day of October, 1997, by and between PPD Pharmaco, Inc., a Texas
corporation with its principal office at 3151 17th Street Extension, Wilmington,
North Carolina 28412 (hereinafter "PPD Pharmaco"), and Patrick C. O'Connor,
MRCP, Ph.D. (hereinafter "Employee").
RECITALS:
A. Employee desires employment upon the terms and conditions
herein stated.
B. PPD Pharmaco desires to employ Employee upon the terms and
conditions herein stated.
C. Employee and PPD Pharmaco desire to embody in writing the
terms and conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. PPD Pharmaco hereby employs Employee and
Employee hereby accepts such employment on a full time basis as Senior Vice
President - Regulatory and Product Development upon the terms and conditions
hereinafter set forth.
2. Term. The term of this Agreement shall be for one year,
beginning January 1, 1998, and ending December 31, 1998, 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 paragraph 9 below,
unless either party gives notice as herein provided to the other of said party's
intent not renew this Agreement not less than 60 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 Pharmaco shall pay to Employee an annual salary of $224,000 for
the initial one-year term hereof.
4. Duties. Employee shall have overall responsibility for and
decision making authority necessary to fulfill the duties of Senior Vice
President - Regulatory and Product Development of PPD Pharmaco. Employee shall
undertake such travel as required to perform the duties prescribed herein.
During the term of this Agreement,
<PAGE>
Employee shall devote substantially all of his working time, attention and
energies to the business of PPD Pharmaco.
5. Working Facilities. PPD Pharmaco 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.
6. 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
in any other business which is developed by PPD Pharmaco 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 Pharmaco are national in scope. For that reason,
the parties agree that a geographical limitation on the foregoing covenant is
not appropriate.
7. Termination. Notwithstanding any other provision of this
Agreement, PPD Pharmaco may terminate Employee's employment hereunder upon the
occurrence of any of the following events:
a. Death of Employee.
b. A determination by the Chief Executive Officer and the
President and Chief Operating Officer of Pharmaceutical Product Development,
Inc. ("PPD"), acting in good faith but made in their sole discretion, that
Employee has failed to substantially perform his duties under this Agreement.
c. A determination by the Chief Executive Officer and the
President and Chief Operating Officer of PPD, acting in good faith but made in
their sole discretion, 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.
8. Disclosure of Information. As a condition of employment
hereunder, Employee will execute as of the date of this Agreement that certain
Proprietary and Inventions Agreement attached hereto as Exhibit A and
incorporated herein by reference.
2
<PAGE>
9. Benefits. During the term thereof, Employee shall be
entitled to participate in all benefits provided by PPD Pharmaco to its
employees generally, including but not limited to health insurance, disability
insurance and retirement plans, all of which are currently provided to employees
of PPD Pharmaco, subject to the eligibility requirements of any plan(s)
establishing same. Employee shall be subject to PPD Pharmaco's policies
applicable to other executive employees of PPD Pharmaco 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 Pharmaco to its
executive employees, including but not limited to issuance of stock options,
cash bonuses, etc., in connection with Employee's duties and performance as an
executive employee.
10. Expenses. PPD Pharmaco shall pay all reasonable expenses
of Employee which are directly related to Employee's duties hereunder in
accordance with PPD Pharmaco's policy for reimbursement of employee expenses.
11. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 6 of this Agreement, PPD Pharmaco 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 Pharmaco 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.
12. 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.
13. Waiver of 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.
14. 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.
15. Benefit. This Agreement shall inure to the benefit of and
be binding upon PPD Pharmaco, its successors and assigns, and Employee, his
heirs, successors, assigns and personal representatives.
16. Applicable Law. This Agreement shall be governed by the
laws of the State of North Carolina.
3
<PAGE>
17. Assignment. Neither party hereto may assign said party's
rights or obligations hereunder without the prior written consent of the other.
18. Notice. Any notice required or permitted hereunder shall
be delivered in person or mailed certified mail, return receipt requested, if to
PPD Pharmaco at PPD Pharmaco's principal office in Wilmington, North Carolina at
the address hereinabove set forth, and if to Employee at PPD Pharmaco's
principal office in Morrisville, North Carolina, and shall be deemed received
when actually received. Any notice from Employee to PPD Pharmaco shall be
addressed to the Chief Executive Officer and to the President and Chief
Operating Officer of PPD, with a copy to the General Counsel of PPD. Either
party hereto may change the notice address provided for herein upon ten days
prior written notice to the other in the manner prescribed for herein.
19. Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement, including but not limited to any breach, or as
to its existence, validity, interpretation, performance or non-performance,
breach or damages, including claims in tort, shall be decided by a single
neutral arbitrator in Wilmington, North Carolina in binding arbitration pursuant
to the commercial Arbitration Rules of the American Arbitration Association then
in effect. The parties to any such arbitration shall be limited to the parties
to this Agreement or any successor thereof. The arbitration shall be conducted
in accordance with the procedural laws of the United States Federal Arbitration
Act, as amended. The written decision of the arbitrator shall be final and
binding, and may be entered and enforced in any court of competent jurisdiction
and each party specifically acknowledges and agrees to waive any right to a jury
trial in any such forum. Each party to the arbitration shall pay its fees and
expenses, unless otherwise determined by the arbitrator.
20. Amendment; Modification. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is sought. No
waiver shall be deemed a continuing waiver or a waiver in respect of any
subsequent breach or deferral, either of a similar or different nature, unless
expressly so stated in writing.
21. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
22. Descriptive Headings: Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PPD PHARMACO, INC.
By: /s/ Fredric N. Eshelman
-------------------------------
Name: Fredric N. Eshelman
-----------------------------
Title: Chief Executive Officer
-----------------------------
/s/ Patrick C. O'Connor, MRCP
------------------------------(SEAL)
Patrick C. O'Connor, MRCP, Ph.D.
5
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"), made
this 1st day of October, 1997, by and between PPD Pharmaco, Inc., a Texas
corporation with its principal office at 3151 17th Street Extension, Wilmington,
North Carolina 28412 (hereinafter "PPD Pharmaco"), and Paul S. Covington, M.D.
(hereinafter "Employee").
RECITALS:
A. Employee desires employment upon the terms and conditions
herein stated.
B. PPD Pharmaco desires to employ Employee upon the terms and
conditions herein stated.
C. Employee and PPD Pharmaco desire to embody in writing the
terms and conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. PPD Pharmaco hereby employs Employee and
Employee hereby accepts such employment on a full time basis as Senior Vice
President - Medical Affairs and Chief Safety Officer upon the terms and
conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for one year,
beginning January 1, 1998, and ending December 31, 1998, 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 paragraph 9 below,
unless either party gives notice as herein provided to the other of said party's
intent not renew this Agreement not less than 60 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 Pharmaco shall pay to Employee an annual salary of $200,000 for
the initial one-year term hereof.
4. Duties. Employee shall have overall responsibility for and
decision making authority necessary to fulfill the duties of Senior Vice
President - Medical Affairs and Chief Safety Officer of PPD Pharmaco. Employee
shall undertake such travel as required to perform the duties prescribed herein.
During the term of this Agreement,
<PAGE>
Employee shall devote substantially all of his working time, attention and
energies to the business of PPD Pharmaco.
5. Working Facilities. PPD Pharmaco 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.
6. 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
in any other business which is developed by PPD Pharmaco 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 Pharmaco are national in scope. For that reason,
the parties agree that a geographical limitation on the foregoing covenant is
not appropriate.
7. Termination. Notwithstanding any other provision of this
Agreement, PPD Pharmaco may terminate Employee's employment hereunder upon the
occurrence of any of the following events:
a. Death of Employee.
b. A determination by the Chief Executive Officer and the
President and Chief Operating Officer of Pharmaceutical Product Development,
Inc. ("PPD"), acting in good faith but made in their sole discretion, that
Employee has failed to substantially perform his duties under this Agreement.
c. A determination by the Chief Executive Officer and the
President and Chief Operating Officer of PPD, acting in good faith but made in
their sole discretion, 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.
8. Disclosure of Information. As a condition of employment
hereunder, Employee will execute as of the date of this Agreement that certain
Proprietary and Inventions Agreement attached hereto as Exhibit A and
incorporated herein by reference.
2
<PAGE>
9. Benefits. During the term thereof, Employee shall be
entitled to participate in all benefits provided by PPD Pharmaco to its
employees generally, including but not limited to health insurance, disability
insurance and retirement plans, all of which are currently provided to employees
of PPD Pharmaco, subject to the eligibility requirements of any plan(s)
establishing same. Employee shall be subject to PPD Pharmaco's policies
applicable to other executive employees of PPD Pharmaco 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 Pharmaco to its
executive employees, including but not limited to issuance of stock options,
cash bonuses, etc., in connection with Employee's duties and performance as an
executive employee.
10. Expenses. PPD Pharmaco shall pay all reasonable expenses
of Employee which are directly related to Employee's duties hereunder in
accordance with PPD Pharmaco's policy for reimbursement of employee expenses.
11. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 6 of this Agreement, PPD Pharmaco 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 Pharmaco 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.
12. 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.
13. Waiver of 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.
14. 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.
15. Benefit. This Agreement shall inure to the benefit of and
be binding upon PPD Pharmaco, its successors and assigns, and Employee, his
heirs, successors, assigns and personal representatives.
16. Applicable Law. This Agreement shall be governed by the
laws of the State of North Carolina.
3
<PAGE>
17. Assignment. Neither party hereto may assign said party's
rights or obligations hereunder without the prior written consent of the other.
18. Notice. Any notice required or permitted hereunder shall
be delivered in person or mailed certified mail, return receipt requested, if to
PPD Pharmaco at PPD Pharmaco's principal office in Wilmington, North Carolina at
the address hereinabove set forth, and if to Employee at PPD Pharmaco's
principal office in Wilmington, North Carolina, and shall be deemed received
when actually received. Any notice from Employee to PPD Pharmaco shall be
addressed to the Chief Executive Officer and to the President and Chief
Operating Officer of PPD, with a copy to the General Counsel of PPD. Either
party hereto may change the notice address provided for herein upon ten days
prior written notice to the other in the manner prescribed for herein.
19. Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement, including but not limited to any breach, or as
to its existence, validity, interpretation, performance or non-performance,
breach or damages, including claims in tort, shall be decided by a single
neutral arbitrator in Wilmington, North Carolina in binding arbitration pursuant
to the commercial Arbitration Rules of the American Arbitration Association then
in effect. The parties to any such arbitration shall be limited to the parties
to this Agreement or any successor thereof. The arbitration shall be conducted
in accordance with the procedural laws of the United States Federal Arbitration
Act, as amended. The written decision of the arbitrator shall be final and
binding, and may be entered and enforced in any court of competent jurisdiction
and each party specifically acknowledges and agrees to waive any right to a jury
trial in any such forum. Each party to the arbitration shall pay its fees and
expenses, unless otherwise determined by the arbitrator.
20. Amendment; Modification. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is sought. No
waiver shall be deemed a continuing waiver or a waiver in respect of any
subsequent breach or deferral, either of a similar or different nature, unless
expressly so stated in writing.
21. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
22. Descriptive Headings: Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PPD PHARMACO, INC.
By: /s/ Fred Eshelman
-----------------------------
Name: Fred Eshelman
---------------------------
Title: CEO
--------------------------
/s/ Paul S. Covington
---------------------------(SEAL)
Paul S. Covington, M.D.
5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement"),
effective this 1st day of January, 1998 by and between PPD Pharmaco, Inc., a
Texas corporation with its principal office at 3151 Seventeenth Street
Extension, Wilmington, North Carolina 28412 (hereinafter "PPD Pharmaco"), and
Mark A. Sirgo (hereinafter "Employee").
RECITALS:
A. Employee desires employment upon the terms and conditions
herein stated.
B. PPD Pharmaco desires to employ Employee upon the terms and
conditions herein stated.
C. Employee and PPD Pharmaco desire to embody in writing the
terms and conditions of such employment in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and considerations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment. PPD Pharmaco hereby employs Employee and
Employee hereby accepts such employment on a full time basis as Senior Vice
President-Business Development upon the terms and conditions hereinafter set
forth.
2. Term. The term of this Agreement shall be for one year,
beginning January 1, 1998, and ending December 31, 1998 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
except for (a) salary adjustments as provided for in paragraph 9 below and (b)
new bonus plans as provided in paragraph 3 below, unless either party gives
notice as herein provided to the other of said party's intent not renew this
Agreement not less than 60 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 Pharmaco shall pay Employee an annual base salary of $180,000 for
the initial one-year term hereof. In addition, during the initial one-year term
of this Agreement Employee shall be entitled to a Quarterly Bonus if the
Businesses (as hereinafter defined) attain a certain level of Authorizations for
the applicable quarter, as set forth in Appendix I attached. Each Quarterly
Bonus to which Employee is entitled shall be paid within thirty (30) days after
its determination. A new bonus plan shall be
<PAGE>
agreed upon by Employee and PPD Pharmaco for each one-year renewal term of this
agreement.
4. Duties. Employee shall have overall responsibility for
business development of (a) the Company and all of its subsidiaries (except
Pharmaco Investments, Inc.), (b) Pharmaco International Ltd. and (c) Leicester
Clinical Research Centre Ltd. (collectively, the "Businesses"). Employee's
duties shall include but not be limited to supervision of the Businesses' sales
and bids and contracts divisions. Employee shall carry out his duties and
responsibilities under the general supervision of Chief Operating Officer of
Pharmaceutical Product Development, Inc. ("PPD"). Employee shall 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 Pharmaco.
5. Working Facilities. PPD Pharmaco 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, including a car phone, home personal computer, printer and fax machine.
6. 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
in any other business which is developed by PPD Pharmaco 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 Pharmaco are national in scope. For that reason,
the parties agree that a geographical limitation on the foregoing covenant is
not appropriate.
7. Termination. Notwithstanding any other provision of this
Agreement, PPD Pharmaco may terminate Employee's employment hereunder upon the
occurrence of any of the following events:
a. Death of Employee.
b. A determination by the Chief Executive Officer and
the President and Chief Operating Officer of PPD, acting in good faith but made
in their sole discretion, that Employee has failed to substantially perform his
duties under this Agreement.
2
<PAGE>
c. A determination by the Chief Executive Officer and
the President and Chief Operating Officer of PPD, acting in good faith but made
in their sole discretion, 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, including failure to meet Quarterly Targets set forth in Appendix I
attached, (iii) has demonstrated gross negligence or willful misconduct in the
execution of his duties, or (iv) has been convicted of a felony.
8. Disclosure of Information. As a condition of employment
hereunder, Employee will execute as of the date of this Agreement that certain
Proprietary and Inventions Agreement attached hereto as Exhibit A and
incorporated herein by reference.
9. Benefits. During the term thereof, Employee shall be
entitled to participate in all benefits provided by PPD Pharmaco to its
employees generally, including but not limited to health insurance, disability
insurance and retirement plans, all of which are currently provided to employees
of PPD Pharmaco, subject to the eligibility requirements of any plan(s)
establishing same. Employee shall be subject to PPD Pharmaco's policies
applicable to other executive employees of PPD Pharmaco 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 Pharmaco to its
executive employees, including but not limited to issuance of stock options,
cash bonuses, etc., to the extent such bonuses, etc., are not otherwise provided
for herein in connection with Employee's duties and performance as an executive
employee. Employee shall be entitled to six weeks paid vacation during each
one-year term hereof.
10. Expenses. PPD Pharmaco shall pay all expenses of Employee
which are directly related to Employee's duties hereunder. In addition, PPD
Pharmaco will pay for a dining club membership, health club membership and
annual professional dues not to exceed $1,500 a year.
11. Remedies. In the event of Employee's actual or threatened
breach of the provisions of paragraph 6 of this Agreement, PPD Pharmaco 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 Pharmaco 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.
12. 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.
3
<PAGE>
13. Waiver of 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.
14. 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.
15. Benefit. This Agreement shall inure to the benefit of and
be binding upon PPD Pharmaco, its successors and assigns, and Employee, his
heirs, successors, assigns and personal representatives.
16. Applicable Law. This Agreement shall be governed by the
laws of the State of North Carolina.
17. Assignment. Neither party hereto may assign said party's
rights or obligations hereunder without the prior written consent of the other.
18. Notice. Any notice required or permitted hereunder shall
be delivered in person or mailed certified mail, return receipt requested, if to
PPD Pharmaco at PPD Pharmaco's principal office in Wilmington, North Carolina at
the address hereinabove set forth, and if to Employee at PPD Pharmaco's
principal office in Morrisville, North Carolina, or to his last known home
address, and shall be deemed received when actually received. Any notice from
Employee to PPD Pharmaco shall be addressed to the Chief Executive Officer and
to the President and Chief Operating Officer of PPD, with a copy to the General
Counsel of PPD. Either party hereto may change the notice address provided for
herein upon ten (10) days prior written notice to the other in the manner
prescribed herein.
19. Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement, including but not limited to any breach of
this Agreement, or its existence, validity, interpretation, performance or
non-performance, or damages hereunder, including claims in tort, shall be
decided by a single neutral arbitrator in Wilmington, North Carolina in binding
arbitration pursuant to the commercial Arbitration Rules of the American
Arbitration Association then in effect. The parties to any such arbitration
shall be limited to the parties to this Agreement or any successor thereof. The
arbitration shall be conducted in accordance with the procedural laws of the
United States Federal Arbitration Act, as amended. The written decision of the
arbitrator shall be final and binding, and may be entered and enforced in any
court of competent jurisdiction and each party specifically acknowledges and
agrees to waive any right to a jury trial in any such forum. Each party to the
arbitration shall pay its fees and expenses, unless otherwise determined by the
arbitrator.
4
<PAGE>
20. Amendment; Modification. No amendment or modification of
this Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by party against
whom enforcement of such amendment, modification or waiver is sought.
21. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Agreement.
22. Descriptive Headings: Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date first hereinabove set forth.
PPD PHARMACO, INC.
By: /s/ Fred N. Eshelman
--------------------------------
Name: Fred N. Eshelman
-----------------------------
Title: Chief Executive Officer
----------------------------
/s/ Mark A. Sirgo
-----------------------------(SEAL)
Mark A. Sirgo
<PAGE>
APPENDIX I
A. Definitions
"Authorizations" means that portion of the face amount of all client
contracts and amendments thereto, letters of intent and client verbal
commitments included in backlog for the Businessess in 1998. Authorizations
attained by the Businesses for each quarter shall be determined by PPD's Finance
Department, acting in good faith after consultation with appropriate senior
representatives of the Company's Global Business Development and Global
Operations divisions, but in its sole discretion.
"Quarterly Bonus" means the bonus to be paid to Employee based upon the
Quarterly Target attained by the Businesses for the applicable quarter.
"Quarterly Target" means the level of Authorizations attained by the
Businesses for the applicable quarter which entitles Employee to a Quarterly
Bonus.
B. Quarterly Bonus Schedule
1. Q1 '98 (January 1, 1998-March 31, 1998)
Quarterly Target(1) Quarterly Bonus
- ------------------- ---------------
At least 73,842 but less than 77,945 $ 6,250.00
At least 77,945 but less than 82,047 12,500.00
At least 82,047 but less than 86,149 18,750.00
At least 86,149 but less than 90,252 22,500.00
At least 90,252 but less than 94,354 25,000.00
At least 94,354 but less than 98,456 31,250.00
At least 98,456 but less than 102,559 37,500.00
102,559 or more 43,750.00
2. Q2 '98 (April 1, 1998-June 30, 1998)
Quarterly Target(1) Quarterly Bonus
- ------------------- ---------------
At least 80,332 but less than 84,795 $ 6,250.00
At least 84,795 but less than 89,258 12,500.00
At least 89,258 but less than 93,721 18,750.00
At least 93,721 but less than 98,184 22,500.00
At least 98,184 but less than 102,647 25,000.00
At least 102,647 but less than 107,110 31,250.00
At least 107,110 but less than 111,573 37,500.00
111,573 or more 43,750.00
<PAGE>
3. Q3 '98 (July 1, 1998-September 30, 1998)
Quarterly Target(1) Quarterly Bonus
- ------------------- ---------------
At least 87,229 but less than 92,075 $ 6,250.00
At least 92,075 but less than 96,921 12,500.00
At least 96,921 but less than 101,767 18,750.00
At least 101,767 but less than 106,613 22,500.00
At least 106,613 but less than 111,459 25,000.00
At least 111,459 but less than 116,305 31,250.00
At least 116,305 but less than 121,151 37,500.00
121,151 or more 43,750.00
4. Q4 '98 (October 1, 1998-December 31, 1998)
Quarterly Target(1) Quarterly Bonus
- ------------------- ---------------
At least 94,657 but less than 99,915 $ 6,250.00
At least 99,915 but less than 105,174 12,500.00
At least 105,174 but less than 110,433 18,750.00
At least 110,433 but less than 115,691 22,500.00
At least 115,691 but less than 120,950 25,000.00
At least 120,950 but less than 126,209 31,250.00
At least 126,209 but less than 131,468 37,500.00
131,468 or more 43,750.00
(1) All Quarterly Target figures are expressed in thousands of dollars.
<PAGE>
AMENDMENT TO EMPLOYEE AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, made this 2nd day of February,
1998, by and between Pharmaceutical Product Development, Inc., a North Carolina
corporation ("PPD") and Fred B. Davenport, Jr. ("Employee"), amends that certain
Employment Agreement dated September 26, 1996 between PPD and Employee (the
"Employment Agreement").
WHEREAS, concurrent with the execution of this Amendment Employee has
entered into a Severance Agreement with the Company that provides for benefits
similar to those provided to Employee under Section 20 of the Employment
Agreement;
WHEREAS, Employee is required to agree to enter into this Amendment
deleting the provisions of Section 20 of the Employment Agreement in order to
receive the benefits provided by the Severance Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree that Section 20 of the Employment Agreement
is deleted effective the date hereof.
The Employment Agreement, as amended herein, shall continue in full
force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------------
Name: Fredric N. Eshelman
Title: Chief Executive Officer
/s/ Fred B. Davenport, Jr.
---------------------------(SEAL)
Fred B. Davenport, Jr.
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Fredric N. Eshelman
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Fredric N. Eshelman
6814 Towles Road
---------------------
Wilmington, NC 28409
---------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
3
<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fred B. Davenport, Jr.
------------------------------
Title: Vice President Legal
---------------------------
EMPLOYEE
/s/ Fredric N. Eshelman
------------------------- (SEAL)
Name: Fredric N. Eshelman
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Thomas D'Alonzo
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Thomas D'Alonzo
-----------------
2608 Tatton Drive
-----------------
Raleigh, NC 27608
-----------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
3
<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------
Title: CEO
EMPLOYEE
/s/ Thomas D'Alonzo
---------------------(SEAL)
Name: Thomas D'Alonzo
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Rudy C. Howard
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
<PAGE>
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twenty-four (24) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of two years after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock options granted to Employee in exchange for Employee's
PPD non-qualified stock options to which this subsection applies.
2
<PAGE>
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Rudy C. Howard
322 Windchase Lane
------------------
Wilmington NC 28409
-------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces in its entirety all prior agreements and
representations, expressed, implied, oral or otherwise, made by PPD to or with
Employee.
3
<PAGE>
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
---------------------------
Title: Chief Executive Officer
------------------------
EMPLOYEE
/s/ Rudy C. Howard
-------------------------(SEAL)
Name: Rudy C. Howard
4
<PAGE>
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Fred B. Davenport, Jr.
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twenty-four (24) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of two years after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Fred B. Davenport, Jr.
6612 Sedgewood Road
-------------------
Wilmington NC 28403
--------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
3
<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------
Title: CEO
--------------------
EMPLOYEE
/s/ Fred B. Davenport, Jr.
--------------------------(SEAL)
Name: Fred B. Davenport, Jr.
4
<PAGE>
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Joseph H. Highland
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Joseph H. Highland
68 Colfax Road
------------------
Skillman, NJ 08558
------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
3
<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric Eshelman
-----------------------------
Title: CEO
EMPLOYEE
/s/ Joseph H. Highland
------------------------(SEAL)
Name: Joseph H. Highland
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Joshua S. Baker
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
<PAGE>
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock options granted to Employee in exchange for Employee's
PPD non-qualified stock options to which this subsection applies.
2
<PAGE>
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Joshua S. Baker
3304 Arthur Miami Road
----------------------
Hillsboro, NC 27278
----------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces in its entirety all prior agreements and
representations, expressed, implied, oral or otherwise, made by PPD to or with
Employee.
3
<PAGE>
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------
Title: CEO
EMPLOYEE
/s/ Joshua s. Baker
-------------------------(SEAL)
Name: Joshua S. Baker
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Patrick C. O'Connor
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Patrick C. O'Connor
/s/ Patrick C. O'Connor
-----------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
3
<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
---------------------------
Title: CEO
EMPLOYEE
/s/ Patrick C. O'Connor
-----------------------(SEAL)
Name: Patrick C. O'Connor
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Paul S. Covington
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
<PAGE>
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock
2
<PAGE>
options granted to Employee in exchange for Employee's PPD non-qualified stock
options to which this subsection applies.
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Paul S. Covington
3116 Braemar Lane
--------------------------
Wilmington, NC 28409-8569
--------------------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces
3
<PAGE>
in its entirety all prior agreements and representations, expressed, implied,
oral or otherwise, made by PPD to or with Employee.
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------
Title: CEO
EMPLOYEE
/s/ Paul S. Covington
---------------------(SEAL)
Name: Paul S. Covington
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and Mark A.Sirgo ("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
<PAGE>
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock options granted to Employee in exchange for Employee's
PPD non-qualified stock options to which this subsection applies.
2
<PAGE>
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: Mark A. Sirgo
/s/ Mark A. Sirgo
-----------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces in its entirety all prior agreements and
representations, expressed, implied, oral or otherwise, made by PPD to or with
Employee.
3
<PAGE>
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: /s/ Fredric N. Eshelman
------------------------
Title: CEO
EMPLOYEE
/s/ Mark A. Sirgo
-----------------(SEAL)
Name: Mark A. Sirgo
SEVERANCE AGREEMENT
THIS AGREEMENT, made this 2nd day of February, 1998, by and between
Pharmaceutical Product Development, Inc. ("PPD") and William Neilson
("Employee").
WHEREAS, Employee is a valued employee of PPD and in order to induce
Employee to remain in the employ of PPD, PPD desires to provide the severance
benefits hereinafter described in the event of a "Change in Control", as
hereinafter defined, of PPD.
NOW, THEREFORE, it is agreed as follows:
1. Definitions
a. "Change in Control" means a change of control of a nature
that would be required to be reported in response to Item 6(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 50% or more of the combined voting
power of PPD's then outstanding securities.
b. "Constructive Termination" means a termination of
Employee's employment by PPD during the Covered Period initiated by Employee
after (i) a substantial diminution or alteration in the duties of Employee, (ii)
a reduction by PPD in Employee's base salary in effect on the date of the Change
in Control, or (iii) the relocation of Employee's primary work location to a
location that is more than twenty-five (25) miles from Employee's primary work
location prior to the Change in Control. Constructive Termination specifically
does not include termination of Employee by reason of death, Disability or
retirement at or after age 65. Employee shall give PPD written notice of a
Constructive Termination, which notice shall provide a brief description of the
circumstances which Employee asserts gives rise to a right of Constructive
Termination, and PPD shall have ten (10) days from receipt of said notice within
which to remedy said circumstances.
c. "Covered Period" means the time period commencing on the
date of and coincident with a Change of Control and ending one year thereafter.
d. "Disability" means the inability of Employee to perform his
assigned duties for PPD for a period of three (3) months due to Employee's
physical or mental illness as determined by a reputable medical doctor.
e. "PPD" means Pharmaceutical Product Development, Inc. and
all of its subsidiaries and affiliated entities.
<PAGE>
f. "Termination for Cause" means (i) an act or acts involving
fraud, embezzlement or theft from PPD, (ii) Employee's willful and repeated
failure to follow directions of the Board of Directors that continues for at
least ten (10) days following written notice of the Board of Directors of such
failure to follow directions, or (iii) termination for cause as defined in and
made pursuant to a then effective employment agreement, if any, between Employee
and PPD.
2. Compensation Upon Change of Control. If during the Covered Period
(i) PPD terminates Employee's employment for reason other than Termination for
Cause or (ii) Employee's employment is terminated by reason of Constructive
Termination, Employee shall be entitled to the following compensation and
benefits:
a. PPD shall pay Employee a lump sum equal to Employee's W-2
compensation for the twelve (12) months ending on the last day of the month
preceding the month of Employee's termination, said sum to be paid within ten
(10) days after Employee's termination of employment.
b. PPD shall pay Employee any bonus or deferred compensation
(whether in the form of cash, stock or otherwise) accrued but unpaid as of
Employee's termination, said sum to be paid within ten (10) days after
Employee's termination of employment.
c. For a period of one year after Employee's termination of
employment with PPD, PPD shall continue to pay for and provide existing employee
welfare benefits which Employee is receiving as of the date of termination of
employment, including life insurance, health, medical, dental, vision and
wellness, accidental death and dismemberment and disability benefits; provided,
however, that PPD's obligations under this clause shall terminate from the date
that Employee first becomes eligible after termination of employment with PPD
for similar coverage under another employer's plan.
d. Notwithstanding anything to the contrary in any award
agreement for non-qualified stock options, (i) all unvested shares underlying
PPD non-qualified stock options granted more than six months prior to the date
of Employee's termination shall become fully vested as of the date of Employee's
termination, and (ii) Employee shall continue to be treated under each award
agreement as if he was an employee of PPD until the first to occur of (x) the
third anniversary of Employee's termination of employment, or (y) the expiration
of the exercise period provided for therein; provided, however, in the event of
Employee's death or his disability (as disability is defined in the award
agreement) after the date of Employee's termination of employment hereunder, the
time for exercise after death or such disability prescribed in the award
agreement shall apply. The provisions of this subsection shall also apply to any
and all substitute stock options granted to Employee in exchange for Employee's
PPD non-qualified stock options to which this subsection applies.
2
<PAGE>
3. Miscellaneous.
a. PPD will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of PPD, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that PPD would be required
to perform it if no succession had taken place.
b. This Agreement shall inure to the benefit of and be
enforceable by Employee's personal or legal representatives, executives,
administrators, successors, heirs, distributees, devisees and legatees.
c. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
given (i) by certified mail, return receipt requested, postage prepaid, or (ii)
by recognized overnight carrier, and shall be deemed received when actually
received. Notices shall be addressed as follows:
If to PPD: Pharmaceutical Product Development, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: Chief Executive Officer
If to Employee: William Neilson
15 Mermaid Street
-----------------
RYK East Sags Ex
-----------------
TN317ET-UK
-----------------
Either party hereto may change the notice address by giving notice thereof in
the same manner as provided for herein.
d. No waiver by either party hereto at any time of any breach
by the other party hereto of, or compliance with, any provision or condition of
this Agreement to be performed by such other party shall be deemed a subsequent
waiver of the same or similar provisions or conditions.
e. No agreements or representations, oral or otherwise,
expressed or implied, with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this agreement, and this
Agreement supersedes and replaces in its entirety all prior agreements and
representations, expressed, implied, oral or otherwise, made by PPD to or with
Employee.
3
<PAGE>
f. This Agreement shall be governed by and interpreted under
the laws of the State of North Carolina.
g. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
h. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
i. All legal expenses incurred by Employee in the successful
enforcement of any of the terms of this Agreement shall be paid by PPD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first hereinabove set forth.
PHARMACEUTICAL PRODUCT
DEVELOPMENT, INC.
By: Fredric N. Eshelman
-----------------------
Title: Chief Executive Officer
EMPLOYEE
/s/ William Neilson
-------------------(SEAL)
Name: William Neilson
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
EMPLOYEE STOCK PURCHASE PLAN
Instrument of Amendment
THIS INSTRUMENT OF AMENDMENT (the "Instrument") is executed this 2nd
day of March, 1998 by PHARMACEUTICAL PRODUCT DEVELOPMENT, INC., a North Carolina
corporation (the "Company").
Statement of Purpose
The Company sponsors the Pharmaceutical Product Development, Inc.
Employee Stock Purchase Plan (the "Plan"). The Company desires to amend the Plan
to establish certain limits on the purchase of Company stock under the Plan,
especially in connection with the availability of cash contributions in addition
to payroll deductions. The amendments set forth herein have been approved by the
Company's Board of Directors in accordance with Section 7.3 of the Plan.
NOW, THEREFORE, the Plan is hereby amended effective as of the date
hereof as follows:
1. The following subparagraph (3) is added to the end of Section 3.2(b)
of the Plan:
"(3) In no event may the total number of shares of Common
Stock that may be purchased by Participants for any Offering Period
exceed the lesser of (A) an amount that the Board of Directors may, in
its sole and exclusive discretion, establish from time to time or (B)
the total remaining shares available pursuant to Section 3.1. In the
event that the total number of shares of Common Stock to be purchased
for an Offering Period would otherwise exceed the limit set forth in
the preceding sentence, the Committee shall first reduce shares to be
purchased by non-payroll deduction additional cash contributions for
such Offering Period proportionately among all Participants who have
made such additional cash contributions; and if such limit would still
be exceeded, the Committee shall then reduce shares to be purchased by
payroll deductions for such Offering Period proportionately among all
Participants who have made such payroll deductions."
2. The following additional sentence is added to the end of Section 4.1
of the Plan:
"Notwithstanding the foregoing, (i) for the Offering Period beginning
on January 1, 1998, the maximum amount of such additional contributions
that may be made by any Participant shall not exceed five thousand
dollars ($5,000) and (ii) no such additional contributions shall be
permitted for Offering Periods beginning on or after July 1, 1998."
3. Except as expressly or by necessary implication amended hereby, the
Plan shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be
executed by its duly authorized officer as of the day and year first above
written.
PHARMACEUTICAL PRODUCT DEVELOPMENT, INC.
By: /s/ Fred Eshelman
--------------------------------
Name Fred Eshelman
--------------------------
Title: CEO
--------------------------
2
<PAGE>
Exhibit 21
Pharmaceutical Product Development, Inc., and Subsidiaries
Subsidiaries
The subsidiaries of Pharmaceutical Product Development, Inc., as of February 27,
1998, are as follows:
Jurisdiction of Incorporation
or
Name of Subsidiary Organized in
------------------------------------------- -----------------------------
1. Applied Bioscience International Inc. Delaware
2. PPD Pharmaco, Inc. Texas
3. Pharmaco International Holdings, Inc. Delaware
4. Pharmaco Investments Inc. Delaware
5. PPD Pharmaco International SNC France
6. Pharma Contracts Scandinavia AB Sweden
7. PPD Pharmaco Canada, Ltd. Canada
8. PPD Do Brazil-Suporte Brazil
9. Q & Q Brazil
10. Pharmaco International Holdings GmbH Germany
11. Pharmaco GmbH Germany
12. Pharmaco International Sp.zo.o Poland
13. PI Praha, s.r.o. Czech Republic
14. Trilife GmbH & Co. KG Germany
15. Safe-Trade 41 (Pty) Ltd. South Africa
16. PPD UK Holdings Ltd. United Kingdom
17. Pharmaco International 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. Chelmsford Clinical trials Unit Ltd. (formerly
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. PPD Pharmaco Pty Limited Australia
30. PPD Pharmaco SRL Italy
31. PPD Spain, S.L. Spain
32. Intek Labs, Inc. North Carolina
33. Cambridge Applied Nutrition Toxicology and
Bioscience Limited United Kingdom
34. Clinical Technology Centre (International)
Limited United Kingdom
35. Technical Assessment Systems, Inc. Maryland
36. Belmont Research, Inc. Massachusetts
37. PPD Discovery, Inc. North Carolina
38. Target Discovery, Inc. North Carolina
39. SARCO, Inc. Delaware
<PAGE>
<TABLE>
<S> <C>
Subsidiaries 1, 32, 36 and 37 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, 15, 29, 30, and 31 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, 22 and 23 are wholly owned subsidiaries of Subsidiary 16.
Subsidiary 35 is a wholly owned subsidiary of Subsidiary 28.
Subsidiaries 33, and 34 are wholly owned subsidiaries of Subsidiary 17.
Subsidiaries 38 and 39 are wholly owned subsidiaries of Subsidiary 37.
Subsidiary 28 does business under the trade name ENVIRON.
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Pharmaceutical Product Development, Inc. and its subsidiaries of Form S-8 (File
No. 333-20925) of our reports dated February 5, 1998, except as to the
information presented in Note 20 for which the date is February 27, 1998, on our
audits of the consolidated financial statements and financial statement
schedules of Pharmaceutical Product Development, Inc. and its subsidiaries as of
December 31, 1997 and 1996 and for the years then ended, which report is
included in this annual report on Form 10-K. We also consent to the reference to
our firm under the caption selected financial data.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
March 20, 1998
EXHIBIT 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation or our
report dated February 22, 1996, included in this Form 10-K into the Company's
previously filed Registration Statement on Form S-8, File No.
333-20925.
/s/ Arthur Andersen LLP
Washington, D.C.
March 20, 1998
<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-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 15,879
<SECURITIES> 7,994
<RECEIVABLES> 103,069
<ALLOWANCES> 1,515
<INVENTORY> 0
<CURRENT-ASSETS> 136,497
<PP&E> 83,960
<DEPRECIATION> 49,058
<TOTAL-ASSETS> 197,047
<CURRENT-LIABILITIES> 66,547
<BONDS> 0
0
0
<COMMON> 2,295
<OTHER-SE> 125,310
<TOTAL-LIABILITY-AND-EQUITY> 197,047
<SALES> 0
<TOTAL-REVENUES> 235,272
<CGS> 0
<TOTAL-COSTS> 130,199
<OTHER-EXPENSES> 90,861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478
<INCOME-PRETAX> 15,676
<INCOME-TAX> 6,074
<INCOME-CONTINUING> 9,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,602
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
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
